Is Development for the World Bank Mainly Doing Business?

By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY and KUALA LUMPUR, Nov 10 2020 (IPS)

The World Bank has finally given up defending its controversial,
but influential Doing Business Report (DBR). In August, the Bank
“paused” publication of the DBR due to a “number
of irregularities
” after its much criticized ranking system
was exposed as fraudulent.

Anis Chowdhury

Apparently, data from four countries – China, Azerbaijan, the
UAE and Saudi Arabia – was “inappropriately
altered
”, according to the Wall Street Journal. Exposure of
these irregularities was the final straw: now, it is uncertain
whether the DBR will return after its suspension.

Exposing the lie
After Chief Economist Paul Romer told the Wall Street Journal two
years ago that
he had lost faith
in the “integrity” of the DBR, and
apologized to Chile for possibly politically motivated data
manipulation, he was forced to resign. The Economist commented
then, “His
resignation may not end the controversy
”.

Romer later received the so-called Economics Nobel Prize
following his resignation. Almost two decades ago, Joseph Stiglitz
also received the Prize after being forced to resign following
differences with US Treasury Secretary Larry Summers following the
1997-1998 Asian financial crisis.

When Justin Sandefur and Divyanshi Wadhwa of the Center for
Global Development (CGD) exposed how ostensibly methodological
tweaking changed Chile’s and India’s DBR rankings to bolster
“market-friendly” Piñera and Modi vis-à-vis their more
centrist opponents. Simeon Djankov, founder of the Bank’s Doing
Business index, dismissed the CGD and the two authors as
reformed
Marxist
”.

Doing Business vs SDGs
Djankov insisted that the DBR is about the costs of doing business,
not “the
benefits of running a society
”. He contemptuously told those
who criticised the DBR for failing to consider social or
environmental impacts, to create their own “index that says the
benefits of …regulation”.

Jomo Kwame Sundaram

For the DBR, it did not matter if reducing regulations harmed
the environment or employment conditions, or if lowering taxes
constrained governmental capacity to fund public investment and
provide decent public health or social protection as long as such
“reforms” lowered the costs of doing business.

Singlehandedly, Djankov exposed the shallowness of the Bank’s
commitment to the Sustainable Development Goals (SDGs). By
undermining social and environmental dimensions, Djankov exposed
the Bank’s actual attitude to sustainable development.

Hence, the Bank had little choice but to ditch the DBR, which
has already done enormous damage to development by encouraging
harmful tax competition and ‘races to the bottom’ with regard
to the protection of the environment and labour rights.

Racing to the bottom for nothing
Governments seek improvements in their country’s DBR ranking
believing that it will increase growth via increased investment,
especially foreign direct investment (FDI). However, the evidence
has been disappointing.

For example, a World
Bank Policy Research Working Paper
found that, “on average,
countries that undertake large-scale reforms relative to other
countries do not necessarily attract greater [foreign direct
investment] inflows”. For developing countries, it found an
insignificant statistical relationship.
Another study concluded
, “the various studies do not provide
guidance on which of the wide range of possible [investment climate
(IC)] reforms are most strongly correlated with increased
growth”.

Such ranking competition has encouraged debilitating
investor-friendly government behaviour. The index has become a tool
for governments to formulate, evaluate and legitimize their
economic policies. Some now
game the system
to notch up their countries’ ranking with
essentially cosmetic reforms.

Indonesia’s recent “Omnibus
Bill
” ostensibly for job creation includes many
market-friendly reforms that would most certainly boost
Indonesia’s DBR ranking. The bill, from a government increasingly
influenced by the Bank, is now widely criticised for heavily
favouring powerful business interests at the expense of workers,
human rights and the environment.

Agrarian counter-revolution
Ditching the DBR may be a good start, but is far from enough. The
Bank must also end other similar ‘ideologically driven’
exercises, such as its Enabling the Business of Agriculture (EBA)
and Investing Across Borders (IAB) indicators, which prioritise
FDI, typically at the expense of some SDGs.

The Bank’s EBA
indicators project
is an extension of its Benchmarking the Business of
Agriculture (BBA) programme
, first launched in 2013. BBA,
partly based on the DBI methodology, was created after the
G8 asked the Bank in 2012
to develop such an index for the
G8’s controversial
New Alliance for Food Security and Nutrition programme
.

The Bank claimed, “The indicators provide a tangible measure
of progress and identify regulatory obstacles to market integration
and entrepreneurship in agriculture”, leading to a more modern
commercial agriculture sector.
Private agribusiness investors will be the main beneficiaries

of its proposed land policies and environmental protection
deregulation.

But the Bank does not bother to explain how farmers, especially
smallholder or peasant farmers, will benefit from the proposed
reforms or from large-scale commercial agriculture. Our Land; Our Business
highlighted that the EBA will encourage corporate land grabs and
undermine smallholder farmers who produce 80% of food consumed in
the developing world.

In January 2017, over 158 organizations and academics from
around the world
denounced
the EBA to the WB President and its five Western
donors (USAID, DFID, DANIDA, the Netherlands, and the Gates
Foundation),
demanding its immediate end
.

In response, the
Bank made
some cosmetic changes and dropped its controversial
land indicator. However, its latest (2019) EBA still
reflects
its strong bias for commercial agricultural inputs and
mono-cropping, undermining food security, sustainability as well as
customary land holdings.

Favouring Foreign Direct Investment
The Bank’s International Finance Corporation (IFC) introduced its
Investing Across Borders
(IAB) indicators in 2010
. Heavily influenced by Hernando de
Soto, the IAB indicators were designed to complement the Bank’s
DB indicators.

The IAB indicators claim to help accelerate economic growth by
giving primacy to FDI as a driver for job creation, technology
transfer, upgrading skills, fostering competition and fiscal
consolidation. In fact, IAB indicators encourage frameworks that
limit
benefits
for host countries besides enhancing the harmful
effects of cross-border investment deals.

The indicators
also violate
the letter and spirit of the IFC’s Performance
Standards for Environmental and Social Sustainability; Principles
for Responsible Agricultural Investment respecting rights,
livelihoods and resources; Voluntary Guidelines on the Responsible
Governance of Tenure of Land, Fisheries and Forests; and various
other international instruments.

One size never fits all
The rise and fall of the DBR expose the dangers of using and
exaggerating the significance of standardised rankings for very
different countries and business environments. An IC is typically
complex and difficult to reduce to a few key indicators, let alone
a meaningful composite index.

Reforming only certain aspects of business regulation because of
the influence of Doing Business cannot possibly be optimal,
especially when government capacity is constrained.
Academic literature reviews conclude
, “while there is
empirical evidence that institutional reform can promote growth, it
is less clear which reforms matter most, how to prioritise possible
IC reforms, and what kinds of institutional frameworks and
functions are needed”.

Growth drivers and constraints are very context specific, so
reform priorities should also be context specific. Therefore, a
one-size-fits-all approach to measuring and understanding complex
investment environment issues is very problematic, especially one
based on the interests and priorities of particular institutions
and powers.

The Bank should stop doing harm by concentrating on its original
mandate of intermediating finance at the lowest possible cost for
sustainable development, relief and recovery in our extraordinary
times. It should stop misleading the world, especially developing
countries, with its highly biased supposed knowledge products.

�

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Is Development for the World Bank Mainly Doing Business?

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Is Development for the World Bank Mainly Doing
Business?