Besides national accounts, few statistical indicators have been as influential in the world of investment as the World Bank’s Doing Business index.
The ranking of business climates has served as the basis for national targets set by global leaders ranging from David Cameron to Narendra Modi and Vladimir Putin. The World Bank itself has even made loans conditional on improvements in a country’s Doing Business ranking.
After years of mounting controversy, however, the index has finally been discontinued. An audit by white-shoe law firm WilmerHale, released last week, revealed the role of the World Bank’s senior management in manipulating data in order to please China and Saudi Arabia.
When one-size-fits-all suits nobody
Simultaneously sold as a metric of investor friendliness and a benchmark for successful developmental policy, the Doing Business index rested on the assumption that the two were effectively one and the same – that there could be no daylight between what is good for foreign investors and what is good for the global poor.
As Investment Monitor wrote in March, the result of this fundamental tension was an index that served neither investors nor the governments of the developing world.
The incessant focus of the Doing Business ranking on shifting the burden of social security from employers to employees, for instance, punished governments seeking to improve their threadbare social safety nets while heaping praise on those pushing through (by emergency decree, in the case of Romania) deeply regressive changes.
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Yet, investors were also ill-served by this marriage. The decision, under pressure from the US, to stop punishing countries for expanding labour rights and raising wages was surely correct from a development perspective, but made little sense for investors.
The new report sheds light on a third constituency for whom the Doing Business ranking was produced: donors.
In the run up to the release of the 2018 ranking, the WilmerHale report states that the World Bank was attempting to secure a new tranche of funding from donor countries. China was signalling its apprehension. Its diplomats had expressed displeasure at the country’s ranking in the 2017 index.
Senior World Bank officials, allegedly under the direction of President Jim Yong Kim, ordered the Doing Business team to try various tweaks to the data to bump China up the rankings, such as including data from Hong Kong and Macau or basing the scores on China’s best-performing city. When these didn’t work, the index’s founder, Simeon Djankov, is alleged to have been drafted in to tweak the underlying numbers.
Who did Doing Business really serve?
The World Bank is a subscription-based organisation, largely reliant on funds contributed by a handful of large or wealthy countries. Unlike the UN, voting power is allocated based on these ‘subscriptions’.
Six countries currently hold 42% of the World Bank’s subscriptions and 40% of the organisation’s voting power – the US, Japan, China, Germany, France and the UK. In contrast, 150 of the world’s poorest countries collectively hold just 15% of shares and 18% of the voting power.
China is likely to remain a significant source of future funding increases for the World Bank. Despite accounting for 18.8% of global GDP, China currently holds just 5.3% of World Bank subscriptions – suggesting sizeable growth potential.
Not all of the World Bank’s income comes from subscriptions. By the time of the 2020 report, it was Saudi Arabia threatening to tighten the purse strings. Although the Gulf kingdom is responsible for just 2.7% of World Bank member contributions, it offers the bank lucrative advisory contracts.
After concerns that Jordan had beaten Saudi Arabia to the top spot in the 2020 Doing Business index, the WilmerHale report states that the team was instructed to boost the latter’s score, which they did by altering the underlying data.
It is significant that both supposedly charitable donations and private sector-style consultancy fees led senior World Bank figures to alter the numbers.
It is also noteworthy that the third case of data manipulation detailed in the WilmerHale report seems to have been motivated not by financial concerns, but what multiple Doing Business employees described in the report as Djankov’s “personal animus” against Azerbaijan.
The conflicts of interest, lack of accountability and centralisation of decision-making that characterised the world’s most influential and respected international index are unlikely to be entirely absent in other, less scrutinised, publications.
The appeal of such indices is their simplicity, but that simplicity always masks the messiness of data collection and the arbitrariness of combining data into a single metric – inconvenient truths that make methodological opacity all the more appealing. The Doing Business scandal shows the dangers of such an approach.