By Viktoria Dendrinou
LONDON, June 25 (Reuters Breakingviews) - National rankings can be a bit
like beauty pageants. Participants try to do well, winners get some rewards, and
observers have a good time. But, as a panel reviewing the World Bank’s “Doing
Business” report pointed out this week, the aggregate rankings are faulty. The
panel said the international institution should drop the Ease of Doing Business
index.
The system is simple enough. The World Bank aggregates 10 indicators for
183 countries. They range from starting a business to registering property and
enforcing contracts. The result is a popular index, which offers a trustworthy
source, straightforward methodology and the appeal of a clear list from 1 to
183.
The results are helpful. Voters and lenders react favourably to upward
moves, and companies use the list as a rule of thumb to help with investment
decisions. Leaders of countries which score badly are inspired to improve.
But the panel, commissioned by World Bank President Jim Yong Kim, is right
about the flaws. The index blindly favours lower tax and less regulation. It
focuses on the quantity of legislation rather than the quality or the standard
of enforcement. Moreover, the weighting of indicators is arbitrary, and the
pooling of developed and developing countries is inevitably misleading. The
challenges of doing business are great in both Rwanda (ranking 52) and
Luxembourg (56) but they are very different.
Still, in this case the best is the enemy of the good. The desire to move
up unreliable rankings boosts policymakers’ will to make reforms. Even if some
of them do little or do harm, the overall effect is good for business.
What’s more, the rankings help shed light on the rest of the report,
including the – more useful - analysis of individual criteria. Naming and
shaming individual countries often makes headlines, upping public pressure to
act on specific reforms.
The panel unsurprisingly suggests improving the transparency and
methodology of the report. Fair enough. But the rankings should stay, perhaps
with a warning to take them with a pinch of salt. Scrapping them could send the
report, and the useful reforms it promotes, into obscurity.
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