The World Bank’s deregulation guide goes down in flames

This latest data-tampering scandal involving Doing Business is not the first. In late 2017, the Bank’s chief economist, Paul Romer, publicly apologized for “unjust” changes to DB methodology that made Chile appear to be a worse performer when the Socialist Party was in power than when the conservatives ruled, even though no significant regulatory changes had taken place. Romer speculated that Chile’s changed DB status was “politically motivated.” Georgieva responded in January 2018 by quickly terminating Romer (who later that year was awarded the Nobel prize in economics) and giving his responsibilities to Djankov. The latter’s first task was to prepare and issue what, under Djankov’s direction, became a highly retrograde World Development Report on the future of work. His other major responsibility was to take over control of DB.

The World Bank never conceded Romer’s conjectures about political bias against progressive governments as a motive for changes to DB methodology, but its acknowledgement last week that Bank officials introduced a pay-to-play ethic through Doing Business must have been a major embarrassment for an institution that, not long ago, made the rooting out of corruption in developing countries one of its principal goals.

For her part Georgieva, who has been head of IMF since November 2019, initially brushed off the Bank’s investigation, saying in a three-line statement that she “fundamentally” disagreed with it. One day later she insisted during a virtual meeting with IMF staff that all she did was ask Bank staff to “double-check, triple-check” the data for China to ensure that they were accurate. It appears that no one at the meeting was given the opportunity to ask whether she exercised the same degree of precaution with DB data for the 189 other countries covered by the report, none of which was in the position of potentially making a large capital contribution to the Bank.

It is doubtful that most people will find convincing Georgieva’s breezy dismissal of the misdeeds documented in the Bank’s investigative report. An asset manager quoted in an AP article observed that if officials at a private bank or rating agency had doctored a ratings report as the World Bank officials are alleged to have, “they would be fired and would be subject to regulatory investigation”.

The fact that one of the key players engaged in the manipulation has since left the Bank and become head of the IMF calls for even more vigilance, not less. The IMF has itself been an avid user and promoter of DB and its deregulatory agenda over the past two decades and Fund officials have shown themselves to be world-class pros in concocting distorted analyses to justify predetermined policy plans.

A prime example is “Fostering Growth in Europe Now,” a report the IMF used to justify its endorsement of the European center-right’s offensive against unemployment benefits, minimum wages, and other labor regulations at a time when Europe had not yet emerged from the global financial crisis and austerity policies reigned. The findings showed that labor market issues were only minor compared to obstacles to growth such as non-functioning credit markets and outmoded infrastructure, but the report nevertheless put calls for labor market deregulation at the top of the list in almost all of the 17 countries considered. The results of the anti-worker offensive combined with fiscal austerity were not long in coming: Europe entered into a double-dip recession, unemployment rocketed to over 20 percent in some countries, and living standards declined for most of those who still had a job.

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