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World Bank ‘s investment ratings still at odds with human rights and poverty reduction

Every year the World Bank issues its Doing Business Report, which contains a ranking of each country’s business environment. In 2012, the President of the World Bank, Dr. Jim Yong Kim, appointed an Independent Panel of experts to review the report. The panel, chaired by South Africa’s Minister of Planning Mr. Trevor Manuel, appeared to be an opportunity to change the report for the better. The Panel, indeed, came up with substantive recommendations for an overhaul of the Doing Business. But most of them have been ignored.

Those who understand the power of this report and its associated rankings to drive governments and give them the cover to put the interest of private companies ahead of the rights of working people and their families may win again if we don’t speak up.

The “Doing Business” report currently exists as an obstacle to protecting human rights and improving the lives of low-income people because of its use by the World Bank to promote indiscriminate elimination of government regulations. This has been the case, for instance, in the way the report gives its best ratings to countries that require business to pay the lowest taxes and social contributions. By advocating low taxes for businesses, the World Bank has harmed governments’ capacities to properly regulate and tax business activities and protect the interests of workers and the poor. Less tax money means less money for governments to provide public services; even key elements of social protection – health, education, child protection, pensions, and unemployment benefits – are denied to families and their communities because of lack of tax revenue.

“Doing Business” has also negatively affected the labor market. Even though the World Bank suspended its infamous “Doing Workers Indicator” in 2009 under pressure from the ILO, trade unions and some governments, the report continues to advocate the elimination of labor regulations, thus discouraging countries from providing workers needed protections such as advance notice of dismissals, severance pay, minimum wages, and limits on abusive fixed-term contracts that provide no benefits. Under its “Employing Workers Indicator,” it claims that these regulations create a negative or disadvantageous business environment, despite being important for ensuring fair treatment of workers and protecting their rights.

The ITUC at its recent world congress (Berlin, 18-23 May) launched a new Global Rights Index based on countries’ records in respecting workers’ basic rights. It is interesting to note that some of the countries that perform poorly under the ITUC’s Global Rights Index were highly rated under the “Doing Business Employing Workers Indicator.”

No institution funded with money from taxpayers can hold its head up and endorse a business framework where workers are simply disposable. Labor is not a commodity and ironically the inequality promoted by “Doing Business” is in fact a threat to the global economy. By encouraging competition to reduce labor costs by any means, “Doing Business” is endangering workers’ health and safety and contributing to the growing income inequality that even the IMF and the World Bank (other than “Doing Business”) have identified as creating a drag on sustainable growth.

To address some of the negative effects, the ITUC, in line with recommendations by the Independent Panel, recommended that the following revisions be made to the “Doing Business” report. First, the “Total Tax Rate Indicator” should be eliminated. Presently it encourages governments to reduce to a minimum all taxes and contributions paid by business, including pension premiums, fees for workmen’s compensation and other health and safety protections, as well as maternity protection. In its place, the World Bank should encourage governments to design a tax system that allows states to generate the revenue they need for financing quality public services and providing necessary infrastructure.

Second, the “Employing Workers Indicator” should be permanently removed.This indicator has been used to persuade countries to reduce labor regulations to a very low level, if not eliminate them altogether. While the World Bank suspended this indicator in 2009, data for it has continued to be collected and used by the IMF for conditionality in crisis countries, for ”advice” in Article IV reports and for ‘”best practice pressure” in institutional forums.

Third, the overall “Ease of Doing Business Indicator” and country rankings should no longer be produced. These indicators, instead of promoting positive business environments, have spurred a “race to the bottom” of eliminating a wide range of government regulations without an adequate evaluation of their benefits and costs. This impact has been especially damaging on countries dependent on World Bank financial assistance because of its use in loan conditionality.

Last, the ITUC supports the call from farmers, NGOs and consumer groups – more than 180 organizations in over 80 countries — to shut down the extension of the Bank’s “Doing Business” ranking system to agriculture through a new “Benchmarking the Business of Agriculture” (BBA) initiative. This initiative only threatens to support the rampant theft of land and resources from some of the world’s poorest people in rural areas.

If Dr. Jim Yong Kim claims to be serious about poverty reduction and shared prosperity, correcting the problems with the “Doing Business” report poses a test. Will he choose the business of greed or the business of people?

Sharan Burrow is the General Secretary of the International Trade Union Confederation (ITUC).

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