U-turn on Doing Business: time to withdraw from the knowledge bank?

10 July 2009

The World Bank Group recently admitted that crucial assumptions of its Doing Business report were misguided, and faces a fundamental critique of its knowledge role.

In April the World Bank’s private sector lending arm, the International Finance Corporation (IFC), executed a massive u-turn, by ditching its ’employing workers indicator’ and promising to review its ‘paying taxes indicator’ for its flagship Doing Business annual report. The report ranks countries according to how easy the IFC judges it is for companies to operate. It has been criticised by trade unions (see Update 60, 57, 53) and the Bank’s internal evaluation unit (see Update 62) for encouraging countries to adopt controversial policies, such as weakening labour market regulations and social security programmes.

In a statement posted on its Doing business website in April, the IFC said that they would now, contrary to their previous system, “accord favourable scores to worker protection policies that comply with the letter and spirit of the relevant International Labour Organisation (ILO) Conventions, recognizing that well-designed worker protections are of benefit to the society as a whole.”

Furthermore, the employing workers indicator “does not represent Bank policy and should not be used as a basis for policy advice or in any country programme documents”. It will be “removed as a guidepost in the Country Policy and Institutional Assessments (CPIA).” The CPIA, which controversially assesses countries’ governance and policies (see Update 52) is a critical feature of Bank planning and budgeting decisions, particularly for the allocation of IDA funds to the poorest countries. However, in early July, the unchanged methodology and indicator were still on the Doing Business website.

The International Trade Union Confederation said it was pleased that “the World Bank is turning the page on a one-sided deregulatory view on labour issues and proposing to adopt a more balanced approach.”

According to the IFC, “A working group including representatives from the ILO, as the international standard setting body, trade unions, businesses, academics and legal experts” will help devise a new ‘worker protection indicator’, as well as re-examine the ‘paying taxes indicator’.

The paying taxes indicator, which the IFC developed with multinational accounting firm Price Waterhouse Coopers (PWC), has been described by Richard Murphy of Tax Research UK as “fundamentally flawed, and horribly biased to value-added tax – which is deeply regressive and wholly unsuitable for the uses PWC propose for it through the World Bank.”

Bank research under fire again

In a recent World Bank publication assessing the Bank’s World Development Report (WDR), Princeton economics professor Angus Deaton produces a withering critique of the Bank’s role as a global provider of research and knowledge services. In 2007, Deaton chaired a panel of academic experts that found that key Bank research was “not remotely reliable” (see Update 54).

Deaton argues that WDRs are expensive, and that evidence that they influenced opinion or guided development strategies is “notably thin”. “The WDRs have not had a distinguished history of handling empirical evidence; too often bad – or simply incredible – evidence is presented along with useful and interesting new findings.”

Though he does support the Bank’s role as a collector and measurer of data, he is scathing about the declining quality of staff in the Bank’s research department. He “suspects” that “the decline in the attractiveness of being a Bank researcher results from a growing scepticism that the Bank is doing much for international development and about whether aid, particularly as dispensed by the Bank, does much for economic growth and the reduction of poverty.”

He is sceptical about the value of ‘expertise’ supplied by the Bank, arguing that it can potentially undercut the development process which is based on ownership, accountability and participation. If this is true, he suggests that “the development expertise that is the centre of the World Bank’s mission may not exist in useful form or, at the least, needs to be fundamentally rethought and restricted.”

IEG tries to assess the intangible

This fundamental critique seems to have been lost on the Independent Evaluation Group (IEG), an arms-length Bank evaluation unit, which recently evaluated the IFC’s advisory services (AS, see Update 62).

Despite the “often intangible nature of knowledge transmission,” the IEG somehow managed to put precise numbers on the success of these intangible services, arguing that AS projects between 2006-2008 gained an “an overall development effectiveness success rate of 70 percent,” though Latin America and the Caribbean were weaker and “evaluated global projects also did not perform well.”

IFC AS “have been growing rapidly, with an active portfolio approaching $1 billion and employing 1,262 staff, a sevenfold increase in the last seven years.” They note that “AS staff now make up the majority of the Corporation’s presence in the field in developing countries.”

The IEG’s main criticism was that IFC AS lacked a strategic framework, and the “rapid growth of AS has happened in a largely unchecked manner.”

The IEG paper also contained the annual review of the overall IFC portfolio. As with past reviews (see Update 61, 57) it argued that, while development results are acceptable overall, “performance lagged considerably in East Asia and the Pacific, and in the mainly low-income Middle East and North Africa, and Sub-Saharan Africa”. Barely half of the projects in these regions met “specified benchmarks and standards”, and “oil, gas, mining, and chemicals projects achieved relatively poor ratings.”