Ease of Doing Business Controversy

14th October, 2021 Economy

Figure 3:No Copyright Infringement Intended

Context:

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).

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.

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.

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.