Best of the Week
Most Popular
1. Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - P_Radomski_CFA
2.Fed Balance Sheet QE4EVER - Stock Market Trend Forecast Analysis - Nadeem_Walayat
3.UK House Prices, Immigration, and Population Growth Mega Trend Forecast - Part1 - Nadeem_Walayat
4.Gold and Silver Precious Metals Pot Pourri - Rambus_Chartology
5.The Exponential Stocks Bull Market - Nadeem_Walayat
6.Yield Curve Inversion and the Stock Market 2019 - Nadeem_Walayat
7.America's 30 Blocks of Holes - James_Quinn
8.US Presidential Cycle and Stock Market Trend 2019 - Nadeem_Walayat
9.Dear Stocks Bull Market: Happy 10 Year Anniversary! - Troy_Bombardia
10.Britain's Demographic Time Bomb Has Gone Off! - Nadeem_Walayat
Last 7 days
Stock Market Pause Should Extend - 21st April 19
Why Gold Has Been the Second Best Asset Class for the Last 20 Years - 21st April 19
Could Taxing the Rich Solve Income Inequality? - 21st April 19
Stock Market Euphoria Stunts Gold - 20th April 19
Is Political Partisanship Killing America? - 20th April 19
Trump - They Were All Lying - 20th April 19
The Global Economy Looks Disturbingly Like Japan Before Its “Lost Decade” - 19th April 19
Growing Bird of Paradise Strelitzia Plants, Pruning and Flower Guide Over 4 Years - 19th April 19
S&P 500’s Downward Reversal or Just Profit-Taking Action? - 18th April 19
US Stock Markets Setting Up For Increased Volatility - 18th April 19
Intel Corporation (INTC) Bullish Structure Favors More Upside - 18th April 19
Low New Zealand Inflation Rate Increases Chance of a Rate Cut - 18th April 19
Online Grocery Shopping Will Go Mainstream as Soon as This Year - 17th April 19
America Dancing On The Crumbling Precipice - 17th April 19
Watch The Financial Sector For The Next Stock Market Topping Pattern - 17th April 19
How Central Bank Gold Buying is Undermining the US Dollar - 17th April 19
Income-Generating Business - 17th April 19
INSOMNIA 64 Birmingham NEC Car Parking Info - 17th April 19
Trump May Regret His Fed Takeover Attempt - 16th April 19
Downside Risk in Gold & Gold Stocks - 16th April 19
Stock Market Melt-Up or Roll Over?…A Look At Two Scenarios - 16th April 19
Is the Stock Market Making a Head and Shoulders Topping Pattern? - 16th April 19
Will Powell’s Dovish Turn Support Gold? - 15th April 19
If History Is Any Indication, Stocks Should Rally Until the Fall of 2020 - 15th April 19
Stocks Get Closer to Last Year’s Record High - 15th April 19
Oil Price May Be Setup For A Move Back to $50 - 15th April 19
Stock Market Ready For A Pause! - 15th April 19
Shopping for Bargain Souvenirs in Fethiye Tuesday Market - Turkey Holidays 2019 - 15th April 19
From US-Sino Talks to New Trade Wars, Weakening Global Economic Prospects - 14th April 19
Stock Market Indexes Race For The New All-Time High - 14th April 19
Why Gold Price Will “Just Explode… in the Blink of an Eye” - 14th April 19

Market Oracle FREE Newsletter

Top 10 AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

China World Bank Rankings That Rankle

Economics / China Economy Nov 05, 2013 - 06:45 AM GMT

By: Steve_H_Hanke

Economics

The World Bank has been producing its annual “Doing Business” report since 2004 and its 2014 edition ranking Hong Kong second out of 189 economies surveyed, in contrast to mainland China’s score of 96, hardly seems controversial.

Its rankings of 10 factors reflecting the ease with which entrepreneurs and businesses may conduct economic activity in a given economy offer an unbiased way of looking at business.


After all, with so much unreliable data coming out of official government statistics offices these days, it would appear to be a useful tool — not only for businesses, but for governments as well. Indeed, since 2005, a total of 1,940 reforms have been implemented by countries to improve their rankings.

As it turns out, however, a few countries (specifically those with low rankings) are none too happy about the report.

While some world leaders have viewed their countries’ relatively low rankings as a challenge to institute economic reform, other countries — most notably China — have been pressuring the World Bank to scrap the rankings and weaken the analysis to the point of irrelevance.

Indeed, under pressure from China and others, World Bank president Jim Yong Kim commissioned a panel to “study” the Doing Business rankings and present recommendations for “improvement”. Not surprisingly, the commission recommended doing away with the actual ordinal rankings, and switching to a less embarrassing evaluation of each country.

The panel’s recommendations are nothing more than a thinly veiled attempt to gut the report. Stripping the ordinal rankings and “reforming” the report’s methodology would have the effect of completely destroying its credibility and usefulness as a policy tool.

Fortunately, the Doing Business report has one very important ally — Kim himself. A campaign to save the report has also been mounted by the report’s co-founder, former World Bank group vice-president Michael Klein.

These World Bank insiders recognise a simple fact — one which many businessmen, politicians, civil servants and economists, like myself, have long understood. The Doing Business report represents one of the few uniform, objective metrics available for measuring the progress of economic reform efforts over time.

Objective metrics like Doing Business are important, because as the late professor Oskar Morgenstern documented in his classic, “On the Accuracy of Economic Observations”, the incompetence and wilful trickery of many governments often render official data less than reliable.

The solution to this problem is to develop unbiased statistics, using objective data. And, while official, macro-level data like GDP per capita is important, it must also be complemented with micro-level data on factors such as contract enforcement and access to electricity.

This is where the Doing Business report comes into play. Rather than rely on often dubious official statistics, the report uses data collected from more than 9,000 accountants, lawyers, engineers and other business professionals around the world. And the report provides vital data on the structural strengths and weakness of a given economy.

By “structural”, I simply mean the “rules of the game” for small and medium-sized businesses — in short, the government-imposed regulatory costs of starting, running and closing a business in a given economy.

The case of China and its position on the Doing Business report is rather strange. After all, Chinese pragmatism holds the proverb of “seeking truth from facts” in high regard. Moreover, this mantra has worked in China for nearly four decades.

According to the late Nobel Prize-winning professor Ronald Coase and Professor Ning Wang in their recent book, How China Became Capitalist, this approach has produced multiple marginal revolutions that have brought back entrepreneurship and unleashed market forces outside the boundaries of socialism. In consequence, China has undergone one of the greatest economic transformations and sustained economic booms in history.

The key for China going forward will be to continue making marginal reforms that put more of the economy outside the grip of the dead hand of socialism — along the lines of the reforms proposed by the State Council’s Development Research Centre, as well as China’s own “Mr Market”, Wu Jinglian.

The Doing Business report should be a cornerstone of this effort.

So long as Kim holds fast and preserves the report, as is, China will have access to a valuable policy framework for implementing further economic reforms and an objective benchmark for measuring their progress.

Rather than being embarrassed by its current Doing Business ranking, the Chinese government should view it as a challenge and a call for another marginal revolution or two.

This article appeared in South China Morning Post on November 2, 2013.

By Steve H. Hanke

www.cato.org/people/hanke.html

Steve H. Hanke is a Professor of Applied Economics and Co-Director of the Institute for Applied Economics, Global Health, and the Study of Business Enterprise at The Johns Hopkins University in Baltimore. Prof. Hanke is also a Senior Fellow at the Cato Institute in Washington, D.C.; a Distinguished Professor at the Universitas Pelita Harapan in Jakarta, Indonesia; a Senior Advisor at the Renmin University of China’s International Monetary Research Institute in Beijing; a Special Counselor to the Center for Financial Stability in New York; a member of the National Bank of Kuwait’s International Advisory Board (chaired by Sir John Major); a member of the Financial Advisory Council of the United Arab Emirates; and a contributing editor at Globe Asia Magazine.

Copyright © 2013 Steve H. Hanke - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Steve H. Hanke Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules