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The World Bank annually compiles a list of the economic attractions of 190 countries. Some countries have meteorically climbed there. Now it becomes clear that all was not well when the ranking was created.
If you believe the World Bank, it is easier to do business in Russia (a Moscow skyscraper in the picture) than in Switzerland.
It is the most influential ranking list for economies. The “Doing Business” report lists in detail which countries have an attractive business climate. The job is created by the World Bank. Its experts have been analyzing the regulations of about 190 countries each year since 2002. The resulting index carries weight. It influences the investments of large corporations, and sometimes it influences politics as well. Because all states want to shine in this beauty pageant. A good ranking promises international capital, economic boost and shine for the government.
It’s about integrity
But now the report has fallen into the shadows. According to the World Bank, there were “a number of irregularities” in the 2018 and 2020 versions. The changes to the data are inconsistent with the methodology. The World Bank suspended work on the new report; publication was scheduled for October. Reports from the last five years should also be verified for tampering. The World Bank’s internal supervision reviews all data collection processes. The integrity and impartiality of the World Bank are at stake.
The World Bank announcement raises more questions than it answers. Was it just some data that was added incorrectly? Or have states illegally tried to make their country look better? According to experts, the reference to “irregularities” indicates the second reading, that is, directed manipulation. There are no indications for it yet. However, various rumors are already circulating. The focus is on China, Saudi Arabia, the United Arab Emirates and Azerbaijan. In all of these states, the data is said to have inexplicably changed.
This is not the first time the “Doing Business” report has been criticized. In 2018, even then-World Bank chief economist Paul Romer doubted the report’s reliability. He said the report was susceptible to manipulation. Romer claimed that Chile had been misjudged in previous years mainly because the perpetrators could not have made friends with the socialist president, Michelle Bachelet. An internal investigation found no evidence of the accusation. Romer, who soon resigned, remained suspicious.
A look too close
The criticism has continued ever since. This is also because the routes are usually not very intuitive. In the first place, there are usually the states that also perform well in other rankings for their economic friendliness. This is followed, however, sometimes by head-shaking placements. In the most recent ranking, North Macedonia (17th) is ranked higher than Germany (22) or Canada (23). And Switzerland (36) may not be a beacon in terms of regulation; Whether the country is really a more difficult terrain than Russia (28) or Turkey (33) is quite questionable.
When trying to beat all states by one bar, country-specific factors fall by the wayside. Switzerland particularly suffers from this. For example, federalism is ignored. When it comes to approving construction investments, the World Bank only looks at customs in Zurich; There a sequential (and correspondingly long) procedure is used, while other cantons pass in parallel and more quickly. Nor are the stability of local institutions and economic resilience taken into account.
The cause of the problem: The World Bank takes a close look at countries. What gets measured is what can be measured. Approximately the number of days it takes to register a business. Or the time until an electrical connection is available. These are important location factors. But equally important are macroeconomic stability, legal certainty, the quality of infrastructure, the level of education and corruption. All of this is missing from the index. And constant adjustments to the methodology mean that long-term comparisons are nearly impossible. Sometimes countries move up the rankings without improving anything.
A holistic approach is needed
There is also a certain naivety. The World Bank does take into account the evaluation of companies when compiling the ranking. However, above all, legislative amendments are important. However, as is well known, there is a gap between the law and reality. Some politicians take advantage of this and enact “reforms” that sound good, such as one-stop shops where all the stamps are available to register a business. This guarantees a better ranking in the ranking. But what if the reform is never implemented or if single window registration only works if the corrupt official is bribed behind the counter?
All this is excluded. Consequently, states often turn to window decoration, in other words cosmetic fixes that fix their own image without improving anything. Sometimes the “Doing Business” report also offers the wrong incentives. An example: low taxes are rewarded in the ranking. At the same time, the World Bank is asking developing countries to better mobilize domestic resources so that states can finance their own spending and not depend on foreign aid. Often one gets on badly with the other. A country like Nigeria, whose taxes amount to just under 6% of gross domestic product, needs more tax revenue for its development than less.
what can we learn from that? It would be unfair to declare the report completely useless. Over the past 17 years, it has driven many emerging and developing countries to shed regulatory burdens and improve the business climate. However, the latest scandal should be used to pass a fairer judgment on countries in the future. This requires a holistic approach that also takes into account the development perspective, especially in poor countries. Furthermore, the World Bank should focus its attention on concrete reforms and not on their announcement.
