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Saturday, December 4, 2021

The scandal involving the World Bank’s ‘Doing Business’ index highlights problems in using sport-like rankings to guide development goals

The World Bank, a giant of the organization providing tens of billions of dollars in aid to most developing countries, is in the midst of one of its biggest scandals since its founding in 1944.

The crux of the crisis is related to its Doing Business Index, which ranks companies in 190 countries on the ease of opening and operating. In September 2021, an investigation alleged that the bank’s senior leadership manipulated the index’s data in response to pressure from China and Saudi Arabia.

The scandal has already prompted the bank to suspend publication of the index and call for further investigation. Some have also called for the resignation of officials identified in the report, such as Kristalina Georgieva, formerly the CEO of the World Bank and now the head of the International Monetary Fund.

On October 11, 2021, the IMF – which is holding its annual meeting with the World Bank currently in Washington – said it would leave Georgieva at her job.

I am a comparative legal scholar who studies the rule of law in multilateral institutions such as the World Bank. As I show in my forthcoming book on the subject, I believe that the real problem here is less whether officials intervene or not, and that the Doing Business Index and similar indicators have a problematic role in aiding developing countries. is more about.

‘Everybody wants to win’

The World Bank’s Doing Business Index ranks countries around the world on 11 different economic indicators, such as registration of property and payment of taxes, and since its inception in 2002 has been an authoritative guide to international trade and funding decisions. source has been created. It is similar to US News and World. Report rankings of colleges, countries and other categories.

A change in the ranking of a country can have a huge impact on the money it receives from foreign investors. The World Bank has found that a 1 percentage point improvement in a country’s overall Doing Business score is associated with an additional US$250 million to $500 million in foreign direct investment.

The main idea behind the ranking system was that it would be much easier for politicians, journalists and others to use, and so the hype around it would lead to reforms.

According to the 2005 World Bank Staff Report, “The main advantage of showing a single rank is that “in sports, once you start keeping score everyone wants to win.”

And in fact, even though the World Bank technically has no authority to guide countries’ regulatory regimes, in practice its index has a significant impact on the behavior of governments. For example, countries in Latin America and Africa have restructured their entire corporate governance systems to fit Doing Business’ one-size-fits-all reforms.

But this cascading effect has a downside, as it serves as an incentive for governments to try to “game the system – or corrupt it”, as the Washington Post’s editorial board recently noted. was kept.

International Monetary Fund Managing Director Kristalina Georgieva was the CEO of the World Bank when the Doing Business rankings were allegedly being manipulated.
AP Photo/Mark Schiffelbein

trouble doing business

The most recent Doing Business scandal began around June 2020, when employees began discovering data irregularities in two recent reports.

In January 2021, the law firm WilmerHale was asked to investigate. On September 15, Wilmerhall said it found senior World Bank leadership pressured employees to improve China’s Doing Business rankings in a 2018 report as it sought Beijing’s support for a major capital injection. The law firm also found problems with the ranking changes in Saudi Arabia, the United Arab Emirates and Azerbaijan in its 2020 report, but did not directly blame senior leaders.

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But a big part of the problem here is that rankings encourage this kind of behavior, because often not all countries can make the market-friendly legal reforms that are needed to rise up.

One way they can do this is by paying World Bank fees for “reimbursable advisory services”, such as advice on what kind of reforms to best implement. Of course, it is not difficult to see the potential for institutional conflicts of interest and corruption here. Both China and Saudi Arabia made extensive use of these contracts, pressuring bank officials to change their rankings, the report said.

The bigger concerns about the Doing Business Index are more fundamental. Comparative legal scholars, including myself, have found that the legal reforms supported by the index always appear to be biased in favor of systems based on common law followed by countries such as the US and UK.

For example, France, one of the world’s largest economies operating under a civil legal code, performed poorly in preliminary rankings due to low scores on the “registration of property” and “obtaining credit” metrics. And, in turn, this means that countries such as Algeria, Lebanon and Indonesia that have built legal systems based on France or other non-Anglo legal traditions are also unfairly hurt by the rankings.

The ranking has been controversial since its launch. Joseph Stiglitz, who was chief economist at the World Bank in the late 1990s, said in a recent op-ed that he thought it was a “terrible product” from the start.

“Countries received good ratings for low corporate taxes and weak labor regulations,” he wrote. “The numbers were always squishy, ​​with small changes in the data having potentially large effects on rankings. Countries were essentially upset when seemingly arbitrary decisions led them to drop in rankings.”

In other words, the Doing Business Index pushes countries toward a shareholder-centered corporate and business model modeled on US-style capitalism. This is in contrast to many other models, such as those in Japan and Germany, which place greater emphasis on social goals such as workers and gender equality. Corporate governance scholars have found that these may be a better model for some countries than US-style capitalism.

Is it ‘worth dying’?

The recent scandal underscores that the index is not in line with the broader objective of the bank.

The stated mission of the World Bank is to “end extreme poverty and promote shared prosperity.” It was established in the wake of World War II to achieve this mission through financial agreements with developing countries.

The Doing Business Index fails in this purpose because it forces governments to “implant” legal reforms that may not hold true for those countries, and can actually lead to backfiring and poor outcomes for residents.

I’m not sure whether the index “deserves to die” or should be reformed and transferred to another institution, such as a university, but I believe it is likely to expire at the World Bank.

This article is republished from – The Conversation – Read the – original article.

World Nation News Deskhttps://www.worldnationnews.com
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