World Bank Unfairly Influenced Its Own Competitiveness Rankings

The World Bank’s chief economist said he would recalculate national rankings of business competitiveness going back at least four years.

Paul Romer, the World Bank’s chief economist, said World Bank staff put a thumb on the scales of its rankings of countries by business competitiveness, by repeatedly changing the methodology.

The World Bank repeatedly changed the methodology of one of its flagship economic reports over several years in ways it now says were unfair and misleading.

The World Bank’s chief economist, Paul Romer, told The Wall Street Journal on Friday he would correct and recalculate national rankings of business competitiveness in the report called “Doing Business” going back at least four years.

The revisions could be particularly relevant to Chile, whose standings have been volatile in recent years—and potentially tainted by political motivations of World Bank staff, Mr. Romer said.

The report is one of the most visible World Bank initiatives, ranking countries around the world by the competitiveness of their business environment. Countries compete against each other to improve their standings, and the report draws extensive international media coverage.

The former director of the group responsible for the report, Augusto Lopez-Claros, defended the changes to the report over the years.

All changes had been made following “extensive internal peer review and the Bank went out of its way to announce these changes to the authorities of its member countries and to other uses,” he said. “Preliminary rounds of the new data collected were shared for comment and, in general, the whole process was undertaken in a context of transparency and openness.”

A former professor at the University of Chile, Mr. Lopez-Claros is on leave from the World Bank this year while serving as a senior fellow at Georgetown University.

Over time, World Bank staff put a heavy thumb on the scales of its report by repeatedly changing the methodology that was used to calculate the country rankings, Mr. Romer said.

The focus of the World Bank’s corrections will be methodology changes that had the effect of sharply penalizing Chile’s ranking under the recent term of Chile’s outgoing president, Michelle Bachelet.

“I want to make a personal apology to Chile, and to any other country where we conveyed the wrong impression,” Mr. Romer said. The problems with the report, he said, were “my fault because we did not make things clear enough.” Mr. Romer said the World Bank is beginning the process of correcting the past reports and republishing what the rankings would have been without the methodology changes. He said he couldn’t defend “the integrity” of the process that led to the methodology changes.

Chile’s overall ranking has fluctuated between 25th and 57th since 2006. During that period, the presidency of Chile has alternated between Ms. Bachelet, of Chile’s socialist party, and Sebastián Piñera, a conservative. Under Ms. Bachelet, Chile’s ranking consistently deteriorated, while it consistently climbed under Mr. Piñera.

Recalculating the numbers could show significant changes to other countries as well.

“Doing Business” ranks nations on metrics like the number of days it takes to open a business, or the cost of getting construction permits. Countries that make their business environment worse, for instance by drawing out the permitting process, get penalized in the rankings.

The World Bank has updated the methodology over time. For example, in the years covered by Mr. Romer’s review, the World Bank added new components dealing with construction permits, new measures of electricity reliability and tariffs, new measures of the quality of judicial processes for shareholders and a new measure of tax filing, among others.

During Ms. Bachelet’s tenure since 2014, new components had the effect of lowering Chile’s ranking. For example, in the report published in 2015, Chile had been ranked 33rd for ease of paying taxes; in the report published in 2016, the World Bank added a new metric on the amount of time businesses must spend dealing with taxes after having filed them, such as via audits or obtaining refunds on value-added taxes. Chile scored exceptionally poorly on this new index, and once it had been added, its ranking for ease of paying taxes sank from 33rd in the world to 120th.

According to a preliminary analysis by Mr. Romer, over the past four years, Chile’s drop was driven almost entirely by adding new metrics to the index, and not by changes to standing measures of Chile’s business environment. He added that changes to the methodologies used in the rankings had the appearance of being politically motivated.

“Based on the things we were measuring before, business conditions did not get worse in Chile under the Bachelet administration,” Mr. Romer said. “I didn’t do enough due diligence and later realized that I didn’t have confidence in the integrity” of the report’s data.

Mr. Lopez-Claros said that the claim that methodological changes targeted Chile is “wholly without merit.” He said that changes were made “without focusing on the impact these changes will have on particular countries.”

He said that Chile’s rankings also deteriorated as other nations were more aggressive in undertaking reforms. Between the reports in 2013 and 2016, for example, he said that Mexico made eight significant reforms, while Chile introduced only two.

“Not surprisingly, Mexico overtook Chile as the country with the best business environment in Latin America,” he said.

Mr. Romer raised the concerns with World Bank leadership who supported his decision to correct and recalculate the figures.

The World Bank Group said in a statement Saturday that “We treat all countries equally in our research, and the Doing Business indicators and methodology are designed with no single country in mind but so that the overall business climate can be improved.”

The statement added that “in light of the concerns expressed by [Mr. 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.”

Mr. Romer joined the World Bank in October 2016 from New York University. The changes to past reports will date back years before his arrival at the World Bank.

Mr. Romer has clashed with World Bank economic staff before. In May, he published an internal memo he’d written in which he told World Bank economists they should write more clearly and concisely.

“The problem with vague writing is that it lets an author convey a false impression yet retain plausible deniability when someone tries to verify the claim,” he wrote.

In the memo, Mr. Romer referenced critical research from Stanford University’s Literary Lab that had studied the writing in World Bank reports and concluded the reports were written in “almost another language, in both semantics and grammar” and were “becoming more abstract, more distant from concrete social life; a technical code detached from everyday communication.”

During that 2017 clash, Mr. Romer also published an earlier memo he had written about a budget document he received early in his tenure as chief economist. The budget memo said converting 90 contract workers to full-time workers would “have no impact on the Bank Budget,” but upon questioning the staff and investigating the issue, Mr. Romer determined that the full-time employees would cost considerably more than contractors.

Mr. Romer became alarmed, saying that a group in charge of economic data and empirical research shouldn’t be producing internal documents with misleading data. “If people in the Bank cannot believe everything [the Development Economics Group] writes, they can’t believe anything we write,” he wrote in that internal memo.

Source: Wall Street Journal