Deceptions of WB Doing Business Report 2017

by Anis Chowdhury | Published: 21:50, Dec 01,2016

 
 

IN MY last op-ed (‘Should we worry about “Doing Business” ranking?’ New Age, November 13), I have highlighted methodological flaws of the World Bank’s Doing Business Report and pointed to its ideological bias. It always seeks new angles to justify its promotion of reduced regulation on business. A closer look at the 2017 report, subtitled: ‘Equal Opportunity for All’, reveals its deceptions and naked ideological bias.
In the foreword (p V), it says, ‘Evidence from 175 economies reveals that economies with more stringent entry regulations often experience higher levels of income inequality as measured by the Gini index.’
On the next (p VI), it admits, ‘However, regulation can also be used as an intervention when market transactions have led to socially unacceptable outcomes such as improper wealth distribution and inequality.’
Thus, it sounds very fair and balanced; but what is the evidence base for its strong assertion (eg on p 11) that ‘economies with more business-friendly regulations tend to have lower levels of income inequality’?
The deception is in the claim ‘evidence from 175 economies’ to distract from the fact that the association, depicted in the two scatter plots (Figures 1.9 and 1.10), is weak and influenced by countries closer to the ‘frontier’, usually the developed countries. Inequality, although has increased in the developed countries during the past three decades, it is still lower than in many developing countries — a result of well-established universal social protection systems and the redistributive role of their taxation systems.
The report states that results on the association between DB scores and inequality ‘differ by regulatory area’ (p 11); but it only mentions two, starting a business and resolving insolvency, for which it found a negative correlation (ie higher DB scores associated with less inequality). It does not tell what the association is between other DB scores, eg, paying tax or getting credit, etc, and the Gini index.
Other studies such as by the OECD, IMF, ADB and the United Nations (eg ESCAP) have found a negative correlation between inequality and tax/GDP ratio, meaning higher taxes are associated with lower inequality. They also report a negative association between inequality and higher government social expenditure/GDP ratio. One may think that higher taxes enable governments (as in developed countries) to spend more on public health, education and social protection, which reduce inequality.
Thus, it would have been nice for the DBR to report what association it has found between inequality and, say, its paying taxes score, which includes a total tax rate indicator where the best scores are given to countries with the lowest level of taxes and social contributions (such as payments for social security) that businesses must pay.
One wonders whether the DBR’s silence is deliberate; and its strong claim of inequality reducing effect of lower regulation, despite weak evidence, is a deceptive attempt to push deregulation using society’s widespread concerns with rising inequality.
The Wrold Bank suspended the DBR’s labour indicator in 2009 after objections voiced by trade unions, several governments and the ILO against its use to pressure countries to weaken workers’ protection. But its back door push for labour market deregulation continues.
For example, Tanzania’s score is cut for introducing a workers’ compensation tariff to be paid by the employers; and Malta is penalised for increasing the maximum social security contribution to be paid by the employers. New Zealand beats Singapore and takes the first place in the DB ranking following the implementation of reforms reducing employers’ contribution to workers accident compensations. New Zealand’s good DBR ranking hides the fact that it is a prime location for setting up money-laundering shell companies; the country does not ask many questions when setting up a company there.
Kazakhstan, Kenya, Belarus, Serbia, Georgia, Pakistan, the United Arab Emirates and Bahrain — the eight countries out of of this year’s DB ‘top 10 improvers’ –– have recorded poor and in some cases worsening respect of workers’ rights, according to investigations by the International Trade Union Confederation.
The DBR 2017 included a narrative annex on labour market regulation, which states that labour regulations can ‘reduce the risk of job loss and support equity and social cohesion’ (p 87). But it gives far more space to promote fixed term contracts with minimal benefits and severance pay requirements (pp 88–89).
In support of its claim of adverse impacts of labour regulations, the DBR 2017 cites only three World Bank studies from several years ago. But it does not mention the extensive review of empirical studies in the World Bank’s more recent ‘World Development Report 2013: Jobs’, which found that ‘most estimates of the impacts [of labour regulations] on employment levels tend to be insignificant or modest’ (p 261).
To show its relevance to another widespread social concern, gender discrimination, the DBR 2017 added gender components for three of its indicator sets — starting a business, registering property and enforcing contracts. But here, too, it could not hide its trickeries.
On page 2, it says, ‘For the most part, the formal regulatory environment as measured by Doing Business does not differentiate procedures according to the gender of the business owner. The addition of gender components to three separate indicators has a small impact on each of them and therefore a small impact overall’.
Then what is the point of adding gender components? The fact remains that the policies promoted by the Bank make women more vulnerable. For example, the DBR will inevitably cut the scores of countries that tighten regulations concerning working conditions, including the legislations for equal pay and maternity benefits, thereby encourage them to relax these regulations affecting women disproportionately more than men.
Behind the veil of its overt concerns for ‘equal opportunities for all’, the DBR cannot hide its ideological bias. It gives higher Doing Business scores to countries that favour corporate profits over citizens and countries’ interests, especially workers.
As governments bend over backwards to convince the World Bank that their reforms should earn them better DBR rankings, we must not forget who stands to lose most from this deceptive ‘beauty contest’. Workers, farmers, and the world’s poor — the majority of whom are women — pay for the Bank-imposed reforms, despite proclaimed concerns for inequality, gender equity and ‘equal opportunities for all.’

Anis Chowdhury is a former professor of economics, University of Western Sydney and held senior United Nations Positions during 2008–2015 at New York and Bangkok.

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