The importance of small businesses has been getting more profile at the World Bank (and beyond), if this week in Washington is a good indicator.
CAFOD is pleased to see that this realisation seems to be catching on. At a meeting of a right-wing think tank on the World Bank’s controversial Doing Business project, former World Bank President, Paul Wolfowitz suggested that the project’s flagship report should be renamed “The Small Business Report”.
At a meeting with civil society, Russia’s G20 Sherpa said that she “could not agree more” with CAFOD that small businesses should be central to the efforts of the Development Working Group’s future work plan.
But it is too soon for the Economic Justice team at CAFOD to relax and take a break – even if we think we’ve earned one! We still have our work cut out to turn this emerging consensus into a real benefits for poor entrepreneurs in developing countries.
Take, for example, the Doing Business project. The four top priorities that we often hear from small businesses are: access to credit, corruption, property rights and the need for better education and health services (most poor businesses rely on labour of one or two individuals – so their health and skill set are important to success). Examining how Doing Business rates in helping them to overcome these constraints indicates some important directions for reforms.
Starting with corruption – Doing Business does not tackle the issue, despite its importance to the ability to operate and the success of poor entrepreneurs. The Doing Business team have started to pay attention to the results of enterprise surveys to more closely align their topics with the priorities of firms – but clearly more needs to be done.
Credit, on the other hand, is tackled by Doing Business, but highlights another short-coming of the project. Zambia ranks very highly on the indicator, yet over 90% of firms still cite access to credit as a main barrier to success. This suggests that Doing Business does not, by itself, do a good job of guiding government reforms. The Zambian government, guided solely by Doing Business might think it has done a great job. However, a discussion with local businesses would soon put them straight. This is why we are recommending Doing Business should only be used in combination with such dialogues and other more specific and detailed diagnostic tools and we must be sure to use Doing Business cautiously and appropriately in the policy reform process.
Doing Business also falls down with respect to property rights. This time the failing is that Doing Business is biased towards one-size-fits-all and is not well-designed to support context-specific solutions. For example, Doing Business promotes one kind of property rights and does not recognise the importance of community, collective rights or rights of use and access on which many poor people’s livelihoods depend.
Finally, it is right that Doing Business does not directly address health and education issues in its indicators – it is a specific, limited tool, not a panacea to all problems. There are some things better left to other tools However, Doing Business does promote low overall rates of corporate taxation, which undermines the ability of governments to provide this broader support to their working populations. Examining the impact of specific indicators and revising them according to their impact on poor enterpreneurs also needs to be on the to-do list of the World Bank review process currently underway.
The World Bank needs to take these next steps to support small business if it is to achieve the vision of new World Bank President, Jim Yong Kim, presented at these Spring meetings. This vision, to underpin a new strategy to guide the Bank’s work, has at its core goals to achieve shared prosperity and poverty eradication and recognition of the importance of the private sector in achieving these ambitions. Although it does not explicitly mention small businesses, they will be central to this endeavour.