World Bank in about face on worker rights

WASHINGTON, Apr 30 (IPS) – The World Bank is dropping an index scored for undermining worker rights from its flagship effort to promote business-led economic growth in emerging, developing, and former Soviet countries.

The move, announced quietly Tuesday through a niche Web site, follows stiff criticism from the bank’s internal evaluators and executive directors as well as outside critics. One of them, prominent U.S. legislator Barney Frank, welcomed the bank’s decision as a significant shift in the lender’s approach to development.

The Employing Workers Indicator (EWI) ‘does not represent World Bank policy and should not be used as a basis for policy advice or in any country programme documents that outline or evaluate the development strategy or assistance programme for a recipient country,’ the bank said in a note posted on Tuesday to its Doing Business Web site.

Bank managers said their decision was driven by a desire to protect vulnerable populations during the global economic downturn.

‘It is important that government actions focus on the needs of the labour force and lower-income households as well as those designed to help businesses to survive and grow,’ they said in their note. ‘During this period of economic crisis, we are also scaling up our work on social safety nets through lending and analytical work.’

Frank, chairman of the House Financial Services Committee and an outspoken critic of the index, praised the bank’s about-face.

‘The leadership of the bank deserves great credit for recognising that social aspects of development need much greater attention,’ he said. ‘The notion that fairness for working men and women is somehow antithetical to good bank practice makes neither economic nor social sense, and I am pleased that this anti-worker indicator will no longer be promoted by the bank.’

The employment index appears in Doing Business, the bank’s highest-circulation annual publication. Known to insiders simply as ‘DB’, the report measures the cost to firms of selected business regulations in 181 countries. Each country is then ranked according to how conducive it is to private enterprise. Those that make it easiest to start and run a business, as measured by 10 indicators, earn the highest marks.

Frank also has scored the report’s approach to social contributions and taxes, saying it actively discourages the provision of social protection programmes by rewarding countries with the lowest level of mandatory employer contributions to pension plans, health care, unemployment insurance, and maternity leave.

Governments perform legal and political contortions to improve their Doing Business ranking in hopes of boosting foreign investment and with the expectation – stoked by the bank and the International Finance Corporation (IFC), its private sector arm – that increased business activity will translate into faster economic growth.

But the bank’s Internal Evaluation Group (IEG), in a report last year, assailed the annual survey, launched in 2004, for being biased in favour of deregulation, overstating its conclusions, and showing ‘no statistically significant relationship’ between its indicators and broader economic growth, much less improvements in national well-being.

‘The regulatory framework – the part of the business environment that DB measures – has been shown to be associated with firm performance,’ the IEG report acknowledged, ‘but its association with macroeconomic outcomes is less clear.’

‘Since regulations generate social benefits as well as private costs, what is good for an individual firm is not necessarily good for the economy or society as a whole,’ the IEG added.

Yet, it said, seven of the survey’s 10 indicators ‘presume that lessening regulation is always desirable, whether a country starts with a little or a lot of regulation.’

In consequence, ‘it is difficult to tell whether the top ranked countries have good and efficient regulations or simply inadequate regulation,’ the IEG found.

Bank managers disagreed.

‘This is incorrect,’ they said last year in a written response to the IEG findings. ‘Six of the 10 indicators reward countries for having more regulation or a simplified way of implementing existing regulation.’

During a separate and rare questioning by the bank’s executive board, however, managers admitted this applied only to regulations protecting investors and business property.

In contrast, according to the IEG, the index penalised countries choosing to protect workers. The EWI, it said, appeared to comply with the letter of relevant International Labour Organisation (ILO) conventions but not their spirit because it gave lower scores to countries that provided for greater job protection.

Bank managers, in their written rebuttal, turned a blind eye to the criticism.

‘The evaluation contains a number of important conclusions that management finds most helpful,’ managers wrote. ‘Specifically, these include: The conclusion that the DB ’employing workers’ index complies with the core labour standards and all other relevant conventions of the International Labour Organisation.’

Managers’ hopes that the controversy might stop there were dashed by constant pressure from the International Trade Union Confederation, the U.S. labour umbrella AFL-CIO, and by Frank, who demanded the bank shift its stance on labour as a condition of U.S. funding. Bank managers’ position was further weakened when it transpired that the lender’s Bretton Woods sibling, the International Monetary Fund, had jettisoned the employing workers indicator.

In its place, bank managers said on Tuesday, the bank will develop a new Worker Protection Indicator and ‘accord favourable scores to worker protection policies that comply with the letter and spirit of the relevant ILO Conventions, recognizing that well-designed worker protections are of benefit to the