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The Doing Business WB report. Throwing the baby out with the bathwater

It is sad that the WB canceled the Doing Business Report which was one of the most useful reports made by the WB. The idea came from H. de Soto's book (“El otro sendero”, “The other way, an economic reply to terrorism” (1986). The objective was to assess all obstacles (legal and kickbacks) for the setting up of a firm in Peru. This was a change from traditional articles written by the IMF and WB’s economists. No incomprehensible econometric papers with limited economic substrate, but a way to show all the bureaucratic hindrances faced by a small entrepreneur to do business. This report was useful to push governments to improve their business climate system.

The DB report published an aggregate index which is by essence arbitrary but was legitimate since it was based on a transparent and consistent methodology. Some (M. Cardenas for ex.) have criticized this report because it has an implicit bias against the state. According to this author, the state can fix market failures and the report was biased against high corporate tax leading countries to a “race to the bottom in corporate taxation”. In addition, this report should have considered governments to fix market failure and provide essential public goods. Therefore, according to this author, the index was insufficient and should have considered other important criteria such as government interventions to promote public goods. This is the traditional criticism made by people who want a statistical notion to embrace everything in one concept. A concept is, by definition, limited, à fortiori when it is a statistical one, you cannot explain everything with one concept. This is the same mistake made by some economists/philosophers who criticize the GDP concept and want to replace it by the Gross National Happiness. GDP is a concept which measures (imperfectly) output, demand and income, nothing else; happiness is not an economic concept. Here, it is a little bit the same, you want to add to an index, which measures (imperfectly) impediments to the development of the private sectors (which are real), the fact that the government may have positive externality (to assess and measure externality and market failures is quite arbitrary). You cannot kill two birds with one stone; if you want to annihilate a positive initiative, you criticize it saying that it misses a lot of things which are impossible to gather. The objective of this report was to highlight bureaucratic costs weighting on small enterprises. If you want to show that the government of a country provides essential public goods, then you publish another index based on a detailed public expenditure analysis (rather difficult to do, this is not because a government spends a lot that it provides necessarily essential public goods).

The WB’s decision to stop publishing the DB report is an unfortunate decision. It was one of the most useful documents published by the WB. What, the WB (or other development banks) can do, is to make case studies based on one small firm with the same questions raised by the DB report, no more ranking but a wealth of information on the concrete obstacles to the private sector development, what we lose in generality, we gain in comprehension.

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