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Monkey business

September 24, 2011

In almost every country I’ve worked in recently the World Bank’s Doing Business Indicators have been wrong. A total of nine measures make up the index, from starting a business to the cost of trading. In Bhutan last month we asked Customs officials whether companies really had to fork out US$2665 to import a container. Nonsense, we were told: it’s more like US$1500. Importers agreed. The total cost of shipping from a third country like Singapore might be an extra thousand dollars, but that’s an unfair comparison. What matters most is the cost from the biggest trading partner, which in Bhutan’s case is neighbouring India.

Out of 183 countries, Bhutan ranks 142nd, just above Sierra Leone. But that’s a misleading picture. The economy has boomed over the last five years, catapulting it into the lower-middle income category and raising the prospect of graduation from least-developed status within a decade. Investment is higher than ever, and local entrepreneurs don’t seem to be complaining. Yet government officials set great store by what the World Bank says, and dubious research can play havoc with policy. For a tiny country opening up to the outside world and trying to boost its image, impressions matter.

It was a similar story in the Solomon Islands a couple of years ago. The World Bank reckoned shipping a container cost about US$1300. Traders quoted figures a lot lower. Suspiciously, the numbers for import and export were identical. Dodgy research? Statistical cock-up? I don’t know.

Benchmarking ignores the differences between development experiences. South Korea transformed from basket-case to the wonder of the East in four short decades. For most of that time it would have scored poorly because it was virtually impossible for foreigners to invest there. Only with the Asian crisis in 1998 did it liberalise investment. China, possibly the best example of mass poverty reduction in human history, and by all accounts a profitable place to do business – especially for Chinese people – ranks 79th.

One of the criteria which comprise the Indicators is paying taxes. Of six sub-indicators, four describe the rate of taxation, as if the lower, the better. Yet many successful governments imposed hefty fees on companies and citizens in order to finance the infrastructure, health and education policies necessary for development. In northern Europe, normally considered a great place to do business, tax rates are 50% or more. Companies everywhere say that they aren’t too concerned about tax rates; more the predictability of the business landscape.

Maybe I’ve spent too long in small places at the corners of the globe. But they matter too – and if the data is so dubious in micro nations where collection should be easy, it doesn’t inspire confidence where bigger, more complex environments are concerned. The Doing Business Indicators are a prime example of wisdom from Washington – as if a recipe for development can be cooked up from afar. The variety of experiences — from the Himalayas, to Seoul and Beijing — suggest that progress comes in many forms.

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