Should the Post-MDG Framework contain an indicator for business environment reform?

 As 2015 draws closer, the international community is assessing the extent to which the Millennium Development Goals (MDGs) have been achieved. The MDGs have been remarkably successful in focusing attention and mobilising resources to address the major gaps in human development. The Overseas Development Institute (ODI) suggests a “defining feature of the goals has been that they provide clear, concrete and measurable objectives, with a range of targets and indicators for areas like health, education and poverty reduction.”

There is currently intensive debate underway as to what happens beyond 2015 and the formulation of a Post-MDG Framework. A very useful place to plug into these debates is the ODI’s Beyond 2015 website.

Since 2002, I have been regularly engaged by the Donor Committee for Enterprise Development (DCED) to support its work in business environment reform, principally through its Business Environment Working Group (BEWG). The BEWG has just issued a proposal that presents the case for an indicator that measures improvements in national business environments be included in the Post-MDG Framework. Four options for such an indicator are presented as a basis for discussion:

1. A composite indicator could be developed made up of relevant sub-indicators from existing data sets such as the Doing Business  survey, the Global Competitiveness  Index, and potentially other similar surveys such as the World Governance  Indicator ‘Regulatory Quality’ scores.  
2. Responses to selected Enterprise Survey questions relevant to the business environment are used to create country scores. Mini-Enterprise Surveys covering the relevant questions are carried out in every country at least every 5 years to provide the necessary expanded coverage.
3. As for (2), but a measure of regulatory implementation is included as a sub-indicator. 
4. Develop a new instrument that combines measures of the de jure rules with surveys to assess real world outcomes.

The arguments for and against each of these options is presented.

There is some value in highlighting the importance of business environment reform in efforts that are designed to support the growth of developing economies: better business environments can contribute to growth and can foster a more innovative, job-creating business sector. However, not all countries require the same kinds of reforms to achieve this and there is danger is promoting, or even implying, that all countries must follow the same reform path. So, while improvements to the business environment are encouraged for all countries, is there an end-point, a goal, that reflects the achievement of reform efforts? I don’t think so.

While the idea of ensuring business environment reform is on the agenda of a global development framework is sound, the problem is in how to define the indicators that measure this. Do we, for example, use goal indicators or process indicators?

I like the World Bank’s annual Doing Business indicators (DBIs). I recognise the arguments against the indicators, but believe that these largely result from how the indicators are used. They are often used in ways for which they were never intended. And this is the danger of using them as an indicator in a Post-MDG Framework. The DBIs have been stretched beyond their original intentions to attempt to provide a whole range of functions it was never designed for. I remember the arguments presented by Micheal Klien, the former World Bank Chief Economist, back when DB was being developed and tested. He describe DB as a smile “litmus test” that could give a rough idea on how a country was performing. Because the DBI have been so successful, they have been draw upon in situations when more than a smile litmus test is required. This has proved very unhelpful.

I suspect the same could be said for using the Global Competitive Index (GCI) for this purpose. The GCI is a much more thorough assessment. In fact, it assesses features of competitiveness that go beyond the business environment and recognises the various stages of development that different countries find themselves within. However, this too in an instrument that has been defined for a specific purpose and I am unsure how appropriate it is to apply it as a goal indicator in a Post-MDG Framwork.

I quite like the option of examining regulatory quality. However, an indicator that deals with quality would be required to accommodate the various levels of state maturity, authority and complexity. A good regulation in State A may be a bad regulation in State B.

All this leads me to wonder if there is more value in looking at process indicators than goal indicators. I wonder whether indicators regarding public-private dialogue, for example, might be helpful. Here, the emphasis would be on how states and business relate and even collaborate, rather than on the time required to register. However, I think process indicators do not go far enough for a Post-MDG Framework. As I indicated above, the strength of the MDGs was that they provided clear, concrete and measurable objectives with a range of targets.

What, then, are the universal targets of business environment reform?

Because of the variations found in national culture, state maturity, economic structure, etc., I suspect the targets of reform cannot be universal. Business environment reform is a means to achieving a broader set of targets, such as the development and transformation of the private sector. Should this be what we measure instead?

The ODI paper referenced above provides an interesting discussion on indicators for measuring improvements in governance, which has clear parallels with the topic of business environment reform. It recognises there is widespread agreement that political, economic and social institutions matter for development, but it is less clear which institutions matter most, when and why. Furthermore, there is on-going debate as to whether all countries should aspire to particular kinds of institutions (such as an independent judiciary and parliament) and processes (such as competitive multi-party elections), or whether there is no one form of governance preferable for all and rather, each country needs to develops institutions which reflect their own contexts and political settlements. The paper adopts an approach in which, rather than identifying one single measure or system of governance, there is a need to measure different elements of governance processes and systems, from levels of openness or participation of citizens, to state capacity and effectiveness.

“Any criteria for selecting meaningful indicators will need to take these differences into account and will need to be clear about what is being measured and why. Moreover, each of the areas identified (both for forms and functions) are themselves deeply ‘political’ and may be contested within and across societies.”

In summary then, yes, it is important to think about how to include business environment reform in a Post-MDG Framework, but more work needs to go into agreeing on what the targets of reform are and how these can be measured.

Please go to the DCED site to comment – HERE.