Tyranny of Rankings

The popular, though vacuous, Ease of Doing Business (EDB) index published by the World Bank Group (WBG) is again under scrutiny. Paul Romer, the chief economist at the World Bank, has cast doubt on the organisation’s flagship Doing Business report that includes the EDB index. He was particularly concerned by the drastic drop in the rankings for Chile, in part caused by the changes in methodology over the years. Chile’s ranking fluctuated between 25th and 57th since 2006. Under Michelle Bachelet’s socialist party, the rankings consistently deteriorated, while they climbed under Sebastián Piñera’s, a conservative. Romer put forth the obvious: when variables are changed to calculate an index, that is, the methodology is changed, rankings are no longer comparable over the years. He stated that the World Bank would recalculate the rankings for at least the last four years using a consistent method. While Romer’s suspicion about the rankings is welcome, there is enough research already that identifies serious problems with the report and specifically with the EDB index. 

First published in 2003, Doing Business collects information about legal regulations and procedures to assess business environment. The report looks at regulations that apply to a
“typical” private firm of a medium size in the largest (and sometimes, second largest) business city of a country. It seeks to assess stated policies for the formal economy, ignores intra-country regulatory variations, and does not assess implementation or day-to-day business practices. From 2006, the WBG started aggregating indicators to get the EDB index. This index was also used to guide the bank’s conditional lending policies, which it discontinued in 2009, following sharp criticism. In fact, in 2013, the “Independent Panel Review of the Doing Business Report,” commissioned by the WBG’s president Jim Yong Kim, said that the index should not continue to be published. The review acknowledged that the information collected could facilitate international comparisons, but to aggregate the data into index-based ranking is misleading and wrong. Yet, the rankings continued.