Shadow Government

How Jim Kim can save the Doing Business report

World Bank President Jim Kim and the World Bank board will in the next few weeks receive a report about the future of the "Doing Business" report that will be critical in determining the future of the bank's signature project to encourage private sector development. Forces inside the bank -- most notably, China -- have tried to scuttle the Doing Business report, which ranks countries on the ease of starting and running a business, and it is now up to Kim to ensure the report survives intact.

Countries loathe to embrace private enterprise as the main driver of development have attempted to weaken, outsource, or do away with the report, an effort that has crystallized in the forthcoming report about the future of Doing Business. As a trained medical doctor, Kim is well familiar with the Hippocratic Oath and its dictate to "do no harm," and in coming weeks he will have the chance to live up to that pledge and save an important aspect of the bank's development agenda.

The bottom line is that Doing Business is one of the World Bank's most important and useful activities. For the United States, it is one of the top five most important programs at the World Bank. Messing with Doing Business should be a line in the sand for the bank.

I expect one of three outcomes from the panel's report: crippling several of the critical indicators, ending Doing Business altogether, or outsourcing Doing Business to something like the World Economic Forum. These are all bad outcomes for development, the World Bank, and the United States. 

Sources inside the World Bank that Kim has said privately that his "hands will be tied" by the panel's report, but there are several other factors that the Bank's leadership should take into consideration in their decision.

First, Kim should review the open letter authored by Paul Collier, Daron Acemoglu, Graeme Wheeler, Michael Klein, and Simon Johnson, five heavyweights in the development community who strongly support Doing Business. Currently, the letter has been signed by 50 former and current policymakers, prominent economists, and others from all over the world. 

Additionally, Doing Business is broadly popular on both sides of the aisle in Congress. Last week, Chairman of the House Foreign Affairs Committee Ed Royce and Jeb Hensarling, the chairman of the House Financial Services Committee, sent a letter, which was also signed by the Democratic Reps. Gregory Meeks and Karen Bass, encouraging Kim to keep the Doing Business report intact. That letter is embedded at the bottom of this post.

Jim Kim has the power in World Bank board meetings to offer a summation and to provide his interpretation of the board's consensus. He should exercise that power to defend Doing Business. I have seen him push back on other silly ideas by leveraging his moral authority as someone from the NGO community. Now is the time to say, " I am from the NGO community, I have seen what crony capitalism can do, I have seen what corruption has wrought, I am for a data driven and evidence based approach to development, and I believe the private sector is the driver of development. Therefore, I conclude that the bank will continue to run and grow Doing Business." 


05 16 13 - World Bank Pres Kim Mission to eradicate poverty.pdf by Elias Groll


Win McNamee/Getty Images

Shadow Government

Apple's Tim Cook confronts job-destroying deception

Apple has traditionally been known as an apolitical company. Americans should be thankful that CEO Tim Cook is abandoning that approach to come to the U.S. Senate today to push for a change to one of the most ill-advised aspects of America's gargantuan tax code: its global corporate tax structure.

It is true that Apple holds $100 billion offshore, but rather than breaking out the pitchforks, Americans should ask why one of the world's savviest tech companies is behaving this way.

The United States, unlike nearly every other advanced economy, taxes foreign earnings brought back to its shores. That approach has forced American companies to fight global competitors with one hand behind their backs.

When Apple is competing with Samsung in the cell-phone market or Caterpillar is competing with Komatsu to determine who helps build the skyscrapers in tax-free Dubai, Apple's California-based and Caterpillar's Illinois-based workers are at a cost disadvantage because their employer must pay tax on its earnings in Dubai while Samsung and Komatsu do not.

To mitigate this disadvantage, companies have been allowed to defer paying this tax until they bring the money back to the United States. That creates an incentive to invest in international markets, not the United States. This is like America shooting itself in the foot. It's extremely difficult for a one-armed, one-footed company to compete against multinational corporations whose governments don't impose additional burdens on their international business operations.

In addition to being a drag on American businesses, it's also one of the most misrepresented aspects of the tax code. President Barack Obama and others who oppose removing this provision demonize it by calling it a tax loophole that "encourages American companies to ship jobs overseas." It's a charge that political fact-checkers have disputed, but the line lives on. The true effect is that it simply makes it more difficult for American goods and services to compete in a global marketplace.

In 2004, Congress passed the American Jobs Creation Act that included an opportunity for companies with foreign earnings abroad to bring that cash home at a 5.25 percent tax rate rather than the usual 35 percent. Companies brought over $300 billion back to the United States. Temporary reprieve is helpful, but for the sake of American workers the current system must be scrapped. Leveling the playing field for American companies permanently will pay dividends to shareholders, workers, and consumers alike.

Effectively confronting this job-destroying deception emanating from the Oval Office, the biggest megaphone the world affords, requires the voice of a master marketer with the credibility of leading the company that is perhaps most responsible for any residue of economic optimism remaining in the country.

As Cook recently stated, "I can tell you unequivocally Apple does not funnel its domestic profits overseas. We don't do that. We pay taxes on all the products we sell in the U.S., and we pay every dollar that we owe." Hopefully the Senate committee hearing from Cook will be as straightforward with the facts about how the U.S. tax system constrains American businesses overseas.

Apple has 50,000 employees nationwide and spurred the creation of nearly 600,000 jobs in manufacturing and software development. The company's iTunes app store birthed an entirely new industry: smartphone and tablet software design. The company has already paid out $9 billion in royalties to developers. If given the opportunity to bring back profits earned abroad under a fair tax system, imagine how those proceeds could transform the technology market and the American economy.

Haven't we suffered through self-imposed economic malaise long enough? We should view Tim Cook's stand as a call for all patriots to rise up and say enough playing politics -- let's help American companies invest in American jobs.

Mark R. Kennedy leads George Washington University's Graduate School of Political Management and is chairman of the Economic Club of Minnesota. He previously served three terms in the U.S. House of Representatives and was a presidential appointee to the Office of the U.S. Trade Representative's Advisory Committee on Trade Policy and Negotiations during George W. Bush's administration.