Daily News Analysis

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).

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.