By Paolo von Schirach
May 15, 2013
WASHINGTON – Of all the comparative statistical compilations produced by multilateral lending institutions, the “Doing Business” Report published annually by the World Bank is one of the most useful. At a glance, the Report provides a good idea of how any given country is or is not “business friendly”. All countries are ranked on the easiness of performing certain operations that will indeed affect the ability of any business to get established and carry on its activities with minimal impediments. And so countries are rated on the length of time it takes to secure basic services, on their taxation system, on how long it takes to get a court to adjudicate any given matter, and so on.
Doing Business Report spurs reforms
One of the most noticeable consequences of this yearly World Bank publication is that some governments, especially the governments of the countries that get a low or poor score, have taken notice. As all nations compete with one another for scarce investors dollars, a bad Doing Business score is an embarrassing stain that turns investors away. And so, at least in some instances, governments have been spurred by the Report to enact reforms in order to improve their Doing Business score and therefore their ability to convince foreign investors to bring their business there.
Critics
The Doing Business Report has its critics. It is accused of having too much of a pro-business bias. Some say that, if the perfect score is an environment in which business can thrive, then any country that suppresses workers rights will get a good score, even though its policies are inimical to social progress and elementary justice. Fair enough. There may be grounds to revisit some of the Reports’ metrics or some aspects of the methodology.
China does not like its low score
But now there is a different type of criticism. China does not like the low score it gets –only 91 out of 185– and therefore Beijing argued in a very public way that the Report must be poorly formulated. Indeed, from a public relations stand point, a low Doing Business score clashes with the image of China as the rising star, well on its way to overtake the United States as the world’s largest economy in just a few years. If China is going up and up, how can it have such a low Doing Business score? Impossible, claim the Chinese. Therefore it means that the Report follows a flawed methodology that gives wrong results.
China’s rise had to do with low wages, and not with good public administration
Of course, it is entirely possible to have at the same time a fast growing economy and a poorly organized, inefficient and often unfair public administration –this is what the Report measures. The fact is that China is not for your average investor. China is for giant multinationals that cut their own deals and make sure that certain conditions, often tailor made for them, are met.
Besides, it is a well known fact that China’s meteoric rise in the last thirty had to do with an export-led boom featuring mostly Chinese companies exporting their own goods or goods assembled in China for major international brands. China’s comparative advantage was not based on the benefits of competent, Scandinavian style, public administration providing good services. It was almost entirely based on ridiculously low wages, an artificially undervalued currency and complete disregard for the disastrous environmental impact of its dirty industries. Low cost was China’s ticket to global competitiveness. In that context, the disadvantages of inefficient government services paled in comparison with the huge profits generated by China’s enormous exports volumes.
But now China is aspiring to be taken seriously as a world class economy and it does not want the stain of a low Doing Business score. And so, in the typical fashion of authoritarian governments, instead of taking corrective action in order to improve its score via meaningful reforms, Beijing says that the Report’s methodology is wrong; and therefore the Report itself should be eliminated or totally reformulated.
Political pressure
Jim Yong Kim, the World Bank (American) President is now in a tricky situation. If he bends because of this overt political pressure, the institution looks weak. However, China is now a major World Bank shareholder. There is no interest in picking a fight with the world’s second largest economy. Therefore management came up with a dilatory tactic. An ad hoc commission headed by Trevor Manuel, South Africa’s Minister of Planning and a respected economist, will review the Doing Business Report methodology and hear from many critics.
That said, if in the end the Manuel commission will recommend substantive changes that will turn the hard hitting Doing Business Report into a compilation of opaque statistical mush, you will know who won the fight.