Adriatic Institute vs. the World Bank

In 2008, The World Bank named Croatia “Europe’s Top Reformer for the Year”. Spurred by this controversial decision, and with knowledge of the high levels of corruption in Croatian government, The Adriatic Institute conducted a study which accuses the World Bank’s Doing Business Report as flawed in methodology and information gathering.

After an intensive and thorough investigation, Natasha Srdoc came to the conclusion that the annual study promoted by the World Bank had tremendous room for improvement and that the current and previous years studies were deeply flawed and prone to manipulation. The Adriatic Institute’s leadership verified these concerns and received both assistance and important feedback from respected editors and journalists representing international media communications groups.
The Adriatic Institute clearly presents the argument that without making the appropriate changes in the current methodology and data gathering processes and the absence of an in-depth study to highlight the rule of law and protection of property rights, the World Bank’s modern flagship study – Doing Business Report will remain deeply flawed and tarnished by substantive and legitimate concerns.

Read the commentary after the jump

The World Bank´s Doing Business Report, Is it Dependable,Trustworthy and Verifiable?

LE TEMPS
Published: Tuesday, September 16, 2008

By Natasha Srdoc
Co-founder and President, Adriatic Institute for Public Policy, Croatia

The proclamation of Croatia as a top reformer in 2008 World Bank´s Doing Business Report and improved ranking by 23 places, sounded like a bad joke. A country with rampant corruption where the laws are not respected and enforced would not qualify under any objective criteria as a reformer. The EU Progress Report analyzing the same time period in Croatia, mentions among others, Corruption remains widespread. No indictment or verdict has been issued in any high-level corruption case. The concept of conflict of interest is little understood.

According to the World Bank is Doing Business Report, The ease of doing business index ranks economies from 1 to 175. The index is calculated as the ranking on the simple average of country percentile rankings on each of the 10 topics including starting a business, dealing with licenses, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and closing a business.

Taking a better look at Doing Business Report´s methodology and a glance at the staff responsible for the study raises serious questions and places the spotlight on the reports severe flaws.

First and foremost, the methodology does not take into account the protection of property rights, rule of law and intolerance towards corruption, which are the most important prerequisites of a favorable business environment. How can the countries be appropriately rated in ease of doing business if all businesses are not equal before the law? Here is a great paradox in World Banks rating countries and awarding respective government ministers for reforms, when their governments do not perform the fundamental role for which they are established.

I can recall Dr. Andrei Illarionov, an advisory board member at the Adriatic Institute of which I am president who was Vladimir Putin´s economic advisor until he parted bitterly with the Kremlin over issues of political freedom, posing a question: If you have to choose between the rule of law and a favorable business environment, and you cannot have both, which one would you choose?

To listeners from Western democracies in his audience, including a number of senior politicians and policy experts, the question sounded like contradictory nonsense, since
no favorable business environment can exist without the rule of law. But in post-communist Europe, as well as in many other parts of the world, we inhabit this contradiction, and the factor that makes this situation possible is corruption. The law exists, and in a certain sense it rules, but in the manner of its rule it is institutionally subverted.

In actuality – measuring and awarding the governments – without taking into account their reputation with upholding the rule of law and protection of property rights, becomes a mockery.

Another troubling issue is a level of subjective staff influence over the Doing Business Report. As a matter of fact, 50% of the top reformers in the most recent report were the countries whose nationals are working on the Doing Business report itself – Egypt, Croatia, Colombia, Kenya and Bulgaria. Is this a mere coincidence?

The most striking example is of Croatia, where a former government employee of the Ministry of Finance is now directly working on the report for Croatia. It makes one wonder how Croatia was proclaimed the top reformer in Europe and the second in the world.

If you would like to conduct your own thorough research and comparison analysis retroactively, based on the Doing Business data, you will not be able to make any progress. In our fruitless attempt, we got to the final answer by the Reports staff member, there are no back calculated details available. How can there be any ranking done and/or any improvements/backsliding measured – if there are no comparable data available?

The EU Progress report for Croatia, which analyzed the same time period covered by the Doing Business Report, mentions among others Preparatory steps were taken to reduce the burden of legislation in the context of  Regulatory Guillotine project, however, its implementation has not yet started. Happily it is true that Croatia has slightly benefited from an improved business environment in limited areas. One important change is the establishment of a credit bureau. However, the new credit bureau was created through the private initiative of commercial banks. Such market driven initiatives are very welcome, however they come in stark contrast to the lack of initiative shown by Croatia’s government, which has been slow to initiate post-socialist structural reforms.

Focusing on the rule of law, protection of property rights and pro-active implementation of structural reforms has been a hallmark of true country-reformers transitioning to the market economy. Croatia government is instead mostly focused on spinning, lobbying and criticizing others for not recognizing what they want to portray as a true reform process in the country. In that manner, Prime Minister Sanader and Finance Minister Suker have been complaining about Croatia ranking in Doing Business Report for years in a row. Complaining about 2007 WB Doing Business Report, Croatia´s PM proudly stated in September 2006, Croatia was not satisfied with last year’s (2006) World Bank rankings either, so the Bank had to change them slightly.The reason for complains in 2006 by PM Sanader and Finance minister Suker, It was contradictory that Croatia´s ranked second in Europe and seventh in the world according to reforms, should move up only ten places on the World Bank list on business conditions.Bullying tactics may still work in the Balkans but it is scary to see them being effectively exported to the rest of the world, with World Bank Doing Business Report submitting to the government´s criticism and changing Croatia´s ranking for 2006.

Based on the current WB´s Doing Business Report, which discards corruption, rule of law, and an independent judiciary from its report criteria, you can certainly have the ease of doing business and a favorable business environment as long as you can afford to pay your way around. This is an invitation to continue business as usual and an appalling message to send to entrepreneurs, investors and politicians around the world.

This entry was posted on Tuesday, September 23rd, 2008 at 1:29 PM. It is filed under Europe and tagged with Adriatic Institute, corruption, Croatia, transparency, World Bank. You can follow any responses to this entry through the RSS 2.0 feed.