For nearly two decades, the World Bank’s finest and most operative product has been its Ease of Doing Business Index. With 10 clear measurements, such as how easy it is to pay taxes or get electricity, it has informed decision-makers in business how easy or difficult it is to work in 190 countries. It has also told the governments in those countries what they need to do to improve their business environments. No World Bank tool has had as great and positive an impact in promoting reforms and defeating corruption. Therefore, naturally, it has been controversial.

Numerous leaders have boasted about how their state administration have become less burdensome and more effective as they have risen on this scale. The top six performers in 2020 are not surprising: New Zealand, Singapore, Hong Kong, Denmark, South Korea, and the United States. But rookies are Georgia (7) and Lithuania (11) that have greatly improved their business environments guided by this index.

This index is contentious among authoritarian kleptocrats because it has given outside observers from the realms of academia to those of finance acute insights into which agencies are corrupt. It has also driven domestic reforms. The World Bank and the reform community have no tool that is as useful and effective as the Doing Business Index. It must not be given up, but should be protected. There are many other valuable indexes, such as the Corruption Perception Index of Transparency International, but none of the other indexes specifies as concretely what the problems are: How many procedures and how much time is  needed, for example.

Alas, on Sept. 16, the enemies of this index – the autocrats whose countries repeatedly fall short in the rankings — got the upper hand. The World Bank issued an independent report by the law firm WilmerHale outlining attempted manipulation of the index by top bank officers to favor China and Saudi Arabia. The report cited three former World Bank managers, including current International Monetary Fund Managing Director Kristalina Georgieva. As a result, the current World Bank management concluded that the institution should no longer produce this index. That is unfortunate — throwing out the baby with the bath water.

How Countries Press for World Bank Approval

The WilmerHale investigation shows how China and a few other authoritarian countries lobby international organizations for their approval. But why were the Chinese officials not named? For years, World Bank officials have grumbled privately that Chinese officials have undermined their work internally, censoring any praise of democracy or criticism of corruption, even in academic journals published by the Bank, such as the World Bank Economic Review. Chinese representatives to the Bank essentially argue internally that, while their country is centrally controlled, i.e., authoritarian, and has issues with corruption, that does not appear to impede growth, since its economy is growing much faster than most. So it should not be criticized! Saudi Arabia and Russia have chimed in similarly, as have others. They have driven the World Bank off the road it should be taking — towards democracy and good governance.

The primary value of the Doing Business Index is its approximate evaluation of the business environment in each country. Who cares whether China ranks 78 or 85 in the index (the difference the alleged interference apparently made)? Hardly anybody but the Chinese government.

The criticism against the Doing Business Index has been of two kinds. One is that it advocates a neoliberal market economy. Those who prefer bureaucracy and corruption may say so, but freer economies simply tend to function better. A few years ago, a review committee advocated the abolition of an 11th criterion, the freedom of the labor markets, because of criticism from trade unions, and that most controversial measure was excluded, which seems fair.

The other, more relevant, criticism is that the Doing Business measures are unstable and not very reliable. That is true of this and of all such gauges. It should suffice to add a caveat about the degree of uncertainty, as in opinion polls, which are widely used – and sensibly so — but are never stable or fully reliable. The transition indicators of the European Bank for Reconstruction and Development are subject to similar criticism, but they have been most helpful for transforming formerly communist economies to market economies. Anything that really matters is by nature controversial. Indexes of this type cannot be exact, which all serious researchers know.

One of the allegedly proposed distortions of the Doing Business Index exposed in the WilmerHale investigation mirrors what the Organization for Economic Cooperation and Development’s Program for International Student Assessment (PISA) has already done. It allows several foremost cities in China (Beijing, Shanghai, Jiangsu and Zhejijang, Macao, and Hong Kong) to represent China. This suggests that PISA is more manipulated than the Doing Business Index, because China’s three city groups land among the top four “countries” in the PISA ranking, while all the other measures apply to whole countries. In effect, the results of the WilmerHale probe means the PISA rankings, which have great political impact in many countries, also need to be revised, even more so than the Doing Business Index, which apparently resisted this form of manipulation.

Conduct Regular Reviews Instead

Indeed, a group of senior academics and economists had submitted an external assessment of the index to the World Bank, at its request, just weeks before the WilmerHale report and the Bank’s decision to end production of the index. That assessment “recommended an overhaul of the rankings to limit countries’ efforts to `manipulate their scores,’” according to Reuters.

That kind of approach – to improve the index– is far more reasonable than the World Bank’s response of abolishing its finest product. No serious organization would give up its best tool because of its own lack of integrity – it should fix its lack of integrity instead. If the World Bank does not have sufficient integrity to manage an index, it is definitely not capable of handling billions of dollars.

The obvious alternative is to further increase the transparency around the Doing Business measures and to regularly review its methodology and measurements. Another option is to transfer the index assessments to a non-governmental organization of greater integrity. Transparency International has also been subject to criticism, but it seems to have been more capable of improving and defending its Corruption Perception Index than the World Bank. The same is true of Freedom House’s Democracy Index. Both these important indexes are inherently more controversial than the Doing Business Index.

The Doing Business Index is too valuable to be scrapped just because of World Bank mismanagement.

IMAGE: Reforms toward “attracting foreign investment through better labor resources” are among several recommendations outlined in the World Bank’s Country Economic Memorandum for Georgia. (Photo taken October 4, 2013: Leonid Mujiri / World Bank via Flickr)