The Doing Business Rankings: Fix Them, Don’t Scrap Them

The World Bank just wrapped up a public consultation on the Doing Business report as part of a closely-watched independent review of the report led by Trevor Manuel.

I’ll tell you what I think about Doing Business, but first I need to let you in on a little secret about policymakers.  Here it is: you need to keep it simple for them. 

No matter the country or political system, the ability to move policy forward on a national stage depends critically on the policymaker’s ability to forge a consensus among an array of actors (other agency heads, members of parliament, civil society, the media). 

And while you can block virtually anything in the policy arena with a blizzard of detail, forging consensus requires just the opposite.  Driving policy consensus often depends critically on boiling the issue down to its essence and saying it again and again and again. 

This is where I see unique value in Doing Business, the annual reporting exercise on countries’ business environments conducted by a team at the World Bank’s International Finance Corporation (IFC). 

Doing Business is above all else a ranking exercise.  It does not come with a cash prize or the promise of disbursements from the World Bank for the good performers.  The rankings hold sway for the simple and powerful reason that, as a matter of reputation, it is unambiguously bad to be #185 (sorry Central African Republic!) and unambiguously good to be #1 (congratulations Singapore!).

That’s why you hear about heads of state setting targets for their countries’ Doing Business rankings and shaping a policy agenda around them.  And that’s why, each year at the time of the report’s release, you are likely to see full page ads in international business publications with self-congratulatory messages from countries that have moved up the rankings.

Importantly, Doing Business is a universal exercise, ranking all World Bank member countries, not just the borrowers.  It is also an exercise that, by relying exclusively on clearly defined numerical indicators, does not allow for negotiation between the Doing Business team and the country (unlike, for example, the IMF’s Article IVs).  There is no soft pedaling what the rankings have to say.  

Now, as the report’s fame has increased, so have rumblings from countries that do not like to see their middling or poorly performing selves trotted out each year for the world to see. 

Last summer, criticism of Doing Business mounted in the Bank’s Board of Directors just as Bank President Jim Kim took office.  He responded by appointing an external review panel, chaired by Trevor Manuel, to issue recommendations for changes to the report.  It is under the auspices of the panel that the World Bank is now soliciting public comments.

As much as I am a fan of the rankings, I also welcome the panel’s scrutiny for the simple reason that there’s risk in simplicity.  The “boiling down” part of policymaking is very hard.  And a big fear of doing rankings is that you’ve gotten it wrong.  You might have chosen the wrong indicators or badly designed ones, so that you are incentivizing the wrong reforms, or worse yet, incentivizing reforms in the wrong direction. 

Doing Business is certainly not immune from these problems.  Early on, the report was criticized for its treatment of labor issues, with critics charging that some of the “employing workers” indicators had the effect of rewarding countries at the extreme of having zero worker protections. 

Under pressure, the World Bank acknowledged that these indicators could create incentives for policies that were not consistent with the Bank’s broader approach to labor market policy.  As I write this, this set of indicators has been suspended from the rankings.

Full disclosure: as a US Treasury official, I was among those who pressed the World Bank to take a different approach on the labor indicators.  That episode demonstrated to me that the Doing Business team at the IFC has not always shown itself to be open minded in the face of criticism, and this probably hasn’t helped them in the midst of the current backlash. 

But the scrutiny of the labor indicators also illustrates where rankings can go wrong, and the risks of getting it wrong demands on-going and intensive review.

My hope is that Trevor Manuel’s group digs in and takes a serious look at all of the indicators, relying on some of the constructive review work that has already been done.  The World Bank’s Independent Evaluation Group, for example, did its own review of Doing Business in 2008, and work done by colleagues here at CGD used the Doing Business dataset to test the report’s basic premise that regulatory reform can motivate business investment.

So, go ahead and give the World Bank your view of Doing Business (by April 12^th!), but don’t lose sight of what it’s really about.  In depth research has its place, but so do exercises that draw on that research like Doing Business.  You might think rankings are simplistic, but sometimes (many times) the simple version is just what policymakers need.