Ease of Doing Business Controversy
14th October, 2021 Economy
Figure 3:No Copyright Infringement Intended
- Recently, Ease of Doing Business has been in the news as it has been tweaked for political reasons.
- In August 2020, the World Bank suspended its EoDB rankings after finding some “data irregularities”.
- In particular, it was alleged that the EoDB rankings were tweaked to inflate the ranks for China (in EoDB 2018) and Saudi Arabia, UAE and Azerbaijan (EoDB 2020).
About Ease of Doing Business
- The EoDB rankings were started in 2002 to rank countries on a number of parameters to indicate how easy or difficult it is for anyone to do business in a country.
- Each year, the EoDB rankings mapped whether, and by how much, a country had improved on a number of big and small parameters, such as how long it takes to start a business, or how costly it is to get a construction permit, or how many procedures one has to go through to enforce a contract etc.
- It was released by World Bank.
Significance of Ease of Doing Business:
- Billions of dollars of investments started becoming predicated on where a country stands on EoDB and whether it is improving or worsening.
- It also acquired massive political significance as leaders in different countries started using EoDB rankings to either claim success or berate the existing government.
Way to Improve Ease of Doing Business
- Don’t ignore the government functions that provide essential public goods to the private sector: transport and communications infrastructure, a skilled workforce, law and order, etc.
- Doing Business covers a diverse array of indicators that often have little meaning when aggregated with arbitrary weights. For some indicators, less is clearly better (e.g., delays in registering a business), while for others, optimal policy is far less clear (e.g., the optimal corporate tax rate).
- Do not rank countries on their tax rates. From a societal standpoint, collecting taxes is necessary, and thus lower tax rates are not necessarily better.
- Eliminate the indicators “Protecting Minority Shareholders” and “Resolving Insolvency.”
- Make the “Contracting with Government” indicator more relevant.
- Restore and improve the “Employing Workers” indicator, but do not rank countries based on this information.
- Improve the transparency and oversight of Doing Business.