The Doing Business Index is being recalibrated

by on January 13, 2018 at 8:27 am in Data Source, Economics | Permalink

The World Bank repeatedly changed the methodology of one of its flagship economic reports over several years in ways it now says were unfair and misleading.

The World Bank’s chief economist, Paul Romer, told The Wall Street Journal on Friday he would correct and recalculate national rankings of business competitiveness in the report called “Doing Business” going back at least four years.

The revisions could be particularly relevant to Chile, whose standings in the rankings have been especially volatile in recent years and potentially tainted by the political motivations of World Bank staff, Mr. Romer said.

…Over time, World Bank staff put a heavy thumb on the scales of its report by repeatedly changing the methodology that was used to calculate the country rankings, Mr. Romer said.

The focus of the World Bank’s corrections will be changes that had the effect of sharply penalizing the ranking of Chile under the most recent term of Chile’s outgoing president, Michelle Bachelet.

“I want to make a personal apology to Chile, and to any other country where we conveyed the wrong impression,” Mr. Romer said. The problems with the report, he said, were “my fault because we did not make things clear enough.”

That is by Josh Zumbrun and Ian Talley at the (gated) WSJ.

1 mkt42 January 13, 2018 at 8:55 am

Yikes, what was the motivation? World Bank staffers didn’t like Bachelet’s socialism? But there are dozens of socialist or highly interventionist countries in the world, why pick on Chile?

I’m reminded of the novel the Peter Mountford published a few years ago, _The Dismal Science_, in which an economist quits the World Bank and Evo Morales invites him to his inauguration because he thinks he’s an ideological ally.

Or maybe it was more of an expose than a novel? Mountford’s background is international relations rather than economics but he did work at a think tank and lived in South America before becoming a fiction writer.

2 Anonymous January 13, 2018 at 8:56 am

I thought I might find something about this at the World Bank website, but I could not.

What do “out of channel” communications indicate?

3 Anonymous January 15, 2018 at 9:05 am

This statement makes it clear Romer was not speaking for the Bank and implies he’s wrong about this.

4 shrikanthk January 13, 2018 at 8:57 am

I don’t quite understand how a bureaucratic organization with a few thousand employees can make grandiose judgments on countries on N different dimensions. And why should we take them seriously at all?

5 Cayman January 13, 2018 at 10:04 am

“And why should we take them seriously at all?”

…….Who is We ?

Socialists NEED central planners & bean-counters to direct the economy. The more centralized… the better — “World” level centralization is the best, so a “world bank” institution is really great.

Most national governments are socialist-lite or plain socialist … and therefore love the world bank idea. Rational people correctly see the world bank as malicious.

(…but nice to see a socialist economist admit he was wrong — very rare)

6 Partridge January 13, 2018 at 10:10 am

Everyday the World Bank sends a commissar at my bussiness to be sure I am fulfilling the quota of widgets production the Five-Year Plan assigned me. I yearn for a capitalism revolution, then there will be no statistics anymore.

7 Doug January 13, 2018 at 11:26 am

It’s a symptom of cost disease and modernity’s sclerotic culture that we think an organization with “a few thousand” highly educated, skilled and motivated people can’t accomplish anything. We’re just totally numbed by humongous bureaucracies around us today. A small group of motivated people can and have changed the world or produced amazing things. The Roman Empire under Augustus wasn’t that much larger than a few thousand employees. The US federal government in 1800 numbered only about 150 employees. Facebook, the sixth largest company in America, has fewer than 25,000 employees. The Empire State Building was built in a year with 3,500 employees. Standard Oil was a trillion dollar company and only had 60,000 employees at its peak.

Producing the Doing Business Report every year is certainly not an easy feat, but far leaner organizations have produced far more with far fewer.

8 shrikanthk January 13, 2018 at 11:42 am

Yes, but in this case the organization is not a concern producing a good or a service, or governing a province. But surveying and passing judgment on the world at large.. That’s an immeasurably more complex task.

9 Charbes A. January 13, 2018 at 1:48 pm

Exactly why describing the business climate in India is a more complex task than subduing, ruling, exploring and developing the resources of it colonialists were interested in is left as an exercise for the reader.

10 Ray Lopez January 13, 2018 at 12:00 pm

Seems like you’re mixing apples and oranges when you compare 150 to 25000 and so on. And the British Empire in India employed I think 300 people.

Bonus trivia: the size of the US Federal bureaucracy has not grown that much in employees since 1960 (though its budget has); it’s the state and local bureaucracies that have grown a lot.

PS–to get an electric permit for a new house here in the Philippines takes roughly 6-12 months. You have to borrow electricity from a relative or neighbor until you get your own meter. Bribing helps I’ve been told (as it does in Greece, which is roughly the same), but I don’t feel like paying so I didn’t bother, since I get juice from a neighbor in consideration of paying their electric bill for the month, which is not that much by my standards.

11 Mulp January 13, 2018 at 4:21 pm

You are arguing a few thousand workers is too many, and such indexes of nations should be created by tens of workers, like Heritage and Cato do when ranking States, nations, etc???

12 rayward January 13, 2018 at 9:13 am
13 Dzhaughn January 13, 2018 at 3:50 pm


Faceless blue collar / workers march on foggy ice / white men in back, thanks!

14 Charbes A. January 13, 2018 at 9:24 am

“The revisions could be particularly relevant to Chile, whose standings in the rankings have been especially volatile in recent years and potentially tainted by the political motivations of World Bank staff, Mr. Romer said.”

So the truh is revealed at last.

15 dearieme January 13, 2018 at 9:32 am

“potentially tainted by the political motivations of World Bank staff”: rather like some FBI staff, then.

16 Anonymous January 13, 2018 at 9:49 am

The New York FBI and Giuliani? I heard something about that, but luckily the FBI are not judge, jury, and dungeon masters. They work within a legal system and *always* have to make their case.

17 dearieme January 13, 2018 at 11:11 am

“They work within a legal system”: it’s the way you tell ’em.

18 daguix January 13, 2018 at 9:52 am

If we substract commodities, aren’t GDP for a developed country and growth rate for a developed country the best measures of doing business index?

19 Anonymous January 13, 2018 at 9:55 am

The “days to open a business” metric has had a very positive effect worldwide, as countries cut their bureaucracy to increase their rank.

20 wiki January 13, 2018 at 9:58 am

Partially. But part of what the Doing Business survey is trying to account for is the ease of making contracts, dealing with lower levels of corruption, and wading through red tape that is very difficult to enforce and rarely done uniformly. Compared to the developed world, these matters are fiendishly bad. So what the DB index is meant to be used for is to track changes in some of these dimensions as some countries at similar levels of income and growth have attempted various reforms. Whether or not the Bank has succeeded in really tracking these changes well is an entirely different issue.

Growth and GDP do not track well micro changes in policy at least in the short to medium run.

21 Mr. Econotarian January 13, 2018 at 1:14 pm

Low GDP growth is the symptom. The question is, what is the cause of low GDP growth?

Someone in the manufacturing industry active in El Salvador told me recently that he opened a new factory in Vietnam, and that the “communist” government of Vietnam was
More business-friendly than the FLMN democratically elected government in El Salvador.

I also know a restauranteur in Panama. I’ve compared her tales to me of extreme labor regulation to what is reflected in the World Bank Doing Business Index (large mandates of paid time off, maternity leave, large severance pay, night work pay rates, government OK on layoffs, etc.) that make it tough to hire/fire properly. However she also told me about other regulation (like the “13th Month” pay requirement) that isn’t in the WB analysis, so not all labor regulation is making it in to that report.

22 John F January 13, 2018 at 2:01 pm

Tip: WSJ articles are ungated if accessed via Twitter.

Just search the URL in Twitter and click a tweet. Here was the first one:

23 Dzhaughn January 13, 2018 at 3:51 pm

Thanks! Finally a reason to join Twitter.

24 jorgensen January 13, 2018 at 4:36 pm

The World Bank seems to have done a lot of damage over the years.

Maybe its time to burn it down and start over.

25 Hyman Roth January 13, 2018 at 6:38 pm

This is the business index we’ve chosen!

26 Curt F. January 14, 2018 at 8:08 am

One of my less rational pet peeves is the use of the word “methodology”.

repeatedly changing the methodology that was used to calculate the country rankings

Doesn’t “Changing the way we calculated country rankings every year” sound better?

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