Guest post: Is the World Bank Reforming Itself?

David Joyce: Earlier this week, the World Bank issued a memorandum to its country and sector directors instructing them to stop using the "Employing Workers Indicator" (EWI) of its highest-circulation publication, "Doing Business" (DB).

The DB labour indicator gives the best ratings to countries with the lowest level of workers' protection and has been used by the IFIs to push dozens of developing countries to undertake labour market deregulation.

In the memo, Bank staff are informed that "the EWI does not represent World Bank policy and should not be used as a basis for policy advice or in any country program documents that outline or evaluate the development strategy or assistance program for a recipient country".

The World Bank will furthermore remove the EWI from its Country Policy and Institutional Assessments (CPIA), which the Bank uses to establish countries' overall level of eligibility for loans and grants allocated by the Bank's concessionary lending arm, the IDA.

The IMF took a similar step several months ago, in August 2008, when IMF management told regional directors and mission chiefs that "in light of various methodological problems with the index, ... mission teams should refrain from using the EWI in any public documents ...". The IMF kept this directive confidential until the WB announcement, but the EWI has not appeared in most Fund country policy documents, such as Article IV consultation reports, since late 2008.

The World Bank also announced that it intends to convene a working group that would include the ILO, trade unions, employers and others to advise the Bank on revisions to the EWI, the development of a new "worker protection indicator" and an examination of DB's "Paying Taxes Indicator" (PTI), which deals with contributions to social protection programmes and other tax issues.

The IFIs' decision to suspend the use of the DB labour indicators follows several years of criticism of the indicator by the ITUC, Global Unions Federations and many trade unions at national level – including ICTU. Unions were particularly critical of that fact that the IFIs used the indicators to pressure individual developing-country governments to dismantle or weaken workers' protection legislation, such as rules on minimum wages, maximum hours, advance notice and recourse in case of dismissal, and limitations on short-term contracts. The unions also engaged with the ILO, a small group of Washington-based critics of the DB labour indicator (including Barney Frank, a Massachusetts congressman who is chairman of the financial services committee of the US House of Representatives) and some governments. During hearings on the topic in October 2007 Frank said: "It is simply wrong for the major international institution in the world, the World Bank, to be putting out a report in which the worse you treat your workers, everything else being equal, the better you are rated." Last June, the World Bank's own Independent Evaluation Group issued a report in which it questioned the methodology of the EWI and the PTI and noted that it had found no evidence for DB's long-standing claim that countries with higher EWI ratings (and less labour regulation) showed improved performance in employment creation.

“In the context of the current global economic crisis, where 50 million more workers could become unemployed this year and pressures to decrease wages and workers’ living standards are intensifying every day,” said ITUC General Secretary Guy Ryder, “it is significant that an important development institution like the World Bank is turning the page on a one-sided deregulatory view on labour issues and proposing to adopt a more balanced approach where adequate regulation, improved social protection and respect for workers’ rights will be given a higher profile.”

Ryder offered the Bank the ITUC’s full cooperation in developing an alternative approach that promotes the creation of decent work. The Bank’s decision to pay greater attention to issues such as these is consistent with the commitment of G20 leaders at their London summit to ‘build a fair and friendly labour market for both women and men’,” said Ryder. “We invite the Bank to work closely with the ILO on this theme,” he added, noting that the G20 statement called upon the ILO to assess appropriate employment and labour market policies.

This is an important step in terms of the World Bank correcting and clarifying the message it sends to developing country governments about successful and sustainable economic strategies via the Doing Business report. The real test of this very welcome development however will be the impact that it has on country-level discussions with the Bank. It is hopefully another nail in the coffin of casino capitalism and if effectively implemented has the potential to create space for the promotion of strong social safety nets, vibrant and democratic labour movements, and respect for people’s fundamental rights at work.
David Joyce is Development Policy Officer with the Irish Congress of Trade Unions