World Bank Rankings Promote Deregulation at the Expense of Working People

Through its annual Doing Business rankings, the World Bank promotes blindly deregulatory measures, including a race to the bottom on taxes and fewer protections for workers.

In the recently released 2020 edition, countries get high marks if they demonstrate a commitment to slashing regulations rather than policies that support sustainable development, poverty elimination, and inequality reduction. Both the World Bank and the International Monetary Fund have used the report’s indicators to pressure countries to reduce regulations, sometimes through loan conditions.

Doing Business has long been dogged by controversy. In 2018, World Bank chief economist Paul Romer sharply criticized the report, noting that methodological changes — not reforms — had led to dramatic swings in Chile’s ranking. Romer speculated that staff could have manipulated the rankings for political purposes, an overreach that distracted from his valid criticisms of the methodology. As the Center for Global Development pointed out, Doing Business does not require political manipulation because “the index starts from an extreme ideological premise.” The creation of Doing Business in the early 2000s drew inspiration from the right-wing Heritage Foundation’s Index of Economic Freedom.

For decades, Chile pursued the neoliberal policies championed by Doing Business and the World Bank. Under dictator Augusto Pinochet, Chile privatized its pension system. The Bank held up Chile as a model and promoted pension privatization across the world, an experiment that ended in failure. In Chile, the pension system is in crisis, wages are low, jobs are insecure, and public services including water are privatized. In recent weeks a mass movement has risen up to demand a new model that benefits everyone.

Nonetheless, supply-side ideology may have gained new life at the World Bank. President David Malpass, selected this year by the Trump administration,  described how financial deregulation in Kenya enabled an explosion of short-term microloans via mobile phones. “It’s the kind of liberalization process we need to unleash across the developing world,” Malpass said. This deregulation gave Kenya a significant boost in its Doing Business score from the “Getting Credit” indicator, where it ranks 4th globally.

While the Bank hypes mobile lending as a tool for entrepreneurship and development, there is a much darker side. Mobile lenders in Kenya aggressively market high-interest loans that trap people in unaffordable debt. These loans are not fueling business or investment either: only 10 percent of mobile borrowers in Kenya used a loan for that purpose. Most borrowers use loans for consumption, medical needs, and school fees.

Bridge Academies, which received funding from the World Bank’s private sector lending arm, is among the sources of school fees in Kenya. The World Bank Group is under pressure to divest from Bridge, which has been scrutinized for evading regulations on education standards and providing untrained teachers with poor working conditions.

In Kenya and around the world, the solution is not predatory finance and private education. People need quality jobs with living wages, a goal that Doing Business undermines. The World Bank suspended the Employing Workers Indicator (originally Hiring and Firing Workers) from the ranking calculations in 2009, after criticism that it degraded labor standards. However, Doing Business continues to gather the data, and the 2020 report devotes a chapter to the subject.

Countries are lauded for “making employment regulation more business-friendly” through flexibility measures including higher caps on overtime hours, reducing extra pay for working at night or on rest days, longer probationary periods before workers become permanent, and expanding the allowability of temporary and fixed-term employment relationships.

Doing Business justifies these flexibility measures in the name of letting workers “choose their jobs and working hours more freely.” Workers do need a genuine measure of control over their time and input in scheduling, especially to balance care responsibilities. This can be achieved through negotiations between employers, trade unions, and governments to balance the needs of everyone.

The ILO Global Commission on the Future of Work highlighted the need to address both insecure under-employment and excessive hours. The Commission recommended “the adoption of appropriate regulatory measures that provide workers with a guaranteed and predictable minimum number of hours” and actions to ensure that on-call work is dignified and “the choice for greater flexibility is a real one.” They suggest additional pay for work that is not guaranteed and compensation for the waiting time of on-call workers.

The changes promoted by Doing Business give employers even more power, allowing them to threaten non-renewal of employment contracts and keep workers insecure with unpredictable scheduling. Doing Business 2020 states that Serbian “authorities could benefit from the experience of Hungary where employers have the freedom to use fixed-term contracts of up to five years for tasks of a permanent nature.” The interest here is only in the “freedom” of business to do whatever it pleases, without considering the effect on working people.

Another justification is that flexibility will improve the ability of women and youth to participate in the workforce. The citation for one such claim is a decade-old study from Simeon Djankov, a central figure in the founding and survival of Doing Business. Evidence from the real world contradicts these claims. In reviewing the effects of labour market flexibility measures in Europe, researchers found “no support for the notion that lowering restrictions on the use of temporary employment relations can help reduce youth unemployment.”

The discredited Employing Workers Indicator recently made an appearance in a World Bank white paper on social protection. It is no surprise that the indicator is used in a paper that calls for fewer labor regulations and a social protection system built around individual savings, reduced employer contributions, and narrowly targeted social safety nets. A full analysis of the World Bank’s proposals on social protection and labour is available here.

In India, trade unions will hold a nationwide general strike in January 2020 to oppose the policies of Prime Minister Modi, including the reduction of employer contributions to pension funds and social insurance. India has aggressively pursued higher rankings in Doing Business, lobbying the Bank for favourable methodology changes and letting the pursuit of a higher ranking guide policy-making.

“The Government boasts that India’s ranking is going up,” the Indian unions note. However, “All this is being done at the expense of the working people.”