What to Do with Doing Business?

CAMBRIDGE – Under pressure from China and other governments, the World Bank is considering discontinuing its Doing Business report. It has asked Trevor Manuel, a long-time South African cabinet minister, to lead a commission to look into the matter.

Doing Business – the brainchild of, among others, my Harvard colleague Andrei Shleifer and Simeon Djankov, a World Bank staffer who later became Bulgaria’s finance minister – measures such indicators as the time and cost required to register a business, pay taxes, trade across borders, obtain a loan, get a construction license, or enforce a contract. The data are provided by law firms, which complete a questionnaire about the legal and administrative requirements of performing these tasks.

The project emerged from a research question that goes to the heart of the debate on the proper role and actual motivations of the state in regulating markets: Does regulation exist to achieve some laudable social goal or mainly to extract rents? This question has long divided economists along a right-left axis, at least since University of Chicago economists George Stigler and Milton Friedman argued that many, if not most, regulations were motivated by rent-seeking among bureaucrats and business incumbents.

The Doing Business project calculates dozens of separate indicators that are then averaged into a single number. As with all numerical indicators that try to express a very complex reality, there is always room for improvement.