Democracy Lab

No More Doing Business As Usual

Why World Bank President Jim Yong Kim is right to subject the Bank’s global business report to fresh scrutiny.

The 2008 financial crisis highlighted long-standing reasons why the world needs to take a fresh look at how it does business. Unemployment has reached painful levels in many countries around the world. Multinational corporations use offshore jurisdictions to avoid billions in tax. Rampant inequality has become a hot-button issue. 

For all these reasons, World Bank President Jim Yong Kim is right to conclude that the bank's flagship Doing Business report needs a fresh look. According to the self-description on its website, Doing Business "assesses regulations affecting domestic firms in 185 economies and ranks the economies in 10 areas of business regulation." But recent developments in the global economy undermine the usefulness of such a tool for governments and analysts. 

The idea of such an overview isn't bad in itself. But the current version of the survey is based on outdated, one-size-fits-all assumptions that have lost their validity in the current environment. We understand today that less regulation isn't necessarily better, and that local context is often just as important as the international competitive environment. Businesses should have the conditions they need to prosper, but they should also be encouraged to contribute to society (through paying taxes, for example). A desirable business environment supports growth in sectors that create jobs for poor men and women, rather than catering primarily to the needs of larger, formal, urban firms. 

Just take the issue of jobs. The World Bank itself has been one of the leaders in the reassessment of economic thinking now underway around the world. The Bank's 2013 World Development Report pointed out, for example, that many studies have tended to underestimate the importance of labor market regulations. But, in the past, Doing Business has praised deregulatory reforms in some countries that dismantled labor laws even when they entailed violations of the International Labor Organization's standards. And it doesn't seem to be businesses that are calling for these kinds of reforms. Only 3 percent of 45,000 firms surveyed in 106 developing countries in a recent IFC Jobs Study (January 2013) cited labor regulations as obstacles to job creation. The need to go back to the drawing board on labor regulation advice would seem obvious. 

Thinking around corporate taxation has also shifted in recent years. In Africa, high tax rates are not a problem for investors. The big problem, in fact, has been getting investors (especially foreign ones) to pay any tax at all. Distorted tax regimes mean that a small bar owner in Ghana can end up paying more taxes than the major industrial brewery next door. This sort of approach leaves governments with little revenue to invest in much-needed essential services to support the development of local small businesses. What we need from the Bank is guidance that better matches realities such as these. Helping governments to put more equitable tax systems in place is more important than blindly driving down the total tax rate for corporations. 

At this year's Spring Meetings of the World Bank, governments endorsed President Kim's new vision for the Bank of achieving shared prosperity and poverty eradication. As the Bank knows, the best way to tackle rising inequality and persisting poverty is by supporting small businesses. In its 2013 World Development Report the Bank itself acknowledged the crucial significance of self-employment and microenterprises in creating jobs and a more equitable distribution of wealth. The Bank's independent evaluators recently launched a study into how well the institution serves entrepreneurs, in recognition of their importance. It is no longer tenable for a Doing Business team member to tell us (as they did back in 2010) that it did not matter if the project did not work for the majority of small businesses in developing countries as they were "not relevant" to economic transformation of those countries. In fact, small businesses account for 90 percent of jobs and 50 percent of GDP across developing countries. 

Yet Doing Business does little to address the three key constraints most frequently mentioned by small businesses. First, the survey fails to mention the issue of corruption, a major problem for small entrepreneurs. Second, it says little that is relevant about access to credit. Take the case of Zambia. Doing Business gives this country an impressive number 12 ranking in the world on this criterion. Yet 98 percent of the small firms surveyed in Zambia by the Bank still cite access to credit as a constraint. Third, the survey takes a distorted view of the vital problem of property rights. Doing Business continues to prioritize formal titling and ease of title transfer -- despite the growing recognition that such an approach can sometimes undermine the traditional community rights that are important to poor men and women's livelihoods and facilitate land grabs. 

Don't get us wrong: we don't want to see Doing Business scrapped. We know that a tool that helps governments to get the environment right for business is important. Our organization, the UK-based Catholic Agency for Overseas Development (CAFOD), works in some of the most deprived developing countries in the world to help poor men and women lift themselves out of poverty, keep their dignity, realize their potential, and contribute to the common good. We know from experience that giving people the tools and skills they need to start a business is only half the job. You'll have little success if the business environment in which they operate is not conducive. A reformed Doing Business can help to start a discussion on investment climate reform and provide guidance for governments that is backed up by good data. 

Doing Business started out as an exercise to collect easily available date on business regulations across countries. It is not designed, therefore, to tell you everything you need to know about a country's business environment -- or even what needs to change. It does not pretend to consider local context (which is important in determining what kind of reforms are appropriate), nor does it claim to give guidance on trade-offs that might be involved in decisions around types and levels of regulation or taxation. By itself, Doing Business is a poor tool for governments that are trying to decide what sorts of reforms are important or appropriate to their business environments. So when increasing numbers of leaders across Africa and beyond publicly state that their primary ambition is to move up the Doing Business rankings, it's only right to wonder whether their priorities make sense. 

That's why we and other non-government organizations are asking for a reformed Doing Business, one that can be used alongside complementary tools such as enterprise surveys, which ask local businesses directly about their experiences and can thus tell a government far more about what sorts of reforms it needs to implement. We also ask the Bank to reconsider the practice of ranking countries according to their compliance with a universal checklist of preferred reforms; this approach tends to undermine objective discussion of what sorts of reforms make sense in a local context. Finally, we also have our doubts about the large media budget allocated to the project -- money that is used to celebrate countries that have done the most to move up in the rankings, rather than those that have looked at what is needed locally. 

In our experience, the Doing Business team is aware of these criticisms and of the need for corresponding change. Recent editions of the survey reference its limitations and place important qualifications on the use of the data (although governments and media still tend to pay more attention to the rankings). The Bank has suspended the Employing Workers Indicator, which encourages labor market deregulation (but has not yet abolished or reformed it). The Paying Taxes Indicator no longer encourages governments to reduce taxes to zero (although it still encourages them to be lowered). 

The Bank is also looking at the possibility of adding a Getting Electricity Indicator, a new measure based on enterprise surveys that have highlighted the importance of this issue to local businesses. Most importantly, the team is also re-examining specific indicators according to their effectiveness in achieving desired economic objectives, such as poverty eradication. Presumably, if the data shows that an indicator isn't helpful, the Bank will reform it or drop it. We are encouraged by this willingness to change, but much more needs to be done. 

By lamenting the "uniquely democratic" debate around Doing Business, its self-appointed supporters are doing it a disservice. An independent review and a public debate are exactly what is needed. Much of the debate around Doing Business has become polarized and politicized, and internal Bank politics have been mixed into a debate already charged by national competition. This review is a timely and important exercise. Without it, Doing Business may well survive as an influential museum piece, but it will cease to be relevant to governments genuinely striving to develop their economies. 



Morsy and the Muslims

Is Egypt’s government getting more Islamist?

Many Americans -- and many Egyptians -- are souring on the Muslim Brotherhood. Some are rather smugly saying, "I told you so." From the American and Arab liberal perspectives, the Brotherhood seems run by hyper-charged Islamists bent on imposing their will on the Egyptian people. Like most things in politics, though, it depends on what exactly you're comparing them to. More than two years into the Arab revolts, Islamists are weighing the virtues of moving more aggressively to implement their agenda versus the benefits of proceeding cautiously in an attempt to placate their critics and opponents.

There is little doubt that the Brotherhood has veered to the right. The real debate within the group is whether they've veered far enough. With Egypt as polarized as ever, the country's largest Islamist movement has effectively given up on reaching out to liberals and leftists, focusing instead on closing ranks and rallying its base. During the presidential race, Khairat al-Shater, the Brotherhood's original candidate, chose a Salafi-leaning council of scholars for his first campaign event, where he affirmed that the application of sharia law was his ultimate goal and that he would form a committee of scholars to help parliament achieve that goal. After Shater's disqualification, Mohammed Morsy -- a weaker, less convincing candidate -- doubled down on Shater's back-to-basics message. "Needless to say," Morsy said, "[I am] currently the only contender who offers a clearly Islamic project."

After winning the presidency, Morsy took a brief stab at rising above his partisan origins. But the tragic events of Dec. 4, when anti-Brotherhood protesters and government supporters clashed outside the presidential palace, rendered such efforts moot. The violence of that night -- provoked by the Brotherhood when it called on supporters to confront protesters -- claimed "martyrs" on both sides. For many in the opposition, this was the point of no return -- blood had been spilled.

For the Brotherhood, it had much the same effect. As one Brotherhood official told me, "there was a return to the mentality of mihna [inquisition]" after that day. The subsequent months saw the presidential office hiring a steady stream of Brotherhood members. The Brothers had no one to turn to -- not even the Salafis -- but each other.

Insularity and Islamization, however, are not the same thing. Beyond the rhetoric and the posturing, Morsy and the Brotherhood remain the calculating gradualists that they had always been. Despite considerable legislative and executive powers, they have passed almost no "Islamic" legislation, with the exception of a law on Islamic bonds, which angered ultra-conservative Salafis more than it did liberals.

Islamization is not something you do on the fly. The Brotherhood's priorities, for now, are rather simple -- to survive and get to the next elections. In the midst of an existential struggle, all the organization's resources have been directed toward ensuring Morsy does not fall and take the Brotherhood down with him.

The Brotherhood and its political arm, the Freedom and Justice Party (FJP), do not act like your traditional ruling party. Conditioned by more than 80 years in opposition, they still see themselves as fighting an array of enemies -- but this time, they are fighting them from the top of the state rather than the bottom. "Just because Mohamed Morsy is paranoid doesn't mean he doesn't have enemies," reads the headline of an article by Middle East scholar Nathan Brown.

One can debate to what extent Islamists' persecution complex is based on imagined threats. However, it draws on one very real event that was arguably the worst of the transition's "original sins" -- the dissolution of the country's first democratically elected parliament. The judiciary's move, based on a legal technicality, confirmed the Islamists' longstanding fear: 20 years after Algeria's aborted elections plunged the country into civil war, winning elections -- in Egypt's case, five elections in total -- wasn't enough.

More problematically, the court's dissolution of the legislative branch created an institutional logjam at the top of the state. In the absence of parliament, legislative powers were passed on to the Supreme Council of the Armed Forces, then to President Morsy, and then, finally, to an upper house of parliament that was never supposed to have that authority in the first place. Without a legitimate legislative authority, the passing of laws slowed to a trickle. It meant that there was no real body which could serve as a focal point for debate, for resolving political disputes, and for containing the country's worsening polarization.

Meanwhile, Morsy's loyalists were waging an internal battle to gain control of the executive branch. Those who have worked in the presidential office paint a picture of a hollowed out institution with barely so much as a skeleton staff. According to one senior Morsy advisor, its wireless network was initially unsecured and could be accessed outside palace grounds. As the  advisor recounted, "When we first got in, they gave us handwritten notes rather than proper permits [for entry]. What does that tell you?"

To be sure, this narrative of protracted institutional warfare serves the Brotherhood well, allowing it to deflect criticisms for its manifest failures in government. It also allows Islamists to portray themselves as the true democrats, who won power legitimately but find themselves prevented from wielding it. But that it is convenient does not make it entirely false: Egypt does, in fact, suffer from a bloated, corrupt bureaucracy, one replete with Mubarak-era deputy ministers and undersecretaries who feel threatened by new governing elites.

While those outside the Islamist fold argue that Morsy has overreached in power, Muslim Brotherhood officials often make the opposite argument -- that the president has been too deferential to the state, and that he should use his appointment powers more aggressively. They point to the fact that less than a quarter of the 35 cabinet ministers were from the Brotherhood during the first nine months of Morsy's presidency, and that the prime minister, Hisham Qandil, is an unremarkable Mubarak-era technocrat. Even after a controversial May 7 cabinet reshuffle, which was roundly condemned by the opposition for increasing Muslim Brotherhood representation, less than a third of ministers hail from the movement.

After the palace clashes in December, Morsy increasingly brought Brotherhood officials into the presidential office (most were independently wealthy and chose not to draw on government salaries, which are capped at extremely low levels). But as one senior Brotherhood official noted, "the new people he brings on get entrenched very quickly in the bureaucracy."

Morsy -- described by those close to him as "doing things by the book" -- decided to work within the state apparatus rather than fight it, at least at first. His goal was to slowly solidify power and to gradually wrest some control from the bureaucracy: The longer Morsy stayed in power, the thinking went, the more state institutions would accept and respect him. Whether Morsy is the right person to manage such a delicate balancing act is another matter.

In person, Morsy is inelegant and underwhelming -- but he also exudes a roughness and stubbornness that suggests he is far from the pushover his opponents imagine him to be. To be sure, he consults and coordinates with the Brotherhood's deputy general guide, Khairat al-Shater, and other Brotherhood leaders. It would be a mistake, however, to assume that Morsy is a mere receptacle for whatever the powerful and admittedly shadowy Shater might desire. Morsy needs the Brotherhood, now more than ever, but the Brotherhood cannot afford for Morsy to fail (or fall).

This mutual dependence gives each party considerable negotiating power. A Brotherhood member who has worked with both Morsy and Shater calls the latter the "revolutionary," presumably in contrast to Morsy's modest, workmanlike attitude and deficit in strategic thinking. For his admirers and detractors alike, Shater is a towering figure. He is pragmatic as well as ambitious, qualities that lend themselves to confusion over the precise nature of his ultimate aims. 

These qualities have also long defined the Brotherhood, which was born as an organization that sought nothing less than the transformation of society and the individual. As Essam al-Haddad, now Morsy's national security advisor, defined it to me once, the Brotherhood is a "social change movement in order to bring people closer to their beliefs." As innocuous as this might sound, changing people's beliefs is no small undertaking. If that's the end, however vague and undefined, then what about the means? How quickly can you go?

In both Egypt and Tunisia, Islamists are now openly debating these very questions. In Tunisia, the Islamist Ennahda movement quickly found that, despite a landslide election victory in 2011, secular parties and a vibrant civil society would resist any attempts at "Islamization," particularly when it came to writing the country's new constitution. After considerable internal debate last year, Ennahda decided to withdraw several proposed clauses, including one that would enshrine sharia as a "source among sources" of legislation.

Yet despite its care to avoid overreach, the party was accused all the same of harboring a radical agenda. In a recent trip to Tunisia, the prominent secular intellectual Neila Sellini summed up the sentiment. "We know them," she told me. "We live with them. You don't really know what they're about. You fall for the double discourse!" She had a point: The West wanted Ennahda to be more moderate than it actually was.

Ennahda's ideological concessions, public reassurances, and watered down declarations of intent did not have their intended effect. Party leader Rachid Ghannouchi's enemies demonized him as a sort of Manchurian candidate -- it was his pretensions to moderation that made him so dangerous. Meanwhile, his supporters wondered if "moderation" was worth all the trouble. Many Tunisians voted for Ennahda because it was an Islamist party. That, for them, was the point. They wanted sharia to play a larger role in politics, and grew disappointed each time Ennahda backed down.

It was this frustration that Sheikh Habib Ellouze -- one of the movement's leading "conservatives" -- hoped to channel. When I sat down with him on the margins of a tense parliamentary session after the assassination of secular politician Chokri Belaid, he insisted that everyone in the party shared the same commitment to sharia. "All of us believe in banning alcohol one day," he told me. "What we disagree on is how best to present and express our Islamic ideas." 

When many in Egypt's Muslim Brotherhood looked at Ennahda, their critique was similar to that of Ellouze. Here was an Islamist movement that had become obsessed with appeasing everyone -- secularists, the old regime, the international community -- but their own supporters. What was the point of making concession after concession when your opponents would hate you all the same? As one senior FJP official remarked, "Ghannouchi tried to please everyone so no one is pleased. He would say things that even [Egyptian liberal leader] Mohamed ElBaradei wouldn't say, like how Tunisia's personal status code was part of the overall framework of sharia."

"But did it help him get more popularity?" the FJP official asked. "Every time he makes concessions, they're not happy; they want more; and it angers his own supporters."

Tunisia, for all its problems, is generally seen as the closest thing the Arab Spring had to a success story. One reason is that Tunisia -- unlike Egypt -- has been able to take its time. The drafting of Tunisia's new constitution has been a slow, even excruciating process. But slowness is the price of consensus. Once the process is completed, Tunisians will be able to point to a constitutional document that enjoys broad support across the political and ideological spectrum.

But, again, some in the Brotherhood and the FJP had a different way of looking at it. Remarkably, one FJP leader I spoke to argued that Egypt's transitional process should have gone even faster than it did: "We should have finished everything by December 2011, so as to not allow the old regime to gain strength." Indeed, the Brotherhood seems to take pride in the fact that Egypt's transition is nearing its end. There is a constitution that was approved by referendum, they say; there is an elected president, Egypt's first; and by the end of the year, there will be an elected parliament with a prime minister from the largest party (presumably the FJP).

But for all its paranoid sprinting through Egypt's transition, the Brotherhood is still thinking in stages. Islamists in opposition weren't the same as Islamists during a political transition -- and Islamists during a transition wouldn't be quite the same as Islamists securely in power. This is precisely what worries so many critics of the Brotherhood: What would the organization and its supporters do if they could?

These are the sorts of unanswerable questions that make substantive dialogue so difficult in a place like Egypt. Some Islamist parties, such as Ennahda, are more willing to come to terms with liberal democracy than others. But all of them, by definition, are at least somewhat illiberal.

To a considerable degree, Islamist illiberalism has been voluntarily suppressed -- so far. There is nothing explicitly "Islamist" about the draft Tunisian constitution. Egypt's constitution, meanwhile, is a testament to mediocrity, but it is almost certainly not what Islamists had in mind when they were dreaming up the "Islamic state." Of course, it is still early days: Conservatives within the Islamist fold tell their impatient base to wait, that the application of sharia may not be possible now, but it will be in the future (and that the future, God willing, is theirs). Meanwhile, liberals descend into alarmism because they can sense that latent ambition. On this, and little else, they seem to agree. It is a sobering thought: The real ideological battles haven't really started yet.

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