September 25, 2022

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Supportive Business Potential

The World Bank’s BEE: Old wine in a new bottle | Business and Economy

The World Bank seems to be going through its very own Groundhog Day with the announcement of the Business Enabling Environment (BEE) Project. Even a cursory look reveals that it is little more than a rebranding of the (rotten) apple of its eye: the Doing Business (DB) report and rankings, which was discontinued last year.

The BEE appeared just weeks before the Bank’s Independent Evaluation Group (IEG) published a report questioning the development effectiveness of DB and recommending “to avoid using business regulatory or similar global indicators as explicit reform objectives”. Yet the bank marches on regardless, apparently ready to repeat the same mistakes.

The DB Report was certainly highly influential: it was one of the World Bank Group’s most widely read publications and its content steered policy decisions worldwide. But it was also one of the Bank’s most controversial projects, criticised for its methodology, accuracy, inherent biases and for the harmful impact of the policy reforms it advocated. For example, improving the DB score meant cutting corporate income taxes and contributions to employees’ retirement schemes in India; reducing social tax rates in Hungary and Kazakhstan; and completely abolishing social security contributions in Georgia.

Civil society organisations and social movements around the world celebrated when the WB announced its discontinuation in September 2021. The decision followed an investigation by law firm WilmerHale which revealed data manipulation to change the rankings of five countries – China, Saudi Arabia, the United Arab Emirates, Jordan and Azerbaijan – following undue pressure from World Bank leadership – malpractice not new to the DB.

The investigation threw up questions about the integrity of the institution. More than 140 civil society organisations and academics from around the world called for the bank to carry out a root and branch reform to address its outdated quota system, ditch the “gentleman’s agreement” dictating how its leaders are selected and revise its ideological bias in favour of neoliberal policies.

Instead, less than six months after the scandal, the BEE appeared: a “new project to measure the business enabling environment in economies worldwide.” It is supposed to differ from DB because it will evaluate the business environment from the standpoint of the private sector as a whole and not only of the individual firm; it will account for the positive role of the state in functioning markets; it will collect both de jure and de facto information on policies of interest.

Yet, these methodological tweaks look like tinkering around the edges while failing to address most of the previous faults.

First, the project remains vague on the use of aggregate scoring and ranking of countries. The risk is that, like the DB, its indicators will continue to be used to incentivise policy competition between countries which leads to a harmful race to the bottom in deregulation.

Second, it continues to include harmful indicators based on the simplistic assumption that what is good for business is also good for people and the planet. For instance, as noted by The International Trade Union Confederation (ITUC), the BEE version of the labour indicator continues to incentivise deregulation of the labour market. The Tax Justice Network has noted that the tax indicator retains its predecessor’s focus on the total tax and contribution rate, an approach that ultimately undermines contributory social protection systems and progress on corporate taxation, therefore contributing to increased inequality.

Most disturbing is the BEE’s claim to address the DB anti-state bias by introducing indicators assessing the existence of “public services” (intended as institutions, rules and infrastructure) that support the smooth functioning of markets. This approach is based on the long-held assumption that the only role of the state in the economy is to make markets work better. It ignores well-established evidence showing that the state can and should play a proactive developmental and entrepreneurial role in the economy, creating public value and sharing prosperity.

This approach also risks creating trade-offs within governments between providing those “public services” most helpful to private businesses (eg increasing “efficiency” to obtain environmental permits) and those that address basic needs, such as public healthcare or education, but with no immediately quantifiable economic return.

Finally, the BEE glosses over the question of the true impact of the DB. The IEG report alone should warrant the halt of the BEE project. It finds that most claims made about the alleged positive links between DB’s indicators and job creation, economic growth, extreme poverty and shared prosperity do not meet a “high standard of evidence”.

In practice, the evidence available is not strong enough to confirm the positive impact of business-enabling reforms on the WB’s goals of ending poverty and sharing prosperity. Perhaps most importantly, the BEE will do very little to help developing countries address key challenges such as the energy transition and the creation of green and decent jobs, and will perpetuate the harmful effects of the DB.

The bank should abandon this project and instead rethink its approach to the role of the private sector in development in light of the COVID-19 recovery and the urgent climate and inequality crises. This month’s Spring Meetings offer a chance for the bank to own up to its wrongdoings and be accountable for the harm done, to break with the past and embrace a new model that truly puts people and the planet first.

The views expressed in this article are the authors’ own and do not necessarily reflect Al Jazeera’s editorial stance.