12/5/2016

DeceptionsofWBDoingBusinessReport2017

Deceptions of WB Doing
Business Report 2017
by Anis Chowdhury | Published: 21:50, Dec 01,2016

IN MY last op-ed (Should we worry about Doing Business ranking? New Age,
November 13), I have highlighted methodological flaws of the World Banks Doing
Business Report and pointed to its ideological bias. It always seeks new angles to
justify its promotion of reduced regulation on business. A closer look at the 2017
report, subtitled: Equal Opportunity for All, reveals its deceptions and naked
ideological bias.
In the foreword (p V), it says, Evidence from 175 economies reveals that
economies with more stringent entry regulations often experience higher levels of
income inequality as measured by the Gini index.
On the next (p VI), it admits, However, regulation can also be used as an
intervention when market transactions have led to socially unacceptable outcomes
such as improper wealth distribution and inequality.
Thus, it sounds very fair and balanced; but what is the evidence base for its strong
assertion (eg on p 11) that economies with more business-friendly regulations tend
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to have lower levels of income inequality?

The deception is in the claim evidence from 175 economies to distract from the
fact that the association, depicted in the two scatter plots (Figures 1.9 and 1.10), is
weak and influenced by countries closer to the frontier, usually the developed
countries. Inequality, although has increased in the developed countries during the
past three decades, it is still lower than in many developing countries a result of
well-established universal social protection systems and the redistributive role of
their taxation systems.
The report states that results on the association between DB scores and inequality
differ by regulatory area (p 11); but it only mentions two, starting a business and
resolving insolvency, for which it found a negative correlation (ie higher DB scores
associated with less inequality). It does not tell what the association is between
other DB scores, eg, paying tax or getting credit, etc, and the Gini index.
Other studies such as by the OECD, IMF, ADB and the United Nations (eg ESCAP)
have found a negative correlation between inequality and tax/GDP ratio, meaning
higher taxes are associated with lower inequality. They also report a negative
association between inequality and higher government social expenditure/GDP
ratio. One may think that higher taxes enable governments (as in developed
countries) to spend more on public health, education and social protection, which
reduce inequality.
Thus, it would have been nice for the DBR to report what association it has found
between inequality and, say, its paying taxes score, which includes a total tax rate
indicator where the best scores are given to countries with the lowest level of
taxes and social contributions (such as payments for social security) that businesses
must pay.
One wonders whether the DBRs silence is deliberate; and its strong claim of
inequality reducing effect of lower regulation, despite weak evidence, is a deceptive
attempt to push deregulation using societys widespread concerns with rising
inequality.
The Wrold Bank suspended the DBRs labour indicator in 2009 after objections
voiced by trade unions, several governments and the ILO against its use to
pressure countries to weaken workers protection. But its back door push for
labour market deregulation continues.
For example, Tanzanias score is cut for introducing a workers compensation tariff
to be paid by the employers; and Malta is penalised for increasing the maximum
social security contribution to be paid by the employers. New Zealand beats
Singapore and takes the first place in the DB ranking following the implementation
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of reforms reducing employers contribution to workers accident compensations.

New Zealands good DBR ranking hides the fact that it is a prime location for
setting up money-laundering shell companies; the country does not ask many
questions when setting up a company there.
Kazakhstan, Kenya, Belarus, Serbia, Georgia, Pakistan, the United Arab Emirates and
Bahrain the eight countries out of of this years DB top 10 improvers have
recorded poor and in some cases worsening respect of workers rights, according
to investigations by the International Trade Union Confederation.
The DBR 2017 included a narrative annex on labour market regulation, which
states that labour regulations can reduce the risk of job loss and support equity
and social cohesion (p 87). But it gives far more space to promote fixed term
contracts with minimal benefits and severance pay requirements (pp 8889).
In support of its claim of adverse impacts of labour regulations, the DBR 2017 cites
only three World Bank studies from several years ago. But it does not mention the
extensive review of empirical studies in the World Banks more recent World
Development Report 2013: Jobs, which found that most estimates of the impacts
[of labour regulations] on employment levels tend to be insignificant or modest (p
261).
To show its relevance to another widespread social concern, gender discrimination,
the DBR 2017 added gender components for three of its indicator sets starting a
business, registering property and enforcing contracts. But here, too, it could not
hide its trickeries.
On page 2, it says, For the most part, the formal regulatory environment as
measured by Doing Business does not differentiate procedures according to the
gender of the business owner. The addition of gender components to three
separate indicators has a small impact on each of them and therefore a small
impact overall.
Then what is the point of adding gender components? The fact remains that the
policies promoted by the Bank make women more vulnerable. For example, the
DBR will inevitably cut the scores of countries that tighten regulations concerning
working conditions, including the legislations for equal pay and maternity benefits,
thereby encourage them to relax these regulations affecting women
disproportionately more than men.
Behind the veil of its overt concerns for equal opportunities for all, the DBR
cannot hide its ideological bias. It gives higher Doing Business scores to countries
that favour corporate profits over citizens and countries interests, especially
workers.
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As governments bend over backwards to convince the World Bank that their
reforms should earn them better DBR rankings, we must not forget who stands to
lose most from this deceptive beauty contest. Workers, farmers, and the worlds
poor the majority of whom are women pay for the Bank-imposed reforms,
despite proclaimed concerns for inequality, gender equity and equal opportunities
for all.
Anis Chowdhury is a former professor of economics, University of Western
Sydney and held senior United Nations Positions during 20082015 at New York
and Bangkok.

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