In a major revelation, Paul Romer, the chief economist of World Bank apologized to Chile for changes to the Ease of Doing reports methodology which conveyed the wrong impression of the business environment under the socialist regime of President Michelle Bachelet. Chile’s overall ranking fluctuated between 25th and 57th between the capitalist and socialist regimes. Chile scored poorly on a newly introduced index in paying taxes which resulted in slipping of their ranking from 33rd in the world to 120th for that index.
According to Romer, Chile’s drop was driven almost entirely by adding new metrics to the index and not by changes to standing measures of Chile’s Business Environment. The World Bank Chief Economist announced that he will correct and recalculate national ranking of ease of doing business report going back to at least four years. In a rare acknowledgement, the bank conceded that this may be due to the political motivation of the World Bank staff.
Justin Sandefur and Divyanshi Wadhwa of the Centre for Global Development have re-created rankings using a consistent sample of countries and methodology from 2006 through 2018. Here is what Chile index look like:
The Socialist government of Chile had introduced a progressive tax and labour reforms and the dip in the Ease of Doing Business Report was also used by the opposition led by billionaire Sebastian Pinera who is a follower of free-market policies to show business suffered and investments hit. President Bachelet lost the election which was also fought on promises to boost investment. The Chilian government said the actions were immoral and called for a complete investigation from the World Bank. The President also tweeted “Rankings provided by international institutions should be trustworthy because they have an impact on a country’s’ investment and development.”
This is not the first time the Ease of Doing Business and their methodologies are being questioned. World Bank appointed an independent review panel under the chairmanship of South African Planning Minister Mr Trevor Manuel after the report was criticized by countries like India and China after the 2013 report. The panel recommended reforms to the report including doing away with the ranking of countries and recommended the change of name from Doing Business to Doing Business: Understanding Regulations as the former gives an impression of measuring business environment rather than business regulation. The ‘hiring and firing index’ and the indicators on labour market regulation was exempted from the ranking since 2011 following criticism from International Trade Union Confederation.
On the other hand, the government in India was jubilant after jumping 30 points in the 2018 doing business report committing itself to further reforms. In a short time, the country witnessed industrial disasters, fire tragedies which some attribute to changes in regulatory mechanisms and putting the onus on the responsibility back to the business. If the World Bank recreates the ranking based on the consistant index, there could be the notable impact on India’s ranking too.
The Ease of Doing business has been the subject of criticism from civil society and trade unions as it promotes private business over other rights. The World Bank legal unit has criticized the ‘embedded policy preferences’ under indicators in the ease of doing business indicators which favours the business. The legal unit has also criticized the methodology and has accused the report of having biases ignoring the positive effect of regulations. The image of the economy articulated in the Doing Business report thus represents regulation as a burden on business and a constraint on economic growth, which should be reduced to a minimum.
The recent events once again point out to the limitation of the global indexing and benchmarking as it gets associated with political values and policy reform preferences. Ease of Doing Business report is one such way of influencing policies of government different from loan conditionalities or through technical advice the traditional methods by which International Financial Institutions influence policy. The influence which is being exerted by the Ease of Doing business becomes clear as it has recorded 3,188 business related reforms since it started 15 years ago. The Ease of Doing Business report 2018 observed that governments in 119 countries carried out 264 reforms, just in 2016-17, to attract investment and become more competitive.
The Ease of Doing Business Index and Doing Business Report has become a tool to promote private business and deregulation of all kinds to move towards economic liberalization and used as a means to assert the authority of the World Bank Group within a neoliberal policy paradigm. It will be in the best interest of all to look for national policy alternatives rather than fall in line with the World Bank vision of society. It is not a matter for one more independent panel but for dismantling of the index altogether.