World Bank needs to restore the credibility of 'ease of doing biz' rankings

The World Bank’s chief economist, Paul Romer, kicked up a storm a couple of weeks ago when, in an interview to The Wall Street Journal, he claimed that the bank’s flagship ranking, mapping the ease of doing business across the world, was unfairly manipulated. Since the time they were launched in 2003, the Doing Business rankings were typically treated with great respect, with several national governments making it one of their top priorities to move up the ladder. The rankings map the state of business regulation in a country on a host of parameters such as the ease of starting a business or enforcing contracts or securing construction permits. However, the methodology has not remained the same. And that has now come under a cloud because the bank’s own chief economist spoke against it. In fact, he stated that “he could not defend ‘the integrity’ of the process that led to the methodology changes”. The immediate case in point was Chile, which saw its ranking sway massively over the years. Although Mr Romer later claimed that he was misquoted, the apprehension that Chile’s rankings were manipulated, based on which political faction ruled the country, has taken root. And the question over the credibility of the rankings is not limited to Chile alone.

In fact, two researchers from the Centre for Global Development (CGDev) have shown how changes in the methodology may have negatively portrayed Chile when it was ruled by the socialist president, Michelle Bachelet, and, in the same way, shown to have improved when the country was under her conservative successor Sebastián Piñera. The ranking during Ms Bachelet’s first term fell sharply from 25 (2006) to 49 (2010) only to recover smartly to 34 (2014) under Mr Piñera’s rule. However, since then, Chile has again been under Ms Bachelet’s socialist rule and the rankings have steadily plummeted to 55 as of last year. It is entirely possible that certain regimes make it easier to do business than others, but the researchers have gone back to the earlier versions of the methodology to show that the range of variation is much narrower — hitting a low of 39 under Ms Bachelet in 2010 to a high of 30 under Mr Piñera in 2012. The question that is doing the rounds is, did the bank unfairly penalise Chile when it was under a socialist regime?

Subjecting other countries to similar comparisons led to a mixed set of results. And even though one can justifiably question CGDev’s fixed methodology itself, the proverbial cat is already out of the bag. There are countries that see huge variations and questions are being raised. For instance, India’s Doing Business rank has risen from 142 to 100 between 2014 and 2018, but CGDev’s method pegs India at 147 — worse than what it was before 2014. Even though the World Bank has clarified that it stands by India’s ranking, this has not prevented many to question the authenticity of the country's achievements. The question, however, is not limited to India, even though many have strongly questioned the validity of using the World Bank’s Doing Business rankings, which are limited to Delhi and Mumbai, as a marker for the ease of doing business across the country. The bank should restore the credibility of its rankings.

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel