On March 29, at a virtual meeting hosted by the London School of Economics before the 2021 World Bank-IMF Spring Meetings, World Bank President David Malpass called for long-term, integrated strategies that emphasise “green, inclusive and resilient development” to tackle what he calls the COVID-19 “pandemic of inequality”. Underlining the importance of helping countries improve their readiness for future pandemics through policies supporting sustainable development, he urged policymakers to avoid repeating the “errors of the past”.
World Bank representatives reiterated the same discourse at the Spring Meetings and last week’s UN Financing for Development Forum. Yet, one of the Bank’s most powerful policy advice tools, the Doing Business rankings, continues to produce skewed policy prescriptions that obstruct developing countries’ pandemic recovery efforts and constrain their resilience to future crises.
For 17 years, political leaders and policymakers around the world have peered anxiously over the Bank’s annual Doing Business report. The Bank’s flagship publication ranks 190 economies on how easy and cheap it is for companies to do business there. The fewer regulations, the higher a country scores on the Doing Business index, increasing its chances of attracting foreign investment. According to the Bank, this leads to economic growth with trickle-down benefits to the population.
The report was launched in 2004 as the new face of the much-criticised Structural Adjustment Programs (SAPs), which were rooted in the idea that deregulation and privatisation encourage investment and boosts development and economic growth. There is now ample evidence of the negative consequences of SAPs, which were widely implemented through World Bank and International Monetary Fund loans in the 1980s and 90s. Although some of the Bank’s loan conditionalities have evolved with time, the same ideological preferences continue to be promoted under the Doing Business rankings to this day.
With the Doing Business index, the Bank made itself both the referee and the rule maker of its global benchmarking and investor-friendly policy reforms exercise. Governments that want to signal to the world that they are open for international business race each other to cut red tape and win a place on the Bank’s “top ten improvers” list. But this regulatory race to the bottom erodes worker and environmental protections in the meantime. The reports’ recommendations have concrete effects on shaping policy in developing countries.
Policies rewarded in the rankings include cutting corporate income taxes and contributions to employees’ retirement schemes in India; reducing social tax rates in Hungary and Kazakhstan, and completely abolishing social security contributions in Georgia.
Meanwhile, the Doing Business report discourages welfare and environmental protection. Bolivia and Trinidad and Tobago got a lower mark for raising social security contribution rates for employers, while Guatemala increased its score by relaxing requirements for environmental impact assessments and Vietnam gained points for scrapping environmental protection fees. Some countries, such as India and Indonesia, design national reforms with the sole intention of climbing up the rankings. Rwanda has an entire ministry devoted to this purpose.
India’s new laws to deregulate agricultural markets show how far governments can go to protect private investors’ interests and follow the World Bank’s policy prescriptions. Legal reforms which will affect 800 million Indians whose livelihoods depend on farming passed with no public debate. The largest ever farmer protests in response to it were met with paramilitary violence, arbitrary arrests and internet shutdowns.
The 2020 enactment of the Omnibus Law in Indonesia is another example of a package of reforms explicitly designed to help a country climb on the Doing Business ranking. Though the bill faced massive pushback from labour unions and social movements for its effects on workers’ rights and the environment, it received the World Bank’s unconditional endorsement.
A 2019 Cambridge University study clearly illustrated the outsized influence the Doing Business rankings have on investors. In an experiment, the researchers provided a group of investors with various economic and political indicators for a set of countries. They found that even when most other indicators looked positive, a low ranking on the Doing Business index caused investors to refrain from investing in a country. This finding begs the question: should the World Bank promote a deregulation blueprint that disproportionately serves firms with headquarters in the rich countries that govern it, at the expense of worker rights and climate and ecological sustainability in many developing countries?
US Treasury Secretary Janet Yellen, in her push for increasing corporate taxation, recently stated that competitiveness “is about making sure that governments have stable tax systems that raise sufficient revenue to invest in essential public goods and respond to crises”. And yet this is exactly what the World Bank, whose largest shareholder is the US, makes impossible to attain through the Doing Business recipe for attracting private investments.
Privatisation, outsourcing, and budget cuts have already undermined the capacities of countries to respond to the COVID-19 crisis. And inequality-boosting policies encouraged by the World Bank will continue to be harmful in the post-pandemic world. The erosion of social safety nets, deemed “burdensome” and “costly” by the Bank’s metrics, have affected 2.7 billion people facing unemployment and income loss.
Since its inception, the Doing Business index has been criticised by civil society organisations, academics, trade unions and the World Bank’s chief economist and an independent panel of experts.
In August 2020, the Bank was forced to suspend the publication due to “a number of irregularities”. An internal investigation concluded that undue pressure by Bank management over the Doing Business team to manipulate data in 2017 and 2019 led to altered results for Azerbaijan, China, Saudi Arabia, and the United Arab Emirates. An external panel has been tasked to undertake a comprehensive review of the Doing Business methodology, but the process so far has lacked transparency and accountability, with limited consultation with civil society.
As the Bank prepares to launch its Doing Business report for 2021, more than 360 civil society organisations, academics, former UN staff and independent experts from 80 countries have signed an open letter calling for an end to the Doing Business rankings and reports. If the World Bank is serious about building a resilient and inclusive recovery from the coronavirus pandemic, it is time it aligns its discourse with its actions. Ditching the harmful Doing Business rankings would be a good place to start.
The views expressed in this article are the author’s own and do not necessarily reflect Al Jazeera’s editorial stance.