The legacy and future of the World Bank’s Doing Business index
The World Bank’s Independent Evaluation Group (IEG) published a mammoth report (pdf) that assesses the legacy of the discontinued Doing Business Index, published annually from 2003 to 2019.
We review the evaluation’s highlights for small business policy, and echo its call for a future version of the index to focus on concrete, lived realities of small businesses and deepen the use of meaningful digital channels and statistics.
An influential index, for better or for worse
The Doing Business (DB) report can be considered the single most influential source for business policy and regulation in the world. Unlike most other policy outputs by the World Bank and other international organizations, each year, the report included a numerical benchmarking that ranked all participating countries from best to worst.
The overall ranking was a composite index that consisted of 10 indicator sets, ranging from broadly relevant aspects like “starting a business” to much more technical ones such as “dealing with construction permits” or “protecting minority investors”. In addition to the ranking as such, press releases and communication around the report heavily emphasized the largest net improvements in rankings, to celebrate countries which passed reforms, even where they maintained a low absolute ranking.
IEG’s comprehensive evaluation more or less confirms what critics, an external panel, and a legal review had pointed out before: while numerical rankings can be powerful in stirring policy action, they can also lead to a horse race mentality where too much attention lies on the spot that a country ultimately obtains and too little on the complexities and lived realities that actually characterize “doing business” in emerging markets.
Combining a diverse set of indicators into a single ranking is also bound to lead to inconsistencies. Finally, both World Bank and government officials appear to have influenced the ranking for political purposes. In the end, the Doing Business index became problematic precisely because it became influential among policymakers.
(Re-)Discovering small business and digital realities
On 319 pages, the IEG report covers a lot of ground, which this Spotlight cannot do justice to. What stood out for small businesses was its finding that Doing Business’s assessments had diverged more and more from the actual realities of small businesses. The methodology’s focus on counting policy reforms and assessing regulations as they exist on paper had led to a situation where especially the smallest and informal businesses continued to be ignored.
The report presents some stark findings, showing how Doing Business’s assessments of supposed business environments had little to do with what businesses reported to be their experiences (as measured by the World Bank’s own Enterprise Surveys). For the future version of the Doing Business report, the evaluation asks for a methodology that complements assessments of de jure reforms with primary data from small businesses.
It also calls on the World Bank to acknowledge the realities of digitalization. For example, the evaluation points out that a measure like “steps” or “number of processes” that a small business has to run through for a given administrative act has lost most of its meaning where these processes are available through e-government portals. Also changes in the private sector, specifically in digital financial services, need to be taken into account: the report highlights that government-provided credit scoring may lose its relevance in the face of digital-driven and sector-specific intermediaries providing credit scores on small businesses.
Similarly, tax administration and collection has been transformed by digital service intermediaries, but this was not considered in Doing Business’s methodology. Finally, non-traditional digital data collected by digital platforms and governments can also be considered for calculating country rankings.
A fresh start
For the sake of the smallest businesses, the World Bank should take these recommendations to heart. The digital age has brought about a host of new challenges and opportunities for small businesses to be more directly and continuously considered within business policy and regulation. Future attempts at assessing the effectiveness of policy reforms by the World Bank and others should foreground these issues and remain adaptive to further shifts that are already on the horizon.
