Sunday, January 21st, 2018

A World Bank economist apologized for unfair country rankings and will redo four years of results

Published on January 14, 2018 by   ·   No Comments

Tim Fernholz
Sunday January 14, 2018

World Bank president Jim Kim will have some questions to answer. (AP Photo/Jose Luis Magana)

The World Bank’s annual ranking of countries by ease of doing business has been compromised by politicized methodology, the bank’s top economist told the Wall Street Journal (paywall). The primary victim? The country of Chile.

The high-profile rankings are intended to encourage governments to remove obstacles to business and incentivize economic development. The report combines measures of how easy it is for an entrepreneur to start a business, obtain credit, pay taxes and enforce contracts, among other things.

Paul Romer, the World Bank’s Chief Economist since late 2016, found irregularities in how the survey’s methodology was updated from year to year, and intends to correct and republish the ranking for the past four years.

Romer said the irregularities manifested themselves in shifts to Chile’s ranking, which was 55th in the 2017 rankings, but as high as 25th a decade ago.

In fact, the Chile’s position in the rankings seemed to mirror the country’s politics: During the period in question, Chile alternated between electing socialist Michelle Bachelet and conservative Sebastián Piñera to the presidency. When Piñera was in office, Chile would climb in the rankings; when Bachelet was in office, the country would fall.

According to Romer, the volatility resulted from new metrics added to the ranking that dragged down the country’s score, rather than a meaningful change in Chile’s business environment.

“I want to make a personal apology to Chile, and to any other country where we conveyed the wrong impression,” Romer told the Journal. “Based on the things we were measuring before, business conditions did not get worse in Chile under the Bachelet administration.”

The former director of the report, Chilean economist August Lopez-Claros, is on leave from the World Bank this year. In a statement e-mailed to Quartz, he defended the changes to the ranking method as improvements, implemented transparently and designed to make the product more useful. “The claim that the above methodological changes somehow targeted Chile is wholly without merit,” he writes.

“In light of the concerns expressed by World Bank Chief Economist Paul Romer in the media and our commitment to integrity and transparency, we will conduct an external review of Chile’s indicators in the Doing Business report,” the bank said in a statement.

Other countries’ positions in the rankings are likely to shift once the methodology is revised. In the current rankings, the top performers are New Zealand, Singapore, and Denmark, while the lowest were Venezuela, Eritrea and, coming in last, Somalia. The widely covered report provides guidance to global investors and governments alike. Some countries, like Nigeria, make improving their rank in the report a matter of explicit public policy.

The World Bank has struggled in recent years to find a place in a world where development loans have largely been replaced by private investment in emerging markets—which are not called developing economies anymore. World Bank president Jim Kim has worked to re-orient the institution toward providing independent expertise and advice as much as capital. However, the suggestion that ideology, rather than data, is driving key World Bank communications will not make the institution’s job any easier.

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