‘Doing Business’ failures highlight need for World Bank reform
The World Bank earlier this month issued an unusual statement announcing the discontinuation of its “Doing Business” report after an audit uncovered manipulation of the data on which country rankings were based. The annual report ranked countries according to how favorable their business climate is. Since 2003, it has ranked 190 countries according to indicators measuring how easy it is to establish and grow private companies, such as tax systems, administrative procedures, regulatory paperwork, property rights and access to credit. The report is used to encourage investment in countries placing high in the rankings.
Most quantitative models of country risk have built the findings of the annual report into their ratings and many investment decisions were made on the strength of those reports. The World Bank’s statement acknowledged that “trust in the research of the World Bank Group is vital,” adding that its research “informs the actions of policymakers, helps countries make better-informed decisions, and allows stakeholders to measure economic and social improvements more accurately. Such research has also been a valuable tool for the private sector, civil society, academia, journalists, and others, broadening understanding of global issues.”
In 2018, outside experts raised questions about the integrity of that year’s “Doing Business” report and urged the World Bank to disown it. In its recent statement, the organization acknowledged that “data irregularities” on the 2018 and 2020 reports prompted it to launch a series of reviews and audits, which “raised ethical matters, including the conduct of former Board officials as well as current and/or former Bank staff.”
An investigation by law firm WilmerHale, conducted at the request of the World Bank’s ethics committee, found that some World Bank senior executives had applied “undue pressure” to manipulate data in the “Doing Business 2018” report. Some of those accused have denied any wrongdoing.
These findings, which were published in an 84-page report on the World Bank’s website, led to the decision to discontinue the reports. Going forward, it said, it will be working on a new approach to assessing the business and investment climate.
The World Bank is no stranger to controversy. While scandals related to sexual misconduct and financial impropriety occasionally grab the headlines, questions about the institution’s governance, professional integrity and research oversight have bubbled in the background among specialists.
For decades, attacking the World Bank was the exclusive purview of radical-left economists and social activists, who faulted it for supporting policies that prioritized economic growth and corporate profit at the expense of vulnerable communities. It was also accused of acting as a “hegemonic tool” to promote the interests of industrialized countries and transnational companies. More recently, right-wing groups have attacked the World Bank as part of an international plot to rule the world. Conspiracy theorists have spun yarns about its supposed role in that plot.
Questions about the institution’s governance, professional integrity and research oversight have bubbled in the background among specialists.
Dr. Abdel Aziz Aluwaisheg
But the World Bank has received tough questions from more moderate critics. The “Doing Business” reports were certainly useful to help direct investment flows to economies performing better in the rankings. Policymakers also used them to identify obstacles and set clear goals to improve their business climate. However, the reports were frequently vulnerable to misjudgment and even manipulation, causing them to lose some of their credibility over the years.
According to critics, the reports’ failures are only the tip of the iceberg. One of those critics is the Bretton Woods Project, a think tank specializing in assessing the work of the institutions set up by the Bretton Woods Conference of 1944, including the World Bank. It believes that, despite the World Bank’s efforts to portray itself as a beacon of knowledge and expertise on development and macroeconomic issues, it continues to be “the subject of robust academic, UN and civil society criticism.”
According to the Bretton Woods Project and other analysts, there exists extensive and robust academic literature, with which the World Bank rarely engages, questioning the robustness of the theoretical and evidence bases for its principles and policies, and suggesting that its policies have at times failed to achieve their stated objectives of helping the poor, marginalized communities, and developing countries.
Very few have challenged the World Bank’s policies as profoundly as Joseph Stiglitz, its former vice president and chief economist from 1997 to 2000. Following his resignation, he launched a campaign in many books, articles and lectures to reform the institution. Even though he had served as chief economic adviser to President Bill Clinton from 1993 to 1997, there were reports that his resignation was triggered by complaints from the Clinton administration itself. According to Stiglitz, he had faced a choice between silencing his criticism of global economic policies as practiced in Washington and resigning as chief economist of the World Bank. He believed that Washington had failed to keep pace with the latest thinking at the time on sustaining growth in developing nations. There was an “intellectual gap between what we know and what is still practiced,” he said in an interview.
In 2001, Stiglitz shared the Nobel Prize in economics with George Akerlof and Michael Spence for their technical research on markets with “asymmetric information.” While the prize was not directly related to his commentary on globalization and the World Bank’s role in it, winning the prize has given his biting critiques a wider audience.
The latest mishap at the World Bank reveals an Achilles’ heel it shares with other multilateral organizations: While they advocate strict governance at the national level, they have not developed effective oversight and governance measures for their own institutions, making them vulnerable to manipulation. While it has done a good job in investigating the “Doing Business” reports, it launched the probe years after the first allegations were made, and then took a long time to make the decision of discontinuing those reports for now. The whole episode reaffirms the need for ongoing and more effective governance mechanisms to safeguard the institution’s reputation.
• Dr. Abdel Aziz Aluwaisheg is the GCC Assistant Secretary-General for Political Affairs & Negotiation, and a columnist for Arab News. The views expressed in this piece are personal and do not necessarily represent GCC views.