Doing business report rankings

Sponsors: CAFOD, ITUC, Bretton Woods Project, Centre of Concern

This session brought together experts from labour, development and business organizations to highlight issues and perspectives that need to be part of the review of these influential rankings.

Panelists: Bin Han (Alternate WB Executive Director for China), Peter Bakvis (ITUC), Geoffrey Chongo (Jesuit Center for Theological Reflection, Zambia), Augusto Lopez-Claros (IFC / World Bank)

Facilitator: Phil Inman, The Guardian

Presentations

Peter Bakvis, ITUC

• DB may have been a product of its time, but it very out of date; it had an explicit reference to “deregulation experience” and “one-size-fits-all”
• Doing Business was based on a myth of linear relationships between deregulation and jobs; IEG also found that the rankings are badly designed; even WDR finds this is not the case
• Time magazine analysis of G20 compared DB scores with growth; you can see that high-growth countries have low DB scores
• We had a consultative group committee to review employing workers and recommended that they pursue the design of an indicator on good labour practice but the Bank did not follow-up
• Now the WDR has the basics of the right approach, but it is still questionable whether we need a DBR type document at all

Bin Han, World Bank alternate ED from China

• I agree largely with Peter’s analysis; the 10 year point is the right time for a review, and this is likely to be a turning point; “celebration” is not the term a considerable number of shareholders would like to use for the DBR 10th year
• there are three main questions:
  • the use of ranking numbers is problematic: is this done appropriately;
  • development impact of the report – policy reform to get higher rankings but does it really generate growth and higher poverty reduction;
  • Bank mandate – can cross-country comparison provide appropriate incentives, especially in a multilateral institution?
• The Chinese conclusion is straightforward: the report has used wrong methodology, failed to reflect facts, misled readers. The questionable quality of the report has ruined the Bank’s reputation.
• The board needs to think carefully now: it should not divide members, it needs to maintain the cooperative nature of the Bank
• Expectations of the review: evidence-based; includes a counter-factual analysis about the business environment without the DBR; provide a number of alternatives to the rankings

Geoffrey Chongo, Jesuit Centre for Theological Reflection, Zambia

• Copper exports are a key part of economic activity; we don’t have enough domestic capital so this prompted turn to foreign investors; so government aimed at raising DB ranking to attract capital
• DBR ranking now at 84/183; we have seen red tape cut and business registration simplified; economy has been growing at 6% and the Government able to issue a sovereign bond; the Government even made the ranking rise an election issue
• But at micro level, impacts are questionable, particularly the number of jobs and quality of job
• Paying taxes indicator: Zambia ranks 47th; effective corporate tax rate is16% whilst the PAYE effective rate is 25% and informal sector effective tax rate is even higher; this gives too much attention to big businesses
• Getting access to credit indicator – Zambia ranks 8th; focuses on collateral and bankruptcy laws and access to credit information; yet small businesses still cite access to credit as their biggest challenge, more than 90% of SMEs lack access to credit; interest rates above 25%;
• the Government is obsessed with getting DBR ranking below 50, diverting resources from SME development
• What should we focus on? Not the interests of banks or big business; the focus should be on market access/information, SMEs
• Protesting workers against mistreatment at work were shot at; this is an example of the bad business environment

Augusto Lopez-Claros, IFC

• I used to manage the global competitiveness report at World Economic Forum (WFE) – we have been sensitive to concerns of unions related to employing workers indicator, bad balance of employers interest and social protection interest; the Employing Workers Indicator (EWI) is no longer in the rankings, this is the third year it has been like this now
• The Human Development Network (HDN)team is doing research project with ILO to come up with Worker Protection Measures indicator, this will provide the balance needed; we look for help on this
• We have not called Georgia or Egypt as the top business environment in the world – they were called top improvers, not the same as suggesting that they had top business environment
• 20 countries at the top of the rankings show you that they have not mindlessly deregulated, the government and the business community have sometimes come together to make sensible rules; top countries like Singapore and New Zealand have adequate regulation
• Robust studies in peer-reviewed journals link corruption, informalities, rigidities/distortions and lack of ease in starting a business; we have gone from 40 countries with less than 20 days to 105 countries; this ease of business entry does matter
• Likewise studies show the reduction of container export delays boosts trade/exports
• We are doing research now on the link between DB rankings and growth; distance to the frontier metric (tracks improvements in the DBR) positively correlated with average GDP growth
• Reputational risk has been raised many time – leading academics say DB is the World Bank at its best
• Counterfactual – we have seen a process of convergence in business practices towards best practices – this is encouraging the adoption of better business practices in countries
• Getting policies right to reduce poverty is a very complex undertaking – Public Financial Management (PFM) and macro-stability is very important for growth – Zambia can issue a bond because of good macro-management; other things are also important (education, ICT); rules for the private sector are only 1 factor that is needed to promote economic development

Bin Han – agree we need to improve business environment, but it is the method and approach is important – the ranking methodology is key; WB aims to become a solutions bank for clients

Discussion

Antonio Gambini, Belgium – the principle behind the Paying Taxes Indictor (PTI) is misguided, EWI starts with principle that lower protection is better;

Anthony Baah, Ghana – what is the link between Doing Business and mandate of poverty reduction?

Sasanka Thalankiri, Oxfam, US – the importance of inclusivity as part of growth policy, need to be tracking inequality? Are you going to be looking at this in terms of business rankings and fighting poverty?

Peter Bakvis – PTI is a problem we raised, now they have put a floor; but look at the health care issue – Canada get a worse ranking because of socialised medicine though it costs less for businesses in the long run. Look at Georgia – massive deregulation elimination of worker health and safety rules. Best scores regionally are shocking examples of bad practice on labour and rights. The IEG study did not show the same results correlating growth with DBR, independent economists did not find the results either

Geoffrey Chongo- We might have growth but poverty is still high; for example mining companies had a profit of $5 billion but only paid $500 million in tax. Something needs to be done on other indicators like done on EWI

Augusto – EWI is out of the DBR now for 3rd consecutive years, but can’t commit to it being out permanently.

PTI – I find myself in agreement with the criticisms in the design of the indicator because of the problem of the lack of limit; so we introduced a floor on the total tax rate, we did it in the last year; some countries have such high tax rates that it pushes businesses underground; we had a tax consultative group that recommended this floor; last year 55 countries were under the threshold. We looked at lots of empirical studies – one study shows causation on business creation and employment creation – this pushes greater formality and more tax base; this also shows in studies in India and Portugal. We are thinking of alternative ways of presenting the data to provide more meaning and context – progress with respect to yourself will be further emphasised

Helen, University of Tasmania, Australia – Protecting Workers Indicator (PWI) – HDN/ILO working group – what are the possibilities given lack of progress, is there support in the Bank?

Jessica Evans, HRW – IFC recognises the guiding principles and regulation to protect human rights. How will this get incorporated?

Peter Bakvis – at WPI we had 2 preliminary discussions, I critiqued a paper; but the ToR for work with ILO has some serious problems with it for example lack of reference to ILO standards; last year IMF rejected DB data bank when it wanted a labour regulations database because it is too subjective (calls on corporate law firms to do pro bono work to give submissions)

Geoffrey Chongo – in the review please take in account the views of people; good intentions are not enough we need to look at impact.