ƒ .

Doing Business measures aspects of

business regulation affecting domestic
small and medium-size firms defined
based on standardized case scenarios
and located in the largest business city
of each economy. In addition, for 11
economies a second city is covered.
ƒ . Doing Business covers 11 areas
of business regulation across
190 economies. Ten of these
areas—starting a business, dealing
with construction permits, getting
electricity, registering property, getting
credit, protecting minority investors,
paying taxes, trading across borders,
enforcing contracts and resolving
insolvency—are included in the
distance to frontier score and ease of
doing business ranking. Doing Business
also measures features of labor market
regulation, which is not included in
these two measures.
ƒ . Doing Business relies on four main
sources of information: the relevant
laws and regulations, Doing Business
respondents, the governments of the
economies covered and the World
Bank Group regional staff.
ƒ . More than 43,000 professionals in 190
economies have assisted in providing
the data that inform the Doing Business
indicators over the past 15 years.
ƒ . Doing Business data are widely
used by governments, researchers,
international organizations and think
tanks to guide policies, conduct
research and develop new indexes.

Doing Business ranking at odds with how business is done in the

developing world: how the World Bank’s flagship publication influences
policy-makers

Tiago Stichelmans
Added 26 Nov 2015
inShare

topics: debt

This article was originally published in Rundbrief 4/2015 of the German NGO Forum Umwelt und
Entwicklung, a NGO network working on international processes regarding sustainable development.

The World Bank’s 2016 Doing Business report (DBR) – a flagship annual publication that ranks countries according
to their business climate – has just been published to much scrutiny. The new edition includes a series of
methodological reforms that were meant to answer criticisms made by a wide range of actors on the shortcomings of
the report. However, it seems to be business as usual when it comes to acknowledging the contribution small- and
medium-sized enterprises (SMEs) make to development.

Since 2002, the World Bank’s Doing Business report has been ranking the business climates of 189 countries
through 10 different indicators1. Each indicator is built to assess the regulations applied to SMEs. Both the quality and
the quantity of these regulations are assessed and ranked.

Despite the fact that there is little connection between the report’s findings and reality on the ground, it nevertheless
has a notable impact on policy-making, especially in the developing world. It is regularly used by donors,
governments and academics in analysis and cross-country reporting and receives high-level media coverage.
According to the World Bank2, around 120 000 media articles have cited the Doing Business project since the first
report in 2004.

It has been used as the basis for reform programmes in developing countries such as Rwanda, Zambia and more
recently India, where the government has set the improvement of the country’s ranking in the report as an objective of
its reforms policies.

How has the Doing Business report evolved in recent years and why?
The 2016 edition of Doing Business includes a series of methodological changes that were taken on after extensive
criticism of the report from the Bank’s own Independent Evaluation Group 3 – an Independent Panel appointed by the
Bank – and civil society organisations (CSOs). The conclusions of the Independent Panel mirror concerns raised by
CSO groups that the DBR is irrelevant to the two goals that the Bank set for itself – ending extreme poverty and
promoting shared prosperity.

The changes concern three main areas. First, the Bank changed the way ranking calculations are made. Second, the
case scenario that serves as a basis to collect the data now incorporates a second city for 11 countries that have
more than 100 million inhabitants. And third, some indicators have been changed by broadening what is being
measured but also by changing the way data is scored. The expansion of the collected data brings some added value
to the report, notably as there is now more qualitative information included in the indicators. However, the
methodological changes implemented in the 2015 and 2016 editions of the report completely miss the target of
contributing to ending poverty.

What are the main problems with Doing Business?

There are three main problems: First and foremost, Doing Business indicators do not take into consideration the
social or economic benefits and cost/risks of regulation. They regard regulations as obstacles to efficient markets.
Under this assumption, those obstacles need to be removed to achieve poverty reduction. The report of the
Evaluation Group4 pointed out that regulation “performs a necessary function in enabling markets to function and in
protecting public health and safety”. Translation: insufficient regulations can be an obstacle to private sector
development.

In addition to the lack of consideration for the benefits of regulations, the Doing Business indicators focus on some
topics, such as corporate tax rates, despite their negative spillover effects, especially in developing countries. The
main focus of this indicator is the tax burden on SMEs. However, the ‘tax rate’ and ‘number of payments’ sub-
indicators are not relevant when it comes to fair assessment of the tax burden on SMEs.

Second, and in contrast to aid effectiveness principles, Doing Business indicators promote one-size-fits-all solutions
to development. The Busan Declaration on Aid Effectiveness outlines five fundamental principles for improving
cooperation for effective development. The Declaration highlights how ownership is the first of those principles,
stating that, “Partnerships for development can only succeed if they are led by developing countries, implementing
approaches that are tailored to country-specific situations and needs”.

The DBR is designed under the assumption that there are ‘good’ and ‘bad’ policies. This assumption clearly misses
the need to examine the specific context of each country it assesses. According to the World Bank, the DBR should
not be seen as a one-size-fits-all model. However, the Bank’s communication around the report continues to maintain
this image. In addition, the DBR heavily promotes deregulation as the best strategy for private sector development.

Indicators do not reflect small businesses reality in developing countries

Last but not least, Doing Business indicators use law firms as the main source for their data. This approach is
problematic and means that analysis is often disconnected from reality. Concrete application of laws and regulations,
as well as the reality of corruption, are absent from the report. In addition, there is a question mark over the relevance
of some of the indicators as far as the real needs of SMEs in developing countries are concerned. A recent article
published in the Journal of Economic Perspectives 5 by two economists from the World Bank and Harvard University
show that the indicators of the Doing Business report do not capture the reality lived by SMEs. Using the World
Bank’s own Enterprise Surveys6, the authors show that there is almost zero correlation across countries between
the Doing Business survey and Enterprise Survey responses. Interviewed by the Wall Street Journal, one of the
authors claims that “for developing-country policy makers, focusing on rising in the Doing Business ranks could draw
scarce resources away from more-substantive reforms that would help the government better administer and enforce
business regulations”.

At the same time, Doing Business fails to assess important issues causing market failures. Geographic location,
availability and cost of real estate, transport infrastructure, skilled workers and finance are key factors of a functioning
market ignored by the indicators.

Eurodad believes that private sector development should play a role in poverty eradication. However, drastic changes
in the report’s methodology are needed to produce a document that serves as a valuable tool to assess and help
private sector’s contribution to this goal. Until these changes are made, the World Bank should remove the rankings
from its reports as they exert unnecessary influence over the agenda of policy-makers in many countries. The World
Bank has previously undertaken a dialogue with relevant stakeholders but has failed to take their recommendations
into consideration. It is therefore very unlikely that the World Bank will be able in the future to improve the Doing
Business Report.

1 The indicators are: ‘Starting a business’; ‘Dealing with construction permits’; ‘Getting electricity’; ‘Registering
property’; ‘Getting credit’; ‘Protecting minority investors’; ‘Paying taxes’; ‘Trading across borders’; Enforcing
 contracts’; ‘Resolving insolvency’. The report also produces an indicator on ‘Labour market regulation’ that is no
longer used when establishing the rankings.
2 http://www.doingbusiness.org/press
3 http://siteresources.worldbank.org/EXTDOIBUS/Resources/db_evaluation.pdf
4 http://ieg.worldbank.org/Data/reports/chapters/inv_clim_overview_0.pdf
5 http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.29.3.121
6 Enterprise Survey is a firm-level survey of a representative sample of an economy’s private sector. The survey
covers a broad range of business environment topics including access to finance, corruption, infrastructure, crime,
competition and performance measures.

After 15 years, World Bank’s Doing

Business Report still missing the mark
7 DECEMBER 2017

No Animal Left Behind. credit unkown

SUMMARY

 Despite claims, DBR’s deregulation policies do not lower income inequality

 DBR incentivises tax competition
 CSOs concerned DBR does not promote inclusive growth

In October, the World Bank published its 15th Doing Business Report (DBR), Reforming to
Create Jobs, noting that 119 economies had carried out 264 business reforms in the past year to
“create jobs, attract investment and become more competitive”. The Bank stated in a press
release that the DBR provides “objective measures of business regulations and their enforcement
across 190 economies”, whilst encouraging economies to “compete towards more efficient
regulation” (see Observer Summer 2017). It continued that “3,188 business reforms have been
carried out since it began monitoring”.
From its inception, civil society organisations (CSOs) have been critical of this influential
publication for promoting one-size-fits-all solutions to development. CSOs argue that the Bank
and IMF use the DBR to promote deregulation and neoliberal reforms, based on the unfounded
claim that more ‘business friendly’ regulations play a key role in lowering income inequality,
while not taking into account the social or economic benefits of regulation and costs of de-
regulation.
Simeon Djankov, the creator of the Doing Business series, said in an October press release that,
“Reforming in the areas measured by Doing Business can be particularly beneficial to
employment creation when those reforms take place in the areas of starting a business and labor
market regulation.” Considering that claim, Matti Kohonen from Christian Aid UK stressed that,
“This micro-level view is often at odds with a macro-level perspective, where something that
may be beneficial at an individual firm owner level (e.g., lesser labour regulation), may hurt
macroeconomic objectives – such as greater labour productivity through upskilling of committed
employees”. He added that, “Recent macroeconomic perspectives on women’s labour market
participation, and tackling inequality may be at odds with the entire DBR.”
giving better scores to low-tax venues is in clear contradiction with
the World Bank’s stated objective of giving governments the means
to provide essential public services, especially to the poor, and
reducing inequalityPETER BAKVIS, ITUC
Civil society further criticised the DBR’s ranking of nations as based on narrow business
interests over those of citizens and countries (see ObserverAutumn 2013, Update 86, 85). For
example, according to the International Trade Union Confederation (ITUC), eight out of the
DBR 2017’s “top 10 improvers” had poor or worsening performance on workers’ rights.
According to UK-based charity CAFOD’s 2013 research, the DBR failed to match the priorities
needed for small private sector enterprises to grow. These include ensuring adequate funding for
small enterprise support programmes and public services, as well as recognising informal
workers’ organisations and collective bargaining processes. In November Peter Bakvis of
ITUC commented on Inequality.org that, “giving better scores to low-tax venues is in clear
contradiction with the World Bank’s stated objective of giving governments the means to
provide essential public services, especially to the poor, and reducing inequality”. Despite a
series of methodological changes in 2015 after extensive criticism of the report from the Bank’s
own Independent Evaluation Group (IEG) in 2013 (see Observer Summer 2017, Update 86),
these civil society critiques still stand.
DBR’s policy impacts
Belgium-based network Eurodad noted in 2015 that while “there is little connection between the
report’s findings and reality on the ground, it nevertheless has a notable impact on policy-
making”, informing reform programmes in many developing countries. Worldwide governments
take note of their DBR ranking. For example, in November, the Ukraine Business
Journal pondered How Can Ukraine Rise on the World Bank’s Ease of Doing Business
Index? and The Times of India reported that “investor sentiment got a boost from World Bank’s
Ease of Doing Business report where India jumped 30 places on back of recent reforms”.
The Economic Times noted that “India is gearing up to leapfrog into the top 50 with around 90
specific reforms lined up for various ministries, top officials said”. These reforms, for instance,
include a decrease in the number of processes needed to register a business, but also regressive
tax reforms such as the Goods and Services Tax (GST) that, as outlined by Indian economist
Jayati Gosh, will increase the tax burden on low-income households and, as stressed by Dehli-
based lawyer Tara Narula, impact women disproportionately.
Considering the DBR’s benefits, Djankov noted that “in addition to good policy, once you start
ranking countries and comparing them, natural competition like a ‘World Cup’ or the ‘Olympics’
comes about”. However, countries are not firms that compete on an open market place. States
have human rights duties towards their citizens, and fulfill a public mandate by the electorate
rather than price competition pressures in markets. As stressed by UN Independent
Expert, Alfred De Zayas, the Bank and the Fund should “finally let go of the outdated conditions
of privatisation, deregulation of markets, and ‘austerity’ in social services, which have not given
states adequate policy space to fulfil their human rights obligations” (see ObserverAutumn
2017).

DBR and inequality: correlation without

causation?
In line with the Bank’s twin goals of eliminating extreme poverty and boosting shared
prosperity, and justifying its relevance, the DBR noted that, “Economies with poor quality
business regulation have higher levels of income inequality on average.” However, cautioning
against the Bank’s jump from correlation to causation, Bakvis noted that the 20 top DBR
countries are almost all advanced economies with low Gini coefficients, while the bottom 20
countries, including Afghanistan, Venezuela, Somalia and Yemen, are in severe civil or political
conflict. Bakvis concluded “it seems ludicrous for the Bank to imply that the only thing these
conflict countries have to do to achieve more equal income distribution is to deregulate
business.” While it may be true, as the report claims, that “economies with better business
regulation have lower levels of poverty, on average”, the fact that China and Vietnam’s
significant progress on poverty reduction was accomplished without DBR promoted policies
(see Observer Winter 2017-2018) brings into question the report’s implicit link between
deregulation and decreased poverty.
Last year’s DBR introduced a gender component to three indicators, namely starting a
business, registering property and enforcing contracts. In responce, the Oakland
Institute argued, a “gender equity [component] doesn’t make the policies promoted by the Bank
more equitable. The report’s country scorecards show that the Bank gives better Doing Business
scores to nations that favor corporate profits over citizens and countries’ interests.” For example,
while India has improved significantly in the DBR rankings, according to 2017 research by
Lucas Chancel and Thomas Piketty, income inequality in India is at its highest since 1922.
Shipra Dawar, founder of ePsyclinic, an online mental health clinic, commented to Forbes that,
“While it is great that India has improved its ranking in doing business, and young entrepreneurs
will benefit from it, we are overlooking the importance of gender equality. It’s not possible for
India to become a global economic power if half of its population is ignored, and not given more
economic opportunities”. Dawar’s comments are supported by data from the World Economic
Forum (WEF), which showed that India fell 21 places to 108 in the 2017 Global Gender Gap
Report index, even as its DBR ranking improved.
Given the persistent flaws of the DBR and the Bank’s supposed focus on sustainable and
equitable growth, it should heed civil society’s calls, echoed by the IEG’s report, to cease
country rankings and to ensure that indicators used are robustly linked to poverty eradication and
inclusive growth objectives.

Once again, the DBR’s methodological rigour and its predisposed policy orientation are under scrutiny,
with Eurodad and other civil society groups - as well as independent reviewers appointed by the Bank -
calling for the rankings to be dropped. Rating countries by aggregating selective indicators introduces a
degree of arbitrariness, as it weighs indicators according to what is ‘better’ for business. As
the Independent Panel, headed by Trevor Manuel put it: “The act of ranking countries may appear devoid
of value judgement, but it is, in reality, an arbitrary method of summarising vast amounts of complex
information as a single number.”

The chosen methodologies have been controversial both inside and outside the Bank, leading over the
years to numerous modifications - making a comparative analysis over time meaningless. This severely
compromises the credibility of the index, since jumps up and down the ranking do not necessarily
correspond to substantive regulatory changes in the business environment. Chile’s case is a prime
example of why it should be abandoned.

DBR bias against strong regulation

The DBR puts strong emphasis on regulatory ‘hurdles’ or ‘obstacles’, while socio-economic and
developmental benefits of regulation are largely ignored. The DBR claims to promote regulatory best
practice - but as the Independent Evaluation Panel argues, since “(…) most of the indicators presume
that less regulation is better, it is difficult to tell whether the top-ranked countries have good and efficient
regulations or simply inadequate regulation.”

The report also attempts to measure the ‘administrative burden’ of paying taxes, using flawed sub-
indicators such as the total tax rate and the number of payments, despite numerous calls to drop these
sub-indicators from the overall index. Although the ‘Paying Taxes’ indicator is unsuitable for measuring
development progress through improved tax collection, the Addis Tax Initiative uses DBR-country ratings.

Furthermore, the data is collected mainly from consulting, accounting and law firms based in urban and
formal settings, and so risks being disconnected from the real needs of SMEs operating in informal or
rural settings.

Concerns over DBR policy influence

The DBR exerts significant influence over policy makers, but as the Independent Panel notes, “It is
important to remember that the report is intended to be a pure knowledge project. As such, its role is to
inform policy, not to prescribe it or outline a normative position, which the rankings to some extent do.”
Despite its dubious methodology, the DBR is widely used as a measure of private sector development by
donor and recipient governments. For example, ‘improvement on DB ranking’ is included as a target in
the national development plans of numerous developing countries (including, for
example, Benin, Senegal, Ghana, Zambia and Ivory Coast). DBR benchmarking also features in donor-
led initiatives such as the G8 New Alliance on Food Security and Nutrition - including the country
frameworks for Ghana, Ethiopia, Nigeria, and Tanzania.

However, the DBR is even used more extensively in economic decision-making within the framework of
loan conditionality, or other channels of influence such as advisory services. This inherently locks
countries into a set of policy prescriptions and prepares the ground for donor-induced regulatory reforms,
as was the case when DBR-based reforms were included as conditions to a programmatic loan to
Ukraine in 2014 (through the World Bank’s Development Policy Lending instrument), which in general
provides budget support for policy reform. Before getting the money, Ukraine had to undertake a number
of 'Prior Actions', including passing laws to ease business and property registration, and reducing the
number of permits. DBR indicators were used to benchmark these conditions, and the bias towards
deregulation is obvious from the terms of a second loan to Ukraine in 2017, including the establishment of
a ‘deregulation framework’.

Advisory services are also routinely used by donors to influence policy making in partner countries and to
advance the DBR agenda. For example, the Country Partnership Framework (CPF) for Botswana - the
basis of World Bank assistance to the country - anticipates Reimbursable Advisory Services. These are
paid-for services including technical assistance, analytical services and implementation support, offered
by the Bank at the request of middle and high-income countries. According to the CPF, “Botswana’s
Doing Business ranking should improve as a result of the Reimbursable Advisory services.”

Finally, the IMF routinely refers to the DBR rankings as part of their economic advice in its Article IV
surveillance missions to low-income countries - including Zambia, Benin, Guinea-Bissau, Togo and South
Sudan to name but a few. Article IV missions monitor the implementation of macro-economic and
financial policies by the Fund’s members and offers them policy advice. Such IMF advice is highly
influential on policy decisions, especially in potentially recurring borrowers such as low-income countries.
The DBR: long past its sell-by date

Despite longstanding criticism of the DBR from all sides, the World Bank has merely applied cosmetic
changes to the methodology and has not remedied the fundamental flaws of the ranking method. Instead,
the Bank has championed the unscientific DBR rankings, promoted by a high-profile communication
strategy.

As a result, the flawed rankings are increasingly influential on policy making and a donor-driven ‘one-size
fits all’ approach. In addition, they currently stand accused of directly meddling in Chile’s domestic affairs.
Clearly, the DBR is unreliable as an international policy instrument, and on top of that it compromises the
principle of democratic ownership. Flawed since its inception, scrapping the DBR is well overdue.

1. The goalposts keep moving

A core element of the recent "credibility revolution" in empirical
economics is a push for researchers to pre-commit to a methodology,
before they look at their data, so that the results can’t influence their
methodological choices. That’s the opposite of how Doing Business
works. And as our colleagues Vij Ramachandran and Alan Gelb note,
the firewall between Bank lending operations and research is too weak
in these cases.
Perhaps nobody set out to target Michelle Bachelet deliberately. But
that was the result, and it was deemed acceptable. Hypothetically, if
the World Bank team had made innocent methodological choices and
discovered they launched Chile to #1 in the rankings instead of #57,
surely they would have revisited their methods. Did they not revisit any
methodological choices on the basis of their impact on the ranking? Of
course they did. Were they genuinely blind to the likely effect on
countries’ scores when deciding to introduce new measures? Of
course they weren’t—even if there was no deliberate plot to penalize
anyone in particular.

IMPROVE

Hopefully they’ll use this opportunity to develop a more balanced and

constructive stance on how developing countries should regulate
markets—beyond a simplistic message of cutting red tape and letting
the market rule.

METHODOLOGY CRIT
Socio-legal researchers increasingly recognise the need to employ a wide variety of methods in studying
law and legal phenomena, and the need to be informed by an understanding of debates about theory
and method in mainstream social science. The papers in this volume illustrate how a range of topics,
including EU law, ombudsman, judges, lawyers, Shariah Councils and the quality assurance industry can
be researched from a socio-legal perspective. The objective of the collection is to show how different
methods can be used in researching law and legal phenomena, how methodological issues and debates
in sociology are relevant to the study of law, and the importance of the debate between "structural" and
"action" traditions in researching law. It also approaches the methodological problem of how the
sociology of law can address the content of legal practice from a variety of perspectives and discusses
the relationship between pure and applied research. The editors provide a critical introduction to each
of the six sections, and a general introduction on law, sociology and method. The collection will provide
an invaluable resource for socio-legal researchers, law school researchers and postgraduates
(PDF) Theory and Method in Socio-Legal Research. Available from:
https://www.researchgate.net/publication/228262192_Theory_and_Method_in_Socio-Legal_Research
[accessed Oct 30 2018].