Not every private sector development expert in the world participates in the World Bank Doing Business Indicators Survey, but those that do will be filling out those surveys this month and next. With those indicators heavy on the minds of many who have worked to improve them since a year ago, these two months are a good time to point out the difference between good governance and democratic governance.
The DB indicators’ nine core areas – Starting a Business, Dealing with Construction Permits, Registering Property, Getting Credit, Protecting Investors, Paying Taxes, Trading Across Borders, Enforcing Contracts, Closing a Business – measure institutional performance of key government functions for private sector activity. A growing number of governments care about their performance on these measures and they see it as a competition. Yet the indicators have important limits outlined in each core areas’ methodology that analysts and media often overlook.
For example, under the Closing a Business area, among other specifics the assumed case study company is a hotel with 201 employees and its only asset and source of income is the hotel property. The value of the hotel is 100 times the income per capita of the economy. The hotel is defaulting on a 10-year loan collateralized by the hotel property and/or a universal business charge where applicable. How many businesses in a given country fit that exact mold?
While assumptions are necessary for the purpose of gathering data, they are important caveats that analysts and reformers often overlook when evaluating the future success of DB-type reforms. How do analysts or reformers know which DB core areas are most relevant to a given country context? If a country improves its score on a core area, how meaningful is that improvement to that country’s private sector?
Just because DB indicators don’t answer those questions doesn’t mean the indicators are useless. Rather than being a way of making governments compete to achieve top-down indicator-specific reforms, the DB indicators can be a useful subject for constructive dialogue between government reformers and private sector stakeholders. The quality of that dialogue is what matters for democratic governance.
No matter how divided politically or ethnically, time and time again economic issues have united disparate factions and helped governance improve democratically as well as functionally. Kenya’s 2007-8 post-election violence and resolution is a powerful recent example of such dialogue that has paved the way for many governance and business-environment improvements, including a vastly improved constitution.
When your reform process itself includes tax-paying citizens and businesses as a driving force, then you do more than improve your DB score and ranking. You’ve embedded those reforms in your country’s ongoing historical process of institutional change. You’ve made those reforms meaningful and applicable to your specific country context. Perhaps you’ve even contributed to a healing process for decades’ or centuries’ old conflicts. In short, you’ve improved democratic governance.