The debate has been settled. The question is no longer whether private business can be mentioned in the same breath as global development. Instead, it’s how can poor countries take better advantage of the transformative nature of private enterprise?
While government resources accounted for 71 percent of money flowing to the developing world in 1960, today they account for only 9 percent. In the 1990s, developing countries accounted for a little more than 20 percent of global investment; today that percentage has more than doubled. Over the past 10 years, developing countries have grown nearly four times faster than developed, and that trajectory is expected to continue. Our partners in the developing world are no longer interested in being passive aid recipients; they are eager to leverage this seismic shift in global capital and investment.
These shifting economic trends are affecting the way governments think about and organize around development assistance. The Bush administration’s Millennium Challenge Corporation begins each major program, or “compact,” it undertakes with a constraints-to-growth analysis that identifies the policies and conditions in partner countries that are unnecessarily restricting economic growth and opportunity. President Barack Obama’s Partnership for Growth initiative undertakes a similar analysis. So the debate has been settled. Or has it?
In recent weeks, a campaign to dismantle the World Bank’s decade-old Doing Business Index has intensified. The Doing Business Index objectively evaluates and ranks countries by how difficult or easy it is to start a business that pays taxes and plays by the rules. However, the index’s integrity is being challenged by a small number of rising powers that feel threatened by private-sector-driven development. These countries, naturally, don’t score well in the Doing Business Index. Rather than undertake the kinds of tough policy reforms necessary to improve their scores, they have chosen to attack the index and its foundational concept.
The Doing Business Index serves as a crucial tool for comparing policies and countries on the basis of their treatment of private enterprise. At a time when the Obama administration and development thought leaders are emphasizing the importance of funding activities that are evidence-based and data-driven, the Doing Business Index catalogs more than 2,000 reforms related to the impact of regulation on private enterprise, providing those who wish to unleash the potential of the private sector with a road map for change.
Savvy finance ministers around the world — many of whom were in Washington last month to attend the annual International Monetary Fund spring meeting — recognize the link between attracting a larger share of those funds and a high ranking in the index. This multiplier effect promotes economic reforms that improve business investment climates.
The World Bank has long aspired to foster private sector development in places such as sub-Saharan Africa. During his tenure as president of the World Bank, Robert Zoellick argued that we were moving “beyond aid” toward a world where emerging markets leverage their economic relationships with poor countries to drive growth through private investment and entrepreneurship. This paradigm shift is accelerating.