These questions and more will be debated at an event in London today as part of an excellent series organized by ODI, DfID and Business Action for Africa. It is webcast live (12.30pm EST). For those interested in learning more, the World Bank Institute and George Washington University recently hosted a global eConference on "Peace Through Commerce". The related video and discussion threads are available to all.

What caught my attention this year was the discussion on labor issues: labor laws and the emerging skill shortage. Taking note of the global crisis and the impact on the Indian economy, the Survey highlights the urgent need to create more employment by reviewing labor laws. It notes that:

Further, there is an imperative need to facilitate the growth of labour-intensive industries, especially by reviewing labour laws and labour market regulations. This is particularly important in reversing the current, not-so-encouraging manufacturing employment trends.” (Economic Survey, page 223)

Some of the specific measures recommended include the following:

• Retrenchment of workers: At present prior permission of Government as per Chapter V-B of Industrial Dispute Act is needed for this purpose. The Survey recommends abolishing this procedure with simultaneous increase in compensation from the present 15 days wages for every year of service.
  
• Contract Law: The Survey recommends amendment of the Contract Law to allow use of contract labour in non-core activities or when the activity is of intermittent nature during the year.
  
• Working hours: Amendment of the Factories Act is recommended to increase workweek to 60 hours (from 48 hours) and daily limit to 12 hours to meet seasonal demand through overtime.

The above recommendations suggest a modest and cautious start towards the contentious and politically sensitive issue of labor reforms in India. While actual implementation is a different issue, the hope is that a consensus among policy makers to take another look at the labor laws in India is around the corner.

One feature of the data that stands out is the high level of crime in the construction industry. Table 1 (below the jump) shows that close to 30% of the firms in construction faced at least one incident of crime during the survey year (2008-09). The figure is much lower for service firms (21.3%) and manufacturing firms (13.8%). Losses due to crime as a percentage of firm’s annual sales are also higher in construction (0.62%) relative to manufacturing (0.34%) and also service firms (0.51%). The difference in losses from crime between service and construction firms does not appear to be that big in Table 1, but this is largely due to 3-4 service firms that report very high levels of losses due to crime.

Looking at individual countries, Figure 1 reveals that in 19 out of the 29 countries, the incidence of crime is highest for the construction industry. For example, in the Czech Republic, 68% of the construction firms were victims of crime compared with 38% of service and 23% of manufacturing firms. Losses due to crime as a percentage of annual sales are highest in the construction sector for 15 out of 29 countries, for manufacturing in 4 countries and in 10 countries for service firms (Figure 2).

Interestingly, there is not much difference in the percentage of firms spending on security across the three industries (Table 1). Also, such expenses (as a percentage of of firms’ annual sales) are least for construction firms (Table 1). It might be tempting to conclude that construction firms face more crime because they spend less on security, but such a conclusion must await a rigorous analysis of the security-crime relationship. For one, the negative security-crime relationship is not supported by the comparison between manufacturing and service firms (Table 1). Further, construction sites are usually in public areas, which might be easy targets for criminals.

One of the unique elements of Enterprise Surveys is that firms are asked for the percent of time that senior management spends dealing with government regulations. Doing Business, among other things, measures how burdensome it is for firms to comply with government regulations. The two sources of information are collected independently using entirely different methodologies. Nevertheless, the figure below (after the jump) shows that there is a strong correlation across countries between time spent dealing with regulations and the Doing Business rank.

The bars show the average time spent by senior management dealing with government regulations. The line shows the ranking from the Doing Business 2009 report. Senior managers in Georgia spend the least amount of time dealing with government regulations in the region. Georgia is also the best-ranked country in ECA according to Doing Business.

Georgia is just one example of a general pattern. Senior managers generally spend less time dealing with government regulations in countries with better ranks in Doing Business. (A spearman rank-order correlation model yields a result that is statistically significant at the 0.01 level).

Each hour spent dealing with government regulations is an hour not devoted to making the business more productive. The chart is one more example that shows the costs of business regulation vary substantially across countries.

What is the benefit of this time spent dealing with government regulations? It might help keep consumers safe, protect the environment, or have some other benefit. I’ll address this question in a future post.

To answer this, we first have to look at whether the reasons for the failure of the PPP are due to (1) mismanagement of the project by the private partner, or (2) macroeconomic impact, which could not have reasonably been foreseen by the public or private partner. If it’s the latter, then I’d argue there’s a very good rationale for a public sector bailout. How then to find the best solution for the project to survive and deliver the hoped-for results?

The UK, which has the largest PPP market so far, has decided to establish a Treasury Infrastructure Finance Unit (TIFU) to lend to PFI/PPP projects to "ensure that infrastructure projects go forward as planned despite financial markets conditions and thereby support jobs and economy." This is generally a good idea, but at first it seemed that it would not be necessary. For a while, banks managed to form a club, or the European Investment Bank supported the project. However, margins continued to climb and banks could only deliver short-term financing in the form of mini-perms.

For the time being, the bond market and credit risk insurance are dead, so finally TIFU found its first project to bail out in April 2009: "TIFU completed its first loan facility on 8 April 2009, providing a £120 million loan for the Greater Manchester Waste Disposal Authority’s PFI project alongside the European Investment Bank and a syndicate of commercial banks." This project was bailed out in the sense that the project could not secure financing without TIFU support, but it is a new development project so it's difficult to judge whether it meets the criteria I set out above.

The second project to be bailed out was considered in May for the Wakefield waste treatment project. Finally, two years after the selection of a proffered bidder, the financing of £700 million was secured on a preliminary basis in June without TIFU assistance and is expected to close within several weeks. Bailing out PPPs might be controversial for taxpayers, but it remains the only practical option for the public sector. Hopefully, the financial crisis will subside soon and financial markets will come back to their traditionally aggressive and long term lending to PPPs.

• Internationalization, Regionalization and Globalization
• Equity, Access and Quality
• Learning, Research and Innovation

In his opening remarks, Nick Burnett, Assistant Director General for Education at UNESCO, identified some of the 'new dynamics' that have had a significant impact on the higher education sector in the past ten years—one of which was the tremendous growth in private education, which was couched in terms of 'increasing diversity', but could easily have been part of the access and quality debate. He noted that private higher education has been one of the fastest-growing trends since the last conference. Indeed, as a participant at that earlier event, private education was not on the agenda and only mentioned in disparaging terms where the topic arose at all. This time round it is different. 

Prior to the conference, UNESCO commissioned an edited publication to provide a basis for the organisation's engagement in this subject. The result, A New Dynamic: Private Higher Education, provides a snapshot of developments in private higher education in 2009. It is not meant as an exhaustive treatise on the subject; rather, it illuminates a number of different issues, including recently updated data on enrollment numbers (now in the region of 30% of participation globally and over 70% in some countries in Asia and Latin America), financial consideration, quality assurance, regulatory concerns and public-private partnerships. The publication was launched at the conference and has generated quite a bit of interest—mostly from those adamantly opposed to private sector provision and holding stridently to the view that education at all levels should be a public good.

As editor of the publication, I was invited to organize a session on private education at the conference. The session took place today and was called 'Private Higher Education: Responding to Global Demand' and featured speakers from Ghana, Morocco, Colombia and the UK. Two of the speakers were former senior government ministers who had implemented significant policy change in their respective countries to facilitate growth in private higher education, another is the President of a university in Ghana, with which the IFC is a partner, and the final participant is a former university President/Vice Chancellor from a public institution who now is working closely with one of the largest private sector providers globally. The 90 minute session provided the context for very lively debate.

But what next? What influence will this gathering have on the next decade of developments in higher education? The conference 'communique' is the tool through which organisers and participants have a voice to identify the issues that have come to the fore and which deserve further consideration. Given the vast number of issues raised and debated this week, I am pleased to see that private provision has been raised in the communique AND in a positive light. The final draft states: "Private higher education has an important role to play as the fastest growing sub-sector of higher education worldwide...". The test will be to see whether the positive tone remains through to the issuance of the final communiqué at conference end.

At year end 2009, 58% of IFC's Health and Education Group’s education portfolio is invested in the higher education sector through both direct investment (75% of projects) and student loan schemes. However, it represents over 80% of the total education commitments by volume—some $290k. For more information on IFC's investments in private education see our website: http://www.ifc.org/che

In the land of the blind, the one-eyed man is king. When it comes to knowing how the global financial crisis will affect Africa we are all living in the land of the blind. Usually we can rely on the IMF to be the one-eyed man, but the IMF’s growth predictions for 2009 give such a mixture of signals that it is impossible to form a clear overall picture. We do know, however, that 2009 will see a series of difficult social and political changes in Africa: elections, strikes, civil unrest, rising fuel and food prices, and a more challenging environment for exports.

Eigen's willingness to acknowledge uncertainty about the future (and how we can shape it) is pretty welcome relief from a lot of the commentary out there. He is also very cautious about the organization of which he is the chairman: "EITI has long been held up as a shining example...but much of this praise has been premature." This couldn't contrast more with the approach enshrined in the MDGs, which sets out exact goals to be achieved by a specific date after the receipt of X dollars. For a skeptical take on the MDGs, check out Bill Easterly's commentary on the United Nations recent MDG 2009 Report.

Chris Anderson, editor-in-chief of Wired, just came out with a piece arguing that when it comes to information, Waste is Good. All those seemingly pointless Cat Videos on Youtube? They're leading us to information Nirvana:

All those random videos on YouTube are just dandelion seeds in search of fertile ground on which to land. In a sense, we're "wasting video" in search of better video, exploring the potential space of what the moving picture can be. YouTube is a vast collective experiment to invent the future of television, one thoughtless, wasteful upload at a time. Sooner or later, through YouTube and other sharing sites, every video that can be made will be made, and every person who can be a filmmaker will become one. Every possible niche will be explored. If you lower the costs of exploring a space, you can be more indiscriminate in how you do it.

I'm not particularly convinced by Anderson's argument. Malcolm Gladwell, author of the Tipping Point, has a smart critique of Anderson's views:

When you let people upload and download as many videos as they want, lots of them will take you up on the offer. That’s the magic of Free psychology: an estimated seventy-five billion videos will be served up by YouTube this year. Although the magic of Free technology means that the cost of serving up each video is “close enough to free to round down,” “close enough to free” multiplied by seventy-five billion is still a very large number. A recent report by Credit Suisse estimates that YouTube’s bandwidth costs in 2009 will be three hundred and sixty million dollars.

I think Gladwell is spot on. I'd go even further and point out that the line of thinking that Anderson follows contributed to the debacle of knowledge management in the 1990s, in which the prevailing philosophy could be summed up as "more is better." From the point of view of the user, more is clearly not better. Instead, more information simply leads to greater confusion. (This is a point I take from a recent presentation at the World Bank by Morton Hansen, author of Collaboration.) The trick is to figure out better ways to sort out useful information from the useless. While Web 2.0 technologies might make it cheaper to do this, it isn't ever going to be free.

Addendum: One of the temptations that comes with blogging is to push that wonderful "Publish" button before you've thought a post through. It's kind of like a mouse trained to press a button to get a pellet. I think I gave in to temptation on this post, so let me try to clarify.

First, I think Gladwell is right to point out that the cost of producing and transmitting information will remain at a more-than-nominal cost. Even though technology has greatly cut down these costs, when you multiply these small costs by millions (of videos or audio files or whatever) it adds up quickly.

Second, I wanted to make an additional and separate point from Gladwell's. The extraordinary amount of information available on the internet (or, for instance, on the intranet of many large institutions) presents a problem in that it's not easy to locate the information you are looking for. Google helps but is clearly imperfect. Twitter helps too. But all these solutions will be more-than-nominal in cost (either in monetary or labor terms, or both).

Third, neither of the two previous points bears directly on whether data like the World Development Indicators should be made available for free. (I should point out that access to part of the dataset is free.) Points one and two only remind us that producing and distributing (and interpreting) these data will not become costless. Whether access should be made free by cross-subsidizing these costs is a different question. 

Fourth (and finally), I think Anderson makes a legitimate point that something novel takes place when access to data (or platforms like Youtube) is made free. Suddenly, a much larger group of people is free to experiment with and build on this information. There is clearly some value to these novel forms (cat videos notwithstanding), and that lends greater support to the argument that access to more and more data should be thought of as a public good and subsidized. 

Think you’ve got better money management skills than the world’s poorest? You might be surprised to find out that you’d be up against stiff competition.

Jonathan Morduch and Daryl Collins report on their journey to various corners of the world (Bangladesh, India and South Africa to be exact) to observe how people living on less than $2 a day managed their financial lives in the recently published book Portfolios of the Poor. Their findings were summed up nicely in a recent review in the Washington Post: "the poorest people on earth engage in the sort of sophisticated money management that would make Chuck Schwab proud."

Morduch and Collins recently gave a presentation on their findings at CGAP. The punch line of their presentation: despite any perceptions to the contrary, the poor are by and large very 'numerate' and maintain active financial lives. They have to be—the incomes of the poor are not only low but also random and unpredictable, a triple hit.

To obtain the data that backs up their claim, Collins and Morduch observed a number of families for an extensive period of time and maintained financial diaries for these households. They talked up the fact that financial diaries are an effective way to track the financial activities of the poor (think great documentary as opposed to the Polaroid picture provided by a one-off survey).

Although their findings might at first seem to be commonsense, they have practical implications for the design of better financial products for the poor. Collins and Morduch present a much needed new approach to looking at the financial needs of the base of the pyramid. Policymakers and practitioners need to find ways to quickly scale up these solutions and make them more accessible and less informal.

And for those of you out there wondering what they are up to next? Collins says she will be coming out soon with a pilot study using the same methodology of financial diaries, this time for small businesses.

While Wikipedia defines PFI as a “method to provide financial support to PPPs”—which certainly is not correct—and “as part of a wider program for privatization and deregulation”—which is not correct either—since PFI is a form of PPP and it is not a mechanism for privatization or deregulation. Having said this, I have to add that privatization or deregulation can be one of the characteristics of a specific PFI project. On the other hand, Investopedia defines PFI as a “method of providing funds for major capital investments, where private firms are contracted to complete and manage the project,” which is not a complete definition but it at least accurately describes some of the features of PFI.

These were just two examples of definitions given for PFI, and indeed when I look for the plain meaning of the words “Private Finance Initiative” I would guess that (a) this is initiated by the private sector; and (b) it is about financing, but I would be wrong. In reality PFIs are initiated by the public sector and the financing part is an important but not essential feature of a PFI. Many PFIs have been financed directly from public budgets even at the investment phase. So the expression is confusing indeed.

In the United States the expression PFI has not taken very deep roots. However, the Millennium Challenge Corporation has an interesting definition for PFI in the Private Sector Initiative Toolkit as the “Private Financing of Infrastructure,” and PFI is one form of the Private Sector Initiative (PSI) among Output Based Aid and Outsourced Management.

So, can you clear up the mystery? What is your definition of PFI?

I spent seven years in Mexico, and I still receive some Mexican spam. Here is my translation of an email I received which was advertising a one day course on how to fire employees:

Firing a person is a delicate process filled with legal “mines.” It doesn’t matter how prepared you feel or how correct your decision is. Not doing it the right way puts you at risk for a lawsuit. No manager should begin this process without attending this seminar!!

I don’t doubt that it is hard to fire workers in Mexico. One can probably easily step into a legal minefield by firing a worker, even if the worker really deserved to be fired.

Based on this article, however, workers might need a course of their own. The spam email for that course would go something like this:

Firms have a million tricks to avoid paying you what they owe you. If you’ve been fired and you don’t know how to protect yourself, you have a good chance of walking away with nothing. No worker should try to claim a severance package without attending this seminar!!

And this ultimate judge is not always just; it does not always have the right information at the right time. It’s up to fallible public sector officials to ensure that proper information and reporting is available to the public and that proper stakeholder consultations take place prior to key decisions regarding the project.

Interestingly, a lot of government officials believe that the huge public interest in PPP projects is dangerous, and they would prefer to use traditional procurement procedures, as these provide the officials a safe haven. But this need for a safe haven can be an obstacle—development is about trying new things, experimenting with innovations, trying new ways to achieve efficiencies, and taking risks.

One of these risks is the cost of procurement of PPP projects. In my experience some of the costs that would normally be classified as capital costs under traditional public provision are classified instead as procurement and advisory costs in the development of a PPP project. This is quite a risk for public officials, but it is risk well justified by the quality of preparation and unprecedented learning process for both the public and private sides of a PPP agreement.

Take, for example, the Partnerships of British Columbia Value for Money report regarding Surrey Outpatient Hospital, which reported that the costs of public sector procurement of this PPP was $9.3 million compared to PSC $4.7 million (Public Sector Comparator is a measurement of public sector costs if the project would not be done as a PPP); therefore, the PPP procurement costs were a double hit to the public budget. And it is not just public officials who take this risk; the private sector side is also making a significant investment in developing proposals that can constitute several percent of the project capital costs.

The above mentioned Surrey Hospital does seems to deliver Value for Money (8.8% on overall costs), and not only have number of reports been published, including the Fairness Advisor Report, but cameras have also been installed directly on the construction site and a webcam enables direct online supervision by the public of how the construction of their hospital is progressing. An excellent idea, is it not?

It turns out that getting to the bottom of this question requires drawing a careful distinction between two concepts: the incidence and burden of crime.

Typically, studies of crime are based on the incidence of crime as measured by the percentage of agents (households, firms, etc.) in a country/city that suffer one or more incidents of crime. In a previous post, I argued that the incidence of crime can be very different from the burden of crime as measured by losses due to crime. Specifically, for the LAC region and compared with large firms, small firms show a smaller probability of being a victim of crime but losses from crime as a percentage of firms’ annual sales were much bigger from small vis-à-vis large firms. This holds even when we average out the losses across all (victims and non-victims) small and large firms.

Using data from the Business Environment and Enterprise Performance dataset (BEEPS, 2009), a similar pattern is found for twenty nine countries in Eastern Europe and Central Asia. Averaged across all twenty nine countries, the incidence of crime equals 18.3% for small firms and 27% for large firms (medium firms lie in between with a rate of 22.4%). However, the burden of crime (averaged over victims and non-victims of crime) is much higher for small firms than for large firms (0.52% for small, 0.28% for large; medium firms show losses of 0.41%). The pattern is found to hold for most individual countries as well, although there are some exceptions (Figures 1 and 2).

Apart from the mismatch between the incidence and burden of crime, these results also caution against thinking of crime as a problem for relatively large firms alone. The burden of crime is greater on the smaller firms.

While the annual Doing Business report ranks countries around the globe on the ease of doing business, the great variation within countries—especially large countries with a federal structure—means that it's also useful to rank the business environment of cities within a country. The Doing Business team started a separate line of subnational reports in 2006 that adapts DB methodology to the ranking of cities within a country. The Doing Business in India 2009 report pares back DB's standard line-up of 10 indicators to 7 to produce the ranking of cities shown above.

Here are a few more highlights from the report:

• Substantial variation between cities in the cost of opening a business: "In Patna, Kolkata, and Bhubaneshwar, entrepreneurs spend less than 40% of income per capita to open a business; for those in Mumbai, the cost is almost double."
• Big differences in registering property: "In Gurgaon, it takes only 26 days and 7.7% of the property value to register property, easier than in Guwahati, where it takes 84 days and 15.4% of the property value to do so."
• A very high number of yearly tax payments in all cities (compared to China, Brazil, or the average for South Asia): "...the number of yearly payments varies from 59 in Ludhiana, Noida, Bengaluru, and Mumbai to 76 in Kochi and 78 in Hyderabad."

Update: David Kaplan reminds me in the comments that DB does not capture all the elements of the business environment. Let me make it explicit by quoting directly from the report:

Doing Business in India does not measure all aspects of the business environment that matter to companies or investors, nor all of the factors that affect competitiveness. It does not, for example, measure security, macroeconomic stability, corruption, labor skills, the underlying strength of institutions or the quality of infrastructure. Nor does it focus on regulations specific to foreign investment.

As I wrote previously, it seems to me that the development sector needs fewer "lessons learned" documents - fully polished and sanitised so that they read more like PR pieces - and more honest, "raw" conversations about what worked, and, most importantly, what didn't.

The World Bank Group (WBG) has just released the first batch of a series of policy briefs on the financial crisis, whose aim is to assess government responses to the crisis, shed light on the financial reforms currently under debate, and provide insights for emerging-market policy makers. The first three papers cover a lot of ground in a short amount of space—sizing up the global policy response, forecasting what future financial systems will look like as a result of these policy responses, and determining how financial regulation will evolve. They will be followed by papers, written by different authors inside and outside the WBG, which will take ‘deep dives’ in specific crisis-related financial sector topics.

• Dealing with the Crisis: Taking Stock of the Global Policy Response provides an overview of the immediate financial sector policy responses to the financial crisis—including emergency liquidity support, expansion of financial safety nets, and interventions in financial institutions—that have succeeded in stemming widespread panic. But the effort has generally been ad hoc and insufficient. Issues that remain include the resolution of problem assets, the restructuring of troubled, systemically important financial institutions, and the development of credible exit strategies. Only a handful of countries have attempted to tackle these issues head-on. As past experience has shown, that may well have negative repercussions for the duration and strength of a subsequent recovery.

• The Reform Agenda: Charting the Future of Financial Regulation reviews the crisis-induced shift toward a tighter and more macro-prudential approach to financial regulation. But the reform agenda still needs to address the role of supervisory (rather than regulatory) failures, while the institutional arrangements needed to implement the new framework remain to be worked out. For most emerging economies, the existing reform agenda—developing institutional and legal underpinnings for the financial system and promoting financial access—remains valid. But for those characterized by weak financial oversight structures and more volatile economic cycles, adopting capital “buffers” as part of a macro-prudential regime may be a useful complement.

• Safe but Smaller? The Shape of Financial Systems to Come describes how global trends taken for granted in recent decades—the big expansion in global financial assets compared with underlying economic activity, growing global financial integration, shrinking role of the state in financial systems, and rising share of cross-border ownership of financial institutions—may reverse over the foreseeable future. In addition, the structure of financial systems, particularly in developed countries, will likely become oriented less toward capital markets and more toward traditional (and simpler) banking activities. The impact on economic growth and overall welfare is likely to be negative—perhaps the price we have to pay for living in a brave new (and presumably safer) financial world.

Earlier this decade, the government experimented with a public-private partnership (PPP) under the name of Metronet. The hope was to generate efficiencies by bringing in the private sector. So did it work? A recent report by the UK National Audit Office (published 5 June 2009) makes it pretty clear the answer is "no." The report pinned responsibility for this failure on poor corporate governance:

The main cause of Metronet’s failure was its poor corporate governance and leadership. Many decisions had to be agreed unanimously by five shareholders, which all acted as Metronet’s suppliers and had different motivations depending on their roles. The executive management changed frequently and was unable to manage the work of its shareholder-dominated supply chain effectively. These suppliers had power over some of the scope of work, expected to be paid for extra work undertaken and had better access to cost information than the management. The poor quality of information available to management, particularly on the unit costs of the station and track programmes, meant that Metronet was unable to monitor costs and could not obtain adequate evidence to support claims to have performed work economically and efficiently.

There is a lot of evidence that the governance of PPP projects is essential for the public sector to succeed, but not very much attention has been given to corporate governance. And indeed the philosophy of PPP is that the private sector knows what it is doing and gets things right or at least better than the public sector. And this is correct—as long as the public sector does its job of supervising and managing the overall project and the behavior of the private partner in particular.

As I see it, corporate governance is a somewhat forsaken subject when establishing PPPs. If a government wants to get involved, it not only needs to become familiar with the corporate structure of a Special Purpose Vehicle (SPV), but should also be fully familiar with all the contractual relationships within the PPP structure and perhaps should be represented on the Board of the SPV (certainly not being responsible for its decisions) or in its controlling governance structure.

Of course, we can't pin all failures of PPPs on corporate governance. Even in the case of Metronet there were other issues at play. Check out the Economist's take on the debacle in 2007 and 2008.

One of my recent research areas is the cost of business formalization. In particular, I have criticized the World Bank’s Doing Business project for the narrow focus of its “Starting a Business” indicator on reducing the initial costs of incorporating companies (Arruñada, 2007,  2009), which disregards the more important role of business registers as a source of reliable information for judges, which is essential for reducing transaction costs in future business dealings.

Part of Professor Arruñada’s argument is that the Doing Business indicators do not capture all the relevant components of the business environment. The writers of the Doing Business 2009 report agree. They state:

Doing Business does not measure all aspects of the business environment that matter to firms or investors—or all factors that affect competitiveness. It does not, for example, measure security, macroeconomic stability, corruption, the labor skills of the population, the underlying strength of institutions or the quality of infrastructure. Nor does it focus on regulations specific to foreign investment.

So far the two sides don’t sound that different. So what is the argument about?

I believe that the debate is not mainly about what Doing Business measures. Really, the debate is about how these measures are used in shaping public policy. Critics of Doing Business are concerned that countries will ignore the above warnings and only reform in areas that are measured in Doing Business.

Are the critics right? Do governments only adopt reforms that show up in the Doing Business rankings? Or could it be that governments simply use Doing Business as a source of valuable information with the goal of adopting any reform that would be good for their countries?

I've invited Filip Drapak, former Chairman of the Czech Republic PPP Centrum, to comment on these issues. Filip joined the World Bank Institute in 2007 to work as a Senior Specialist in the Public-Private Partnerships in Infrastructure practice.

Filip brings over 14 years of experience in finance, economics and banking. For the past 5 years, he has focused almost exclusively on public private partnerships, developing government policies and legislation, setting up institutional support for PPP and supporting the management of pilot projects. Welcome!

The World Bank recently held a workshop on Closing the Private Equity Gap that discussed how government policy can nurture the growth and sustainability of emerging market private equity. Venture capital investments play an important role in filling the early stage funding gap, and China is one of the world's largest emerging markets for venture capital (VC).

Last May, the Bank released a report, Promoting Enterprise-Led Innovation in China, which gives an overview of the Chinese VC market, whose investments have grown from $764m to $3.88bn between 2003 and 2007. In order to mantain this growth, the report calls on the Chinese governement to continue building its venture capital infrastructure:

Despite its relatively early start in the mid-1980s and strong government backing, China’s domestic VC industry remains in a nascent stage of development. This is so largely because creating a viable VC industry is more about the creation of an ecosystem than about setting up and capitalizing a number of individual VC firms. And gaps remain in some key dimensions of this ecosystem.

In order to improve its VC "ecosystem", China must address four issues:

1. Close legal loopholes;

2. Expand sources of VC funding by including institutional investors;

3. Enhance corporate governance; and,

4. Widen avenues for exits.

One of the workshop's keynote speakers was Gordon Murray, Professor of Management at the University of Exeter. Professor Murray warned that governments make "lousy VC investors," as they lack the cunning to compete with private venture capitalists, who will take advantage of you any time they get the chance. Murray's observations confirm the report's recommendations that the Chinese government needs to improve its VC environment in order to allow room for more private investors.

At an age when mothers admonish their children to finish their brussels sprouts, my mother issued warnings about the importance of getting a PhD if I wanted to gain the respect of my future husband. Those warnings were followed by the oft-repeated reminder that I should "marry well, so you don’t have to work if you don’t want to."

Twenty years and a couple of degrees later I’ve often wondered how those two pieces of advice go together. What is the point of getting an advanced degree if I eventually decide not to work? 

In an address to the Muslim world from Cairo University in Egypt, President Barack Obama argued that denying a woman education is denying her of equality. Expressing sentiments in line with the World Bank’s Doing Business gender initiative, he observed, "it is no coincidence that countries where women are well educated are far more likely to be prosperous." Investing in women is, as our catch phrase at the Bank goes, "smart economics."

Obama did add one nuance—ultimately, work must be a woman’s choice and her choice to work or remain in a more traditional role must be respected. My mother would agree. His two proposed solutions? Broaden women’s choices by improving access to education and to microfinance.

It is a commendable step towards equality to expand a woman’s ability to choose by furnishing her with an education and access to credit. However, because her decisions in many societies may be unfairly constrained by unequal business laws and inadequate social and welfare services, this is not enough. To further bridge the gender gap in economic participation, we must identify and reform the institutions and laws that render women particularly vulnerable, creating disincentives that can be just as powerful as outright discrimination. If educated women are choosing not to work, it may not always be because they’ve married well.

As Professor Shibley Telhami of the University of Maryland noted on NPR’s Morning Edition, people in the Arab world are increasingly open to women in universities. In fact, many universities in the region have more female than male students. But Telhami says these countries’ economic and political structures create disincentives for women to join the workplace after their education.

For instance, married women may not work at all because of punitive tax rates. Virginia Postrel, a columnist on economics for the New York Times, finds that there is a strong correlation between tax rates and the decision of the family’s second income earner, who is more likely to be a woman. Because of the "marriage penalty," secondary earners in American families with high household incomes pay an average of 50 cents in taxes for every dollar they earn—which affects their decision to work or stay home.

To document laws that affect a woman’s economic participation, including tax laws that affect second income earners, the World Bank’s Doing Business Gender team has devised a gender scorecard that will be published this September. The scorecard will provide answers to questions about a woman’s ability to do business in 181 economies. Taking a closer look at these regulations is essential to understanding the incentives and disincentives that women face as they decide whether or not to enter the workforce or start their own businesses.

The personal income tax section will cover gender differentiated credits and deductions, tax liabilities for working couples who file jointly, as well as differences in tax calculations for non-wage income. Other scorecard questions will examine a woman’s property and inheritance rights, her ability to get credit and enforce contracts, and gender specific industry and working time prohibitions. Scoring a large number of countries gives us the ability to compare across countries or regions to isolate the most important variables—or cluster of variables—that affect both a woman’s capacity to start a business and work, as well as her motivation to do either.

...The pace of expansion in the new few years may well turn out to be frenetic. The most serious problem that this sudden expansion will entail is finding faculty of appropriate quality in the public higher education system. Therefore, an initiative to be seriously considered involves giving greater financial autonomy to universities, to enable them to mobilize resources from sources other than the government—partly to attract Indian academics teaching abroad back to India. Salaries have risen sharply recently, thanks to the Sixth Pay Commission’s recommendations to make returning home attractive for nonresident Indians. However, the requisite autonomy of universities is also needed to encourage them to attract faculty back to India.

...compare finance and redistributive policies. Many theories motivate redistributive policies as a mechanism for de-linking an individual’s opportunities from parental wealth. One problem with redistributive policies, however, is that they create disincentives to work and save, though researchers debate the actual magnitudes of these disincentive effects. These tensions between efficiency and equity, however, vanish when focusing on financial sector reforms. Financial developments that expand individual economic opportunity create positive, not negative incentive effects, and avoid the adverse repercussions associated with attempts to equalize outcomes. Financial development both boosts efficiency and the equality of opportunity.

For useful reviews of the book, check out Chris Blattman, the Financial Times, and the Economist. Also check out this recent interview with Wrong on NPR.