After World Bank scandal, what's the future of Doing Business?

The World Bank has scrapped its flagship annual Doing Business report, following an external investigation that revealed multiple efforts to influence the rankings and manipulate outcomes in favor of countries such as China and Saudi Arabia to the detriment of other nations that slid down the list. The scandal was a sharp blow to the global lender’s reputation as a leading source of impartial data and information. It has also raised doubts about the political future of International Monetary Fund Managing Director Kristalina Georgieva, who was the chief executive at the World Bank from 2017 to 2019 and is accused of putting her finger on the scales to help China’s ranking in the Doing Business index in 2018 — a charge she denies. The damage to the bank’s brand comes during an uneven global recovery from the COVID-19 pandemic that has made the global lender particularly relevant, from financing vaccines to ensuring the stability of the world’s lowest-income nations. Amid speculation that the World Bank will bring back the report in a new format and with new packaging, development experts say that the publication was useful but has long needed an overhaul — and that now is a good time to take stock and consider reforms. Shanta Devarajan, a former World Bank official who worked on Doing Business and reported to Georgieva, has emerged as a staunch backer of his former boss. Devarajan also said he worries that amid the fog of allegations, the world will lose a key tool for development. Doing Business, he said, enabled citizens to hold governments accountable for pledges on reforms, such as on easing regulations for businesses. “Folks game the system to try to move up the ladder.” --— Chris Humphrey, senior research associate, Overseas Development Institute “The value of research and knowledge to empower citizens to hold their governments to account cannot be overstated,” Devarajan told Devex in an interview. “This is the primordial way of improving development.” IMF’s board met on Monday with representatives from WilmerHale, the law firm hired by the World Bank to carry out the investigation into Doing Business, as the board probes any potential wrongdoing by Georgieva in her former post. The IMF board is also due to speak with the managing director herself “soon,” it said in a statement Monday. Georgieva has issued statements denying the allegations, though she has not yet answered questions from the media or otherwise spoken publicly about the affair. The IMF and World Bank’s annual meetings are just around the corner, starting next Monday. Learning from Doing Business The World Bank first published Doing Business in 2003. The report reviewed and ranked countries on policies seen as favorable to the private sector and later made annual judgments based on surveys and other data about whether countries improved or saw backsliding. The report’s supporters concede that quantifying its exact benefits is sometimes hard but point to a wave of reforms over nearly two decades. Daniel Runde, a senior vice president at the Center for Strategic and International Studies, has argued that hundreds of reforms have been enacted in 178 economies, making it easier to open and run a business. Critics say the annual report promoted a cookie-cutter policy approach that not only enabled the types of manipulation the investigation uncovered but drove a homogenization of regulatory and economic policy that failed to take local needs into account. “Doing Business was in need of reform,” said Justin Sandefur, an economist at the Center for Global Development. He was part of the group of outside experts that carried out a months-long review of the bank’s project, separate from the law firm’s probe into alleged manipulations. The experts identified what they said was a lack of transparency, including around the methodology in Doing Business, and also expressed concern about the lack of a firewall between the team doing the rankings and other parts of the World Bank. Sandefur argued that the “highly subjective” nature of the index and its changing methodology led to sharp annual swings in the rankings — which were also dominated by an ideological agenda of liberalization and deregulation, he added. In addition, each nation has its own development needs and economic sectors of focus, which the rankings failed to capture, he said. “You need to find the optimal policy for your context,” Sandefur said. But more than anything, the report’s rankings, which were widely watched by everyone from investors to credit rating agencies, were prone to manipulation efforts. “It was doomed to political interference,” Sandefur said. Paul Cadario, a former World Bank official, said he shares the concerns about the rankings, which were marketed to the media each year with much aplomb. “Doing Business without the ranking would not have had the same gaming,” said Cadario, who is now a distinguished fellow at the University of Toronto. “What happens if you shut them [China] out? This poses a danger of fragmenting the international system when you need to come together for global issues like climate change.” --— Chris Humphrey, senior research associate, Overseas Development Institute The fact that the report was so influential shows that there is a demand for such a product, Cadario said, which means there is a strong incentive to revamp the core idea while keeping at least some of the underlying research models. But without a real reckoning within the World Bank, any new product would end up with the same problems of political interference and manipulation within a few years, as nations seek to improve their score, Cadario cautioned. “It’s an inherently problematic setup,” said Chris Humphrey, a senior research associate at the Overseas Development Institute think tank. “Folks game the system to try to move up the ladder,” he said, adding that this in large stemmed from the nature of systematically ranking countries compared to one another. He reflected on his own time setting up loans at the bank and how frequently the rankings came up. “I worked on loans with governments. They were seeking conditionalities to help them move up the rankings,” he said. However, Humphrey is quick to caution against getting rid of Doing Business entirely, saying the data collected contained valuable information: “Having an examination of a country’s framework is reasonable. It’s good to look at these issues.” What’s next The World Bank would not comment directly on any plans to relaunch the product. “The World Bank Group remains firmly committed to advancing the role of the private sector in development and providing support to governments to design the regulatory environment that supports this,” according to a spokesperson. “We are deeply grateful to the efforts of the many staff members who have worked diligently to advance the business climate agenda, and we look forward to harnessing their energies and abilities in new ways,” the person added. Just after the World Bank scrapped the product, Paul Romer, a Nobel Prize-winning economist, gave an interview and said there is a “lack of integrity” among the leadership at the lender and IMF. “Kristalina engineered a cover up, a whitewash," Romer said. In 2018, Romer resigned from his post as the chief economist of the World Bank, saying the methodology favored right-wing ideologies and that the rankings are unfair and misleading, as he joined a growing group of economists who worried about the report. Georgieva, for her part, is seen as a progressive economist with a leaning toward development, in a break with IMF’s more traditional role as the lender of last resort. In addition to Devarajan, a slew of supporters have come out to back her, in a campaign to push back on the hits to her reputation. “I don’t think Kristalina should be sullied,” Devarajan, who now teaches development studies at Georgetown University, told Devex. “I can assure you that she did not put pressure on me,” he added about his time working on Doing Business. The economist Jeffrey Sachs argued the attacks against the IMF chief are at least in part coming from the political right in the United States, framing the issue as isolationists against multilateralists. Sachs’ opinion piece in the Financial Times was just one of many that ran in the financial press, as members of the U.S. Congress began to weigh in too, with politicians on both sides of the aisle expressing concerns over China’s influence over multilateral institutions. Sachs said there is “anti-China hysteria,” and economist Joseph Stiglitz dubbed the events a “coup attempt,” led by China hawks. Humphrey told Devex he was worried that rising anti-China sentiment in Washington could push Beijing away from multilateral institutions and encourage the government to set up parallel institutions. Already, the Chinese-led Asian Infrastructure Investment Bank has gone from just a handful of members to more than 100 since 2015, and Beijing is setting up more facilities on its own. “What happens if you shut them out?” Humphrey said. “This poses a danger of fragmenting the international system when you need to come together for global issues like climate change.”