When China slows, the world economy will stutter
World Bank must keep 'Doing Business'
The "Doing Business" report is the most important contribution the World Bank has made to global development in the last 25 years. The discovery that high-level World Bank staff tampered with the 2018 and 2020 data, affecting the scores and rankings of four out of the 190 countries, undermined the credibility of "Doing Business" and gave credence to a vocal minority who oppose it in any form. While the recent findings are very concerning and necessitate changes to future methodology, the World Bank should absolutely continue the "Doing Business" initiative.
For a revival to happen, however, we need full-throated support from the Biden administration and the U.S. Congress. "Doing Business" cannot succeed without focused American leadership and support from allied shareholders.
What is 'Doing Business'?
In order to understand the role of the "Doing Business" report, consider the example of a car dealership. If one were deciding whether to open a Ford dealership in Minnesota, Mali, Moldova, or the Maldives, one, as a business executive, would need a number of things. One would need to open a "formal business" (the key phrase) that pays taxes, hires people, follows environmental and labor regulations, can borrow money, and follows the laws of that country. Having access to objective data to compare how easily that can be done, how many steps, how many laws and how much money is important - whether its Minnesota or the Maldives. Having comparable indicators that allow a policy maker to compare apples to apples across countries is something that the Doing Business Indicators have developed and refined over 20 years.
In other words, "Doing Business" - specifically the Doing Business Indicators (DBIs) - has helped benchmark countries across the world, a key component of job growth and accelerating global development.
"Doing Business" is the ultimate data-driven and evidence-based exercise in the global development world. Indeed, it is the most-used set of indicators on business regulation.
"Doing Business" has also reduced hidden taxes and opportunities for petty corruption. The process of collecting data, ranking countries, and demonstrating areas of weakness and corruption and taxes has been embarrassing for some countries and for bad actors, which can lead to policy changes. For instance, a G7 country like France - known for its red tape and bureaucracy - has done less well on the DBIs than many other Western economies.
Authoritarian regimes with endemic corruption, like China, have also not done as well on the annual "Doing Business" rankings, prompting pro-development policy changes. DBI rankings have also embarrassed countries like Saudi Arabia as it seeks to diversify its economy away from oil and attract foreign direct investment.
Some in global development are critical of "Doing Business" because of a perception that it drives an "anti-regulation" or "anti-tax" approach to economic reform. Stakeholders such as Oxfam argue that its methodology is too subjective and ripe for manipulation. But data from the World Bank itself counters these criticisms. As many as nine out of ten jobs come from the private sector, not the government. The logic of "Doing Business" enables high growth and formal private sector activity through the creation of "clear rules of the road" by making it easier for someone to start a business formally, hire staff, and pay their taxes.
Data Tampering: Implications for an evolving geopolitics
After World Bank management received reports of inconsistencies between internal data and the final reports, the law firm WilmerHale conducted a significant audit of methodology, and the findings are at the very least embarrassing - disturbing at worst.
The report found that there were discrepancies with the data from the 2018 and 2020 reports, irregularities that concerned the scores and rankings of China, Saudi Arabia, the United Arab Emirates, and Azerbaijan. According to WilmerHale's report, IMF Chief Kristalina Georgieva and other high-ranking officials pushed staff to boost China's rankings artificially in order to secure a capital increase for the World Bank.
Even though the irregularities were limited to only four countries out of the 190 included in the report, and only occurred in two of the 17 years that the World Bank has published the report, they were enough to significantly undermine the credibility of the program and cause the World Bank to end "Doing Business."
We learn from the investigation that when the U.S. is perceived as reducing its support for institutions like the World Bank, the high-level World Bank officials will start to seek financial support from countries like China and Saudi Arabia. Words and actions have consequences: Cavalier talk about exiting multilateral institutions, or proposed cuts to organizations or the willingness of some to interpret "America First" as "Multilateralism Last," will be taken seriously in other capitals and by the management of these organizations.
There needs to be some significant improvements to protect the "Doing Business" process from political influence. But the narrative that this is difficult - or that the World Bank is unable to institute effective reforms - is not grounded. In fact, the WilmerHale report itself contains several sensible recommendations.
Saving the initiative
The only way to protect "Doing Business" is through reinvigorated, high-level support from the top: The president of the World Bank needs to lead the fixes, and several key shareholders need to lead on reinstituting the report - primarily the United States, as well as the United Kingdom, Canada, Australia, and a handful of others.
The Biden administration has come out in full support for multilateralism and renewed U.S. leadership on the multilateral stage. It is not far-fetched, then, to ask for a forceful statement of support for "Doing Business" from Treasury Secretary Janet Yellen or Deputy Secretary Wally Adeyemo at this critical time.
Given that "Doing Business" is a critical tool for changemakers all over the world - whether in Latin America, Africa, Eastern Europe, Southeast Asia - it would be a mistake for the World Bank to cede ownership of the DBI process and hand it over to an academic institution or private sector consultancy. Those are the wrong places to put it, especially given the Biden administration's plans to revitalize multilateralism. In recent years, the United States has greatly underestimated the soft power influence that the World Bank has in developing countries.
The World Bank is not just a lender; it is a provider of public goods, data, and advice. Its future is not just going to be about money. Even for those who take a progressive view and see the World Bank's proper role as a provider public goods, "Doing Business" can be understood as a public good that the World Bank can provide.
The way forward is for the World Bank to reinstate "Doing Business," make significant changes to protect future data from political influence, and to continue to do this important work. The annual October meeting is just around the corner. Secretary Yellen and the Biden administration should demand that the Board of Governors seek a reinstatement.
Daniel F. Runde is a senior vice president and William A. Schreyer chair in Global Analysis at the Center for Strategic and International Studies. He previously worked for the U.S. Agency for International Development, the World Bank Group, and in investment banking, with experience in Africa, Asia, Europe, Latin America, and the Middle East.