- By Dan Runde
The World Bank’s most successful program — "Doing Business," which ranks countries on the ease of starting and running a formal business — has helped spark major free market reforms in over 100 countries during its 10 years of existence. It serves as a major "strategic conversation starter" for American diplomats, makes it easier for entrepreneurs to get access to bank loans, increases the number of business start ups in developing countries, and helps governments bring companies out of the gray economy into the formal economy. But it now is in danger of being weakened, outsourced, or done away with.
So why would anyone dislike Doing Business? Countries that rank poorly compared to their geostrategic rivals (such as China, India, or Argentina) or don’t believe in free markets and the private sector as the primary driver of prosperity tend to dislike the index. This has resulted in an unfortunate effort inside the World Bank to do away with the index.
Doing Business reflects a broadly American and widely accepted view about development — that the private sector is its main driver. A small number of influential, vocal countries on the board of the World Bank such as China, Brazil and India dislike where they end up on the DB rankings. As a result, they have called on bank management to change the methodology of the report to reflect aspects that they can perform more highly on and to stop ranking countries according to the ease of doing business. In addition, several quarters are calling for the World Bank Group to give the Doing Business project to another institution.
Jim Kim became the new president in July 2012, and with his ascent, anti-reform forces within the bank’s bureaucracy and on its board sensed their chance to kill, cripple, or "outsource" the index. After a messy board meeting last summer where no consensus was reached, Jim Kim punted and convened a panel to review Doing Business. That panel is expected to release a recommendation about the fate of Doing Business in May or June. This weekend the World Bank hosts its spring meetings, and Doing Business will be one of the hot topics of conversation t. For my day job, I am hosting an event on Friday morning to recognize the 10th anniversary of the report. The World Bank cancelled a large research conference last December following the 10th release of the report because of the review and the "controversy" around the index.
Doing Business ranks countries by how hard or easy it is to start a "formal’ (tax-paying, bank loan-taking) business. In many countries, setting up a business "by the book" can cost tens of thousands of dollars and conceivably years of fighting red tape. But operating in an informal economy is bad for prosperity: no access to bank loans, many opportunities for bribes, and less folks paying any taxes at all. Doing Business was incubated with strong support from the Bush administration through contributions to the methodology from USAID, funding from USAID, and political support from State and Treasury. The last three World Bank presidents, especially Bob Zoellick, were strong supporters of Doing Business.
The fact that the World Bank releases an annual ranking gives Doing Business power and influence in unique ways because of the bank’s pull in developing countries. Attempts to "outsource" Doing Business to an academic institution will greatly reduce the power of the index.
At a time when the Obama administration and development thought leaders speak about the importance of funding activities that are "evidence based" and "data driven," the data and facts generated by the Doing Business indicators are undeniable and powerful. The data creates the ability to compare countries and local governments across jurisdictions and have made it possible to systematically study the effects of regulations and red tape on private enterprise. Reforms empower entrepreneurs and takes power from crony capitalists.
To the administration’s credit, they have supported Doing Business but could use some help from Republicans. Through Congressional action, Republicans need to weigh in with the administration (especially the Treasury Department) and with the World Bank’s leadership.
This is a great bipartisan opportunity for the chairman and ranking members of the Senate and House Appropriations, Foreign Relations, and Financial Services Committees to take action to support a pro-business development agenda. Because the World Bank should be a force multiplier of American influence in the world, Republicans supported (and rightly so) the renewal of the general capital increase of the World Bank. In return for supporting the GCI, the U.S. should be expected to retain its "big seat" at the table and exercise that influence with Jim Kim and bring in allied shareholders in favor of strengthening Doing Business. Killing, crippling, or outsourcing the index to another institution is one of the worst things the World Bank could do and would be a direct rebuke to the bipartisan support that the World Bank receives.
The U.S. renewed its commitment to the World Bank through the GCI, and it is time for the World Bank to renew its commitment to a proven program that supports free markets, cuts corruption, and empowers entrepreneurs.