REVIEW #10: Is Doing Business Report a Good Tool for Describing Business Regulation in All Countries? (A Serbian Perspective)

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Market regulation has long been one of the significant topics in social sciences since at least the 19th century, with two main opposing views coming from different schools of thought. First, that regulation is necessary to reach desired social goals and increase economic efficiency; and second, that regulation is unnecessary since it leads to economic waste and erodes individual choice and freedom.


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02_MIHAILO GAJIĆ_IS DOING BUSINESS REPORT A GOOD TOOL FOR DESCRIBING BUSINESS


However, since there were no reliable instruments of measuring the overall quality of the regulatory environment in different countries and over time, there was a clear need for a tool which would measure just that.

This gap was successfully bridged with the introduction of the Doing Business (DB) report by the World Bank in 2003, which covered a large number of countries and areas important for small and medium enterprises. This sparked a new wave of interest in empirical research regarding the effects of business regulation.

Throughout the years, the DB has become one of the key international benchmarks. Its publication is awaited by the media and policy makers across the world to help evaluate reforms various governments have implemented. Its rankings and data are widely used for investment and business decisions by private company’s management and for making other international benchmarks (such as Index of Economic Freedom by Heritage Foundation).

Due to its prominence, many governments across the world have been willing to make long strides in order to improve its rankings in the DB, in order to attract foreign investors, improve its image in the business community and increase its economic growth. Empirical research supported these efforts, since it implied that a better score in the DB really leads to higher economic growth.

This was also the situation for countries in transition. Since their background was even more difficult for conducting business than those of over-regulated advanced market economies, due to their authoritarian background, lower quality of administration, weak rule of law, rampant corruption, and other legacies of the centrally planned economy and state socialism, many transition economies made more efforts in advancing their DB rankings over the years.

This has led to somewhat paradoxical situations: is it really so, that regulatory environment is more business friendly in Georgia (ranked 6th in the DB) than in the United States (8th), or the United Kingdom (9th)? Or that business in Macedonia (10th) is less burdened than in Sweden (12th) or Australia (18th)? Or that Belarus (37th) is a better business destination than Switzerland (38th)? 

Methodological Introduction

The methodology of the Doing Business report slowly evolved over the time. It now includes the following areas:

  • starting a business;

  • dealing with construction permits;

  • getting electricity;

  • registering property;

  • enforcing contracts;

  • getting credit;

  • protecting minority investors;

  • paying taxes;

  • trading across borders;

  • resolving insolvency.

These business regulation areas measure the administrative burden associated with an area of doing business, such as the number of administrative tasks, the time necessary for them, and associated monetary costs. Data on actual performance are gathered and transformed to a 0–00 scale, where the maximum number of points is allotted to the best performer. Further important information is also gathered, but not included in the scores, such as labor market regulation and contracting the government (tackling the procurement process).


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