How to succeed on ‘Doing Business’ without really fixing anything

There’s an interesting debate going on over the future of the World Bank’s widely cited "Doing Business" report, drivenby opposition from an unlikely coalition that includes human rights NGOs and the Chinese government. The former complains that the report endorses a one-size-fits-all neoliberal approach to economic growth and ignores worker protections like those that could have prevented last month’s factory disasters in Bangladesh. The latter doesn’t really like being ranked 91st. World Bank President Jim Yong Kim has promised to reexamine the report, which annually ranks countries according to criteria like "starting a business," "getting credit" and "enforcing contracts".

For the case against "Doing Business" see Christina Chang who wrote for FP’s Democracy Lab last month. The Economist makes the case for keeping it.  

Another interesting case comes from Ricardo Hausmann, a Harvard economist and former Venezuelan minister of planning, who argues that the problem is not so much the index itself, as how countries respond to it: 

Many countries – including Colombia, Liberia, Mexico, and Saudi Arabia – have at some point made improvement in the Doing Business ranking, or that of the World Economic Forum’s Global Competitiveness Report, a policy goal. This distracted them from focusing on what is important rather than on what was included in the index.

Countries should, instead, focus on the ultimate goal: generating a rapid increase in the number of productive jobs.

This seems a bit like the "teaching to the test" problem in education policy, where teachers are preparing students to succeed on standardized testing rather than actually teaching them useful skills and information. Kevin Grief also complains that rankings like these lead to bad economic research, with "lazy researchers around the world dumping these indices into the right hand side of regression equations and clogging the research pipeline with bad papers."

Whatever the debate of "Doing Business," there are half a dozen other similar indices that will continue to be cited: the addiction of governments, foundations, and especially the media to lists and rankings is pretty strong. But I do think it’s worth taking Hausmann’s advice that rather than simply accepting the rank order of a country on the list, we look more carefully at the criteria: 

Averaging the numbers assumes that all components are substitutes: if you cannot improve on one, you can compensate by improving on another. But I think of them as complements: if you cannot build your plant, you do not benefit from more accommodating trade rules. A single problem can be fatal, even if other indicators are strong.

Second overall ranked Hong Kong, for instance, ranks first on the World Bank’s measurement of "dealing with construction permits" but a dismal 60th on "registering property." One would imagine that the difficulty of registering a property would somewhat negate the ease of building it. 

The debate over how the methodology of this report — or whether it’s useful at all — will continue. But it’s certainly worth paying attention to how this or any index is constructed before citing it — or building national policy around it.