November 1, 2021
Let’s say you’re looking for a place to live, a college, a car… or a country to invest in.
You could do your own research: Check out YouTube, read Reddit, Google it, and call yourself an expert. But the reality is that you’ll get nothing more than spotty insight, poorly supported conclusions, and a budding private-message friendship with a guy from the chatroom named Jed who seemed to know what he was talking about and, you know, had some really good points.
The Rankings-Industrial Complex
Or you could use a tool specifically crafted for people with more curiosity than time or patience… a ranking about whatever it is you’re interested in, released by an apparently reputable organization that applies a (pseudo) scientific process to collect and digest data, and then spits out a pre-baked conclusion. Presto, research done… conclusion reached… and decision made.
For example, there is Money magazine’s rankings of places to live in America, Consumer Reports‘ rankings of everything from rice cookers to SUVs to blood-glucose meters, and the Forbes list of rich people (you’re not buying them, but same idea). And then, of course, there’s the granddaddy of the rankings-industrial complex, U.S. News & World Report (which covers colleges, nursing homes, credit cards, diets, gastroenterology hospitals, mutual funds… and maybe even the dress shoes in your closet).
We often take them at face value, but these kinds of rankings are imperfect at best. Is a little town in Minnesota really the best place in the U.S. to live, as Money contends? The U.S. News & World Report rankings are “ridiculous,” said the Washington Post in 2018. Gold standard Consumer Reports has faced challenges to its testing and rankings over the years.
Under the veneer of seemingly objective hard data, there’s enormous scope for subjectivity… and the methodology allows for plenty of wiggle room.
And when advertisers jostle for screen or page space with rankings – after all, they’re a business, not a public service – lines are easily blurred.
So it’s not surprising that when smart people who are less driven by capitalist concerns put together vitally important rankings… that doesn’t mean they’re any better. In fact, far from it.
The Ranking of the World
The Ease of Doing Business (EoDB) annual ranking of the business climate and suitability for investment of the economies of 190 countries was supposed to be different…
It was a collection of data assembled by exceptionally smart people at the World Bank, the platinum-plated do-good multilateral financial institution that aims to boost economic growth and reduce poverty in developing countries.
Until its recent demise (more on that soon), the EoDB survey was the Car and Driver 10 Best Cars and Trucks of wonky policy sets, the Condé Nast TravelerGold List of the best hotels and resorts of the global investor. A foundational source of data and insight for policy makers, it also became shorthand for the ability of an economy to attract investment.
Many countries molded their policy and reform priorities in order to improve their position on the various benchmarks of the survey – from “dealing with construction permits” to “protecting minority investors” to “getting credit.”
“The World Bank has successfully marshaled the Ease of Doing Business [ranking] to amass considerable influence over business regulations worldwide,” explained an article in the journal International Organization in July 2019.
It was a finely tuned, carefully orchestrated snapshot of the factors that shaped the lives and well-being of billions of people… while driving – or being the cause of a rerouting of – untold sums of investment funds. (The Economist reported that an internal World Bank assessment found that the EoDB contributed to the decision-making process for investments by the World Bank in 676 projects worth nearly $16 billion over the past 10 years.)
As the Financial Times explained, “Credibility in the unassailability of [the World Bank’s] data is paramount, with billions of dollars of investment every year dependent on its information.”
And for politicians, improving the investment environment to move up in the rankings also had a competitive element to it. After all, investment is a zero-sum game: If Country X gets more foreign investment, Country Y will get less. And the EoDB ranking mattered in that calculus.
It was also a source of national price. “I want Saudi Arabia to be among the top 10 countries in Doing Business in 2010. No Middle Eastern country should have a better investment climate by 2007,” said King Abdullah of Saudi Arabia in 2006 (2020 ranking: 62nd). In 2011, Russian President Vladimir Putin set the goal of Russia breaking into the top 20 by 2018, after placing 123rd. (In 2020, it reached a very respectable 28th.)
Implementing reforms with the express purpose of keeping up with, or overtaking, the Joneses (in this case, other countries) – even if those measures were good policy anyway – is like studying for a test. The teacher is incentivized to ensure that his students score well on a standardized exam, so his instruction is geared toward that end… rather than the broader aims of (say) training the student to think and inculcating them with a love of learning. But it didn’t matter – if the survey was the whip to bring about change, the World Bank was happy.
China’s EoDB Obsession
The Ease of Doing Business index was a mix of research project, national policy prescription, and competitive motivation. And in the global pecking order of the EoDB, China didn’t like where it stood.
In 2016, China was ranked just 84th out of around 190 countries in its overall score. For a country with a long-term plan to re-assume what it viewed as its natural position at the top of the global economic and geopolitical pecking order, that simply would not do.
As the Economist explained,
[In] 2017 Li Keqiang, China’s prime minister, grumbled that his country was lagging behind its peers [in the EoDB rankings]. At his urging, officials began freeing entrepreneurs from red tape—and crimson ink. They cut fees, streamlined approvals, and began to use electronic seals instead of the traditional ink stamp on many documents.
Within a few years, the time required to launch a company was cut from nearly 23 days to just nine. Incentivized bureaucrats made it easier to plug into the electricity network by expanding network capacity, making it cheaper to connect, and introducing a mobile application.
Whatever its motivation – a sense of competition, keeping up with other developing markets, pride – China did it. By 2020, China rallied to reach a ranking of 31, beating out the likes of France (32), Switzerland (36), and India (63).
Or did it?
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China’s Ranking Levitation
A few weeks ago, a commissioned report produced by law firm WilmerHale accused then-World Bank CEO Kristalina Georgieva of manipulating the rankings to boost China’s position in the 2018 EoDB report.
In September and October of 2017, the report explains, Chinese officials – presumably feeling the hot breath of the prime minister on their neck – were in frequent touch with the World Bank about China’s placement in the upcoming annual ranking.
According to the WilmerHale report, there was some internal discussion – prompted by Georgieva and then-World Bank president Jim Yong Kim – about how to bring about an upward adjustment in China’s position. One (rejected) suggestion was that Hong Kong be integrated into China’s overall score. (The Special Administrative Region is ranked separately in the EoDB, and regularly places in the top three.)
That would be like U.S. News & World Report allowing New Jersey public institution Rutgers University to co-opt Princeton (a perennial top 5 finisher and No. 1 this year, versus Rutgers’ ranking of 63) for the purposes of the survey. It would do the trick but would be far too heavy-handed.
Instead, according to the WilmerHale report – a compelling read, if bureaucratic intrigue is your thing – the EoDB team discovered three areas where the data could be reinterpreted to boost China’s score.
For example, an indicator of legal rights was adjusted to give China more credit for a law relating to secured transactions. This change “could be justified in light of differing expert opinions on the effect of the Chinese law,” the report explained.
And hey, presto. After the tweaking, China’s ranking – like a levitating body under David Copperfield’s hand – miraculously ascended seven spots to No. 78, from the No. 85 that it was originally going to be ranked that year.
As it happens (it’s always eventually about the money, isn’t it?), it wasn’t only about China not wanting to lose face with no improvement in its ranking year over year.
At the time the 2018 EoDB report was being finalized, Georgieva was also eyeball-deep in efforts to coax additional cash out of China as part of a broader effort to boost the World Bank’s capital base. The conversation with China – the third-largest shareholder in the institution and a key contributor to the capital campaign – would have been a lot more difficult, presumably, if China had EoDB egg on its face.
Tomorrow, we’ll share the conclusion to Kim’s story, which details exactly why these skewed rankings really matter… and what’s going to happen to Georgieva.
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Executive Editor, American Consequences
With Editorial Staff
November 1, 2021