International: Out of Business – The Rise and Fall of the World Bank’s “Doing Business” Report

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On September 16, the World Bank announced it would discontinue its Doing Business report — a flagship annual report that ranked countries on the basis of their business regulations in 190 economies. The World Bank announcement followed an internal audit and independent external review of the facts and circumstances regarding reported data irregularities in the 2018 and 2020 Doing Business reports. The World Bank reported that “because of internal reports that raised ethical matters, including the conduct of former Board officials as well as current and/or former staff … [the World Bank] will be working on a new approach to assessing the business and investment climate.”

About the Doing Business Report

The Doing Business report, first published in 2003, evolved to assessing the ease of doing business in a country on the basis of 12 indicators covering 190 economies. The ease-of-doing-business score was based on starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts, and resolving insolvency. Indicators on the regulation of employment (including the “Employing Workers” index, a composite indicator that determines the cost of labor market regulations and is based on measuring the difficulty of hiring, rigidity of working hours, and difficulty of firing) and on contracting with the government were also included in the report but were not included in the ease-of-doing-business score or ranking. The World Bank also tracked the regulatory reforms in the countries assessed by its Doing Business report and kept an updated collection of business laws and regulations that could affect the above indicators, including administrative laws, alternative dispute resolution laws, banking and credit laws, bankruptcy and collateral laws, securities law, insolvency law, civil codes, tax law, trade and customs laws, commercial and company laws, construction law, privacy law, and environmental and labor laws.

In its last edition, Doing Business 2020, New Zealand, Singapore, and Hong Kong SAR China scored the highest in the rankings, and the World Bank reported that Saudi Arabia, Jordan, and Togo made the most improvements in their business regulatory reforms.

Doing Business and Foreign Direct Investment 

In a 2012 case study, the World Bank found that foreign direct investment (FDI) inflows were higher for countries with better overall business regulatory environments, which performed better on the Doing Business indicators. However, the link between FDI and a high ranking from the World Bank Doing Business report was never clear, as China continues to be the second largest recipient of FDI inflows in the world despite ranking 31st in its ease-of-doing-business rankings.  As the World Bank mentions, the Doing Business report was never meant to be an investment guide, but rather a measurement of indicators of ease of doing business for entrepreneurs.

Doing Business and Labor Regulations

In addition to the tenuous link between a high ranking in Doing Business and increased FDI flows, researchers from the International Labour Organization (ILO) have also questioned the “Employing Workers” index in particular — namely, the presumption that stronger regulation of labor is associated with lower labor force participation and higher unemployment. The ILO points out that deregulated labor markets, highly ranked by the ”Employing Workers” index for economic outcomes, may be in conflict with international labor standards. For its part, the International Trade Union Confederation (ITUC) has been calling for the discontinuance of the Doing Business report for years, saying “Doing Business has led to the adoption of damaging measures to weaken or eliminate business regulations in many countries, including those that protect workers and provide social protection.”

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Reading time: 12 minute(s)