Measuring “Doing Business in 2010″ – World Bank vs. Reality

Doing Business - World Bank 2010

In newly released “Doing Business 2010” report, World Bank has very good news! In 2009, pro-enterprise reforms went 20% up; Eastern Europe, Central Asia, Middle East and Northern Africa are world regions with the most reforms implemented per country.

Between June 2008 and May 2009, 287 reforms were recorded in 131 economies, 20% more than the year before. Reformers focused on making it easier to start and operate a business, strengthening property rights and improving the efficiency of commercial dispute resolution and bankruptcy procedures.Two regions were particularly active this year: Eastern Europe and Central Asia and the Middle East and North Africa. In Eastern Europe and Central Asia, 26 of the region’s 27 economies reformed business regulation in at least one area covered by Doing Business. Governments in the Middle East and North Africa are reforming at a similar rate, with 17 of 19 reforming in 2008/09. In both cases, competition among neighbors helped inspire widespread reform.

I am in particular cheery for Moldova. As one of the top 10 performers in reforming business, Moldova’s 2010 regulations are supposedly making it easier for local entrepreneurs to start up a business (“offers an expedited, 24-hour company registration service for an additional fee”), to register property (number of days to register land went from 48 to 6 days), and paying taxes (employers’ payments to social security funds went down).

However, I am skeptical about World Bank’s tools and methodology as far as measuring “de facto” versus “de jure” improvements in doing business over time in country X or Z.  Especially with respect to the rigid assumptions in their approach to target businesses: no corruption, no foreign trade, ltd. only, 100% local ownership, etc. Their narrow definitions of business assume away a lot of potential inhibiting factors ( increases in either formal, informal or both types of transaction costs) that could offset the new achievements in regulating business. A few new official business reforms, therefore, might not de facto translate into easier doing of business in Moldova or in any other country, just as it also might not say a lot about development.

Soviet (marginal) labor story

This is a page from a book of “Illustrated Russian language” which I often used at age 5-6 in my preparation for school, 1st grade, in the Soviet Russia.

We’re on page 59, and the new word to learn is “beet” (репқа). The 7-step beet  story  goes:

1. A peasant plants a seed. The second day finds a gigantic overgrown beet, big problem!

2. He tries and tries to get it out, all in vain. Calls he’s wife for help – nothing.

3. She calls their daughter for help – still not enough.

6. Dog comes – nothing.

5. Cat – nope.

6. Until finally, the mouse saved the day. Uraaa!

The moral of the soviet story was that the combined brute power of the family solved the difficult harvesting problem. The other hidden “moral” of the story was that the Soviet lands have the richest soils of all, things grow on it by themselves, just wait, the sole problem comes at harvest, the crops grow enormous, but of course, who would mind something like that;  in USSR there was no such thing as diminishing returns to labor.

The un-perverted moral of the story is that:

What makes soil a rich resource is its most valued use;  you can cultivate thousands of giant beets on your land, but if nobody wants beets, or if there are restrictions on how you could make use of it, than the whole agricultural dream is highly impoverishing. All in all, these sort of stories fooled people into dreaming and hoping for an overnight miracle that would pull them out of poverty. Unfortunately, the giant beet never came. Land plus labor and self sufficiency never was and never will be the key to prosperity no matter how fat the Soviet chernozem…

Finally, a call for a scary thought of brainwashing as education:

= besides seeing this story in my preschool books, I also had it printed on my toys. On cube games, the puzzle type of games when you have to rearrange the printed sides of cubes so that to reconstruct the whole picture.