With climate and health crises mounting, the case is loud and clear for countries to ensure regulations that protect the environment, health, and safety. Yet, indexes like the World Bank’s Doing Business (DB) that rank countries on their business settings—while rightly penalizing wasteful impediments that slow investments—wrongly discourage vitally needed socioeconomic guidelines. The recently announced break in the World Bank’s issuance of DB country rankings—because of statistical irregularities—is a chance for the institution to not only revisit data problems but to correct the basic flaw in the indicator’s analytical framework.
To be sure, onerous, unpredictable processes hamper the business conditions in many countries and improving the efficiency of business norms can help economic growth prospects. But at issue is across-the-board deregulation, borne out of a mistaken worldview equating private business interest with social interest, with no accounting for harmful spillovers of business activities such as growth-debilitating climate change. As such, liberalizing regulations alone should not be labeled “reform”: in the analogy of improving “economic cholesterol,” the patient needs to both reduce bad cholesterol and increase good cholesterol. The World Bank ought not to drive development with the one-sided DB indicator when the United Nations promotes a more holistic path of Sustainable Development Goals.
The danger in today’s high-risk environment is that the indicator’s standings pressure countries to compete on reversing policies that invest in people and the environment—a direction the world can ill afford in the face of pandemics and runaway climate change.
Also, to be clear, any survey can be chastised for omitting certain variables, for example, in the case of DB, for neglecting infrastructure, entrepreneurial opportunities, skilled labor, and competition policies. Overloading a particular indicator with too many variables can make it unwieldy and unmanageable. The issue at hand, however, is one of misleading diagnoses and faulty policy advice resulting from an indicator’s excessively narrow mission. A measure of business regulation cannot be so biased as to ignore socio-environmental interventions like pollution control or health standards at a time when these considerations are derailing growth and well-being.
To see the seriousness of this error, consider how surveys of the business climate inadvertently neglect the harm from reckless deregulation in areas where checks and balances are essential. In the case of the DB index, China and India made big improvements in their scores in 2019 and 2020, despite the fact that the world’s first and third biggest carbon emitters increased carbon effluents notably in the two preceding years. Another index, the Environmental Performance…