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Christina Chang Headshot

The Right Tools for Jobs?

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Right now, jobs are what matter. A resounding win for Mitt Romney in the first Presidential debate was wiped out in the polls by unemployment in the US falling below 8 per cent; no wonder President Obama looked so relaxed.

But for the 200 million people currently unemployed worldwide and the millions of others fearing redundancy or coming to the end of their education with uncertain prospects, there is no relaxing. It is that stark figure and all the social consequences it entails that means jobs will be the main focus of this week's annual meetings of the World Bank and International Monetary Fund.

And nowhere is the jobs situation more stark than in the developing world. With child mortality in long-term decline, the number of working age people in developing countries is soaring.

In Japan, where the annual meetings are being held, this would be a godsend - millions of strong, willing, healthy, tax-paying men and women are exactly what a developed economy with an ageing population needs. But in Africa and elsewhere in the developing world, the issue is not a lack of working age people, but a lack of jobs for them to do.

So what answers does the World Bank provide?

The key to creating jobs, says its latest World Development Report, is supporting the private sector to grow. It points out that small business creation is crucial to this effort given that small businesses account for the vast majority of jobs in poorer countries. So far so good.

But another World Bank bestseller - the Doing Business report - then ranks the business-friendliness of different governments according to a checklist of primarily deregulatory reforms. Regardless of the realities facing their small businesses, the Doing Business Report applies its one size fits all list, praising those who tick all the boxes, and failing those who do not.

This matters because these kind of rankings directly influence what developing country governments spend their limited resources on. Poor women entrepreneurs in Ghana lack access to credit, not because of regulatory barriers, but because of discrimination and lack of education to produce good accounts and business plans. Where is the incentive within the Doing Business rankings for the Ghanaian government to address that market failure?

In Zambia, an inter-ministerial committee has been set up to work exclusively on moving Zambia up the Doing Business rankings, and has been doing so at an impressive rate. But Zambia's small business programme receives under £1 million a year in funding. When Zambia has succeeded in hitting 6th place globally on the Bank's ranking for getting credit, why would it feel the need to help the 98% of small business owners who report lack of credit as their biggest problem?

It's not just that the rankings can lead governments to neglect the businesses and people which create jobs; they can also incentivise harmful reforms.

Again the example of star reformer Zambia is telling. Zambia's tax system is notoriously imbalanced, giving massive concessions to the profitable mining sector, whilst squeezing small and medium-sized businesses for revenue. Yet Zambia scores highly with the World Bank for having an overall corporate tax rate of just 16%, roughly half that of rich countries, despite its urgent need for revenues to invest in infrastructure, public services and anti-poverty programmes.

Civil Society groups all across the world are voicing concerns about the impact of the Doing Business rankings. Trade unions have succeeded in gaining the suspension of the controversial 'Employing Workers' indicator that undermines labour rights by encouraging "flexibilisation" of labour standards.

Under pressure from these groups and from disgruntled governments, who are finding their domestic reform choices penalised by the rankings, new World bank President Jim Yong Kim has ordered a timely review of the Doing Business project on the eve of its tenth anniversary.

That review needs to look hard at the impact of the rankings on poor, small business owners, not least when it comes to systems of land ownership; Doing Business-inspired reforms in Africa have certainly not prevented and have been criticized for actively facilitating the land-grabbing activities of big corporations and foreign governments in Ethiopia, Liberia, Sierra Leone and elsewhere.

The economic crisis of recent years has highlighted the risks of jobless growth and millions now face the reality of redundancy, unemployment and a bleak jobs market for years to come. The World Bank must take the needs of small businesses more seriously if fears of a jobless recovery and indeed jobless development are not to become part of that reality. Reforming the Doing Business rankings in the interests of small businesses and better jobs would be a good start.