Ease of Doing Business Index– Ranking Countries: More Transparency or Misleading… Keep It, Change It, Scrap it…

World Bank’s Ease of Doing Business Index (Index) measures the business regulations of countries, worldwide, and examines the key factors that directly affect each country’s businesses, for example; business formation, operation, laws, challenges… The concept behind the Index is simply– the daily economic activity of countries is shaped by the laws, regulations and institutional arrangements put in place by governments and institutions.

The Index examines and ranks the country’s business cycle; starting with the number of bureaucratic and legal steps required to start a business, or to register and transfer commercial property… It then delves into how long it takes and how much it costs to comply with regulations, such as; time and money needed to enforce contracts, file for bankruptcy, trade across borders… the Index measures levels of legal protection for investors and property, corporate tax rates, ease of closing a business, employment regulation…

The basic assertion of the Index is that smarter business regulation supports economic growth… simpler business registration promotes greater entrepreneurship and company productivity, while lower-cost registration improves employment opportunity… an effective regulatory environment boosts trade performance… sound financial market infrastructure, courts, creditor, insolvency laws… improves business access to credit… However, the Index does not directly measure the more general conditions, such as; a country’s proximity to large markets, quality of infrastructure, inflation, crime…

According to the World Bank; the Index is based on study of laws and regulations in countries worldwide with input and verification by more than 9,600 government officials, lawyers, consultants, accountants and other professionals in 185 countries who routinely advise-administer on legal-regulatory requirements. The Index averages a country’s percentile ranking on 10 topics, including: Starting a business: Dealing with construction permits: Getting electricity: Registering property: Getting credit: Protecting investors: Paying taxes: Trading across borders: Enforcing contracts: Resolving insolvency. Then, countries are ranked on their ease of doing business, from 1 – 185.

A high-ranking on the Index means the regulatory environment is more conducive to the starting and operation of a local business in country. In 2013 like in 2012, Singapore ranks first on the Index (seventh consecutive year it ranked first), followed by; Hong Kong, New Zealand, U.S., Denmark, Norway, UK, South Korea, Georgia (top 10 countries). Many sub-Saharan African countries and Venezuela are at the bottom of rankings.

According to the World Bank, its Index is having a significant impact on countries by identifying their business weaknesses, for example; 108 countries implemented 201 of its regulatory reforms in 2011/12, worldwide… 44% of these reforms focused on three areas, specifically; making it easier to start a new business, increasing the efficiency of tax administration, and facilitating trade across international borders. To make the data comparable across the 185 countries, the Index uses a standardized business framework; 100% domestically owned, has start-up capital equivalent to 10 times income per capita, engages in general industrial or commercial activities, and employs between 10 and 50 people…

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In the article World Bank Urged to Scrap Index by Marjorie Olster writes: The World Bank set-up an Independent Review Panel (Panel) to review the Ease of Doing Business Index process and concluded; the main Index was open to misinterpretation and should be discontinued… It urged the World Bank to continue publishing the Report without the headline Index, and instead give only separate rankings for each individual indicator now aggregated into the main Index.

According to the Panel Report; the Index has the potential to be misinterpreted… and the main disagreement is whether the Index measures the correct indicators in the correct way. In other words, the debate was about whether a higher ranking implied that a country was on the right track for effective private-sector business development.  

The World Bank set up the Panel after the Index came in for some harsh criticism from a number of directions… China and India, which ranked 91 and 132, respectively, in the latest Index, were among the critics. The Panel said the key criticisms were that the structure and publication of the

Report focused attention primarily on the indicator rankings (i.e., Index) to the exclusion of the Report’s remaining content. It said another big concern was whether the information being gathered was really relevant…

In the article World Bank Keeps Index Despite Criticism by Reuters writes: The World Bank said that it intends to keep ranking nations (i.e., Index) on the ease of conducting business, despite criticism from countries like China that feel the scorecard unfairly stigmatizes fast-growing developing countries. According to World Bank President Jim Yong Kim; the Bank is committed to keeping its flagship Report, including the Index, which compares the ease of starting and conducting a business in 185 countries…

The Report is prepared by the Bank and its private-sector lending arm, the International Finance Corporation. It has become one of the Bank’s most popular publications, since it began its publication in 2003. Smaller developing countries often use the Report to show outside investors how much they’ve improved their business environment. Government officials may use it as an incentive to promote business-friendly legal changes, such as, eliminating red tape.

The U. S., which is ranked number four, supports the Report and its Index… Others have criticized the Report’s methodology and said it has a bias against all regulations, including; protections for workers. According to several sources, China pushed especially hard for modifying the Report and getting rid of the Index system; arguing the World Bank should not rank its members. China was ranked number 91, in 2013 Report… prompting suspicions that its opposition was motivated by the low ranking…

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In the article Widespread Corruption in Businesses by Mitchell Ogisi writes: Corruption in business is an issue for developed and developing countries, however, developing countries may suffer more because corruption can stymie business development and foreign investments and foster income inequality. Apparently this is the case in many developing countries’ lower rankings on the World Bank’s Ease of Doing Business Index, which gauges how conducive a country’s business environment is to starting and operating a local business…

In some world regions, results can vary widely across local countries and particularly countries at different stages of economic development. In Asia, for example, a relatively low 13% of residents in highly developed Singapore perceive corruption as widespread in their businesses– Singapore ranks first on the World Bank’s Ease of

Doing Business Index. In contrast, nearly nine in 10 adults in neighboring Indonesia perceive corruption as widespread in their businesses– Indonesia Ease of Doing Business Index ranking is 129. Perceptions of business corruption also vary widely in former Soviet countries, ranging from low of 28% in Georgia to high of 87% in Moldova.

Georgians’ perceived corruption in their businesses has dropped precipitously since 2006, when more than half the population (52%) viewed the problem as widespread. This decline and Georgia Ease of Doing Business Index ranking of 16, worldwide, likely reflect some dividends from its efforts to eradicate corruption with a zero-tolerance, anti-corruption campaign…

But it’s also important to note that high perceived corruption does not always translate into lower Ease of Doing Business Index ranking, particularly in developed countries with higher GDPs. Paradoxically, higher perceptions of corruption in some wealthier countries may reflect greater transparency, and therefore greater awareness among the population of corrupt practices. For example, 85% of Israelis say corruption is widespread in their country’s businesses, and their Ease of Doing Business Index ranking is 34.

According to World Bank, corruption is one of the single largest obstacles to economic and social development. Corruption in business is important global concern that involves both, developing and developed countries. It can be difficult to accurately monitor corruption in business, particularly in countries with little or nonexistent transparency, making tracking their residents’ perceptions even more relevant. Strong leadership, policies, laws, and greater transparency are necessary to fight corruption, which in turn may actually promote job creation and economic development…

A fundamental premise for ease of doing business and strong economic activity is fair business regulation, which are transparent and accessible to all– not just big business. According to World Bank; a country’s business regulations should be efficient, striking a balance between safeguarding the important aspects of the business environment and avoiding distortions that impose unreasonable costs on businesses.

Where business regulation is burdensome and competition limited, success depends more on whom you know, than on what you can do. But where regulations are relatively easy to comply with and accessible, to all who need to use them, anyone with talent and a good idea should be able to start and grow a business, legally.

However, according to critics; a country’s rank on the Ease of Doing Business Index does not tell the complete story about a country’s business environment, and the underlying indicators do not account for all factors important to doing effective business, such as; macroeconomic conditions, market size, workforce skills, security… also, they do not examine the key aspects of business regulatory and institutional environment that really matter.

According to World Bank; the Index is very effective at promoting change for countries that wish to improve their rank on the Index, for example; the top 20 countries on the list have implemented effective changes by streamlined their business regulatory procedures, such as; ease of starting a business, dealing with construction permits, strong legal protections of property rights… They also, periodically review and update business regulations as part of a broader competitive agenda and take advantage of new technologies through government initiatives…

However, there are many critics that say; while the World Bank Index plays an important role in conveying new information relevant to monitoring aspects of the business climate on a timely and internationally comparable basis, there are many flaws associated with it… Key among these is the relevance of the information gathered, indicators being measured, spectrum of businesses being analyzed (e.g., currently only small and medium-sized enterprises), and basis of its comparability across countries with different needs and at differing stages of development…