The Rule of Law and Business
Expanding the Global Business Rule of Law Dashboard
Dr David Torstensson
Pugatch Consilium
AACCLA’s Outlook on the Americas Conference 2015
February 11 2015
Los Angeles, CA
Outline
• Project background – what is the rule of law and why is it important to
business?
• Building the Global Business Rule of Law Dashboard – overview and
methodology
• Dashboard results
• Zoom-in on the Americas
• Conclusions and next steps
2
Project background
3
Why measure the Rule of Law?
“The rule of law is better than that of any individual.“
- Aristotle
• Growing importance of Rule of Law (RoL) to business community
• 2010 US Chamber Coalition for the Rule of Law in Global Markets
• Measuring RoL provides stakeholders and policymakers a greater and deeper
understanding of RoL environment – evidence-based decision-making
• A number of international indices and surveys measure rule of law:


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World Justice Project: Rule of Law Index
World Economic Forum: The Global Competitiveness Report
Heritage Foundation: Index of Economic Freedom
• But what about RoL issues relating to business and the business community?
4
Project Overview and Basic Rationale
• Pugatch Consilium asked by U.S. Chamber in 2013 to map existing surveys and
indices of RoL and build a Global Business Rule of Law Dashboard
• The goal was threefold:



Identify what RoL and business indicators are currently being measured
Establish what the gaps are
Develop a Dashboard of indicators comparing countries and regions
• Dashboard seeks to incorporate all existing relevant RoL indicators relating to
the business community into one single overall meta-measure
• We have mapped a total of 12 indices and surveys – Indicators from 7
indices/surveys extracted and included in Dashboard
• First Dashboard built in 2013 – covered 10 countries in Americas
• Second Dashboard finalized 2015 – covers 60 countries from across the world
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Methodology
6
Measuring the RoL for Business
• RoL definitions vary in scope and focus
• “Thick” versus “thin” conceptions – no internationally accepted RoL definition
as pertains to business
• U.S. Chamber has put forth 5 factors defining the RoL – mapping and extraction
of indicators has been based on these definitions
1. Transparency. Laws and regulations applied to business must be readily accessible and easily understood.
2. Predictability. Laws and regulations must be applied in a logical and consistent manner regardless of time,
place, or parties concerned.
3. Stability. The state’s rationale for the regulation of business—for example, promotion of negotiation and
implementation of trade agreements and other vehicles that strengthen rule of law, sanctity of contracts, and
compliance with international law—must be consistent and coherent over time, establishing an institutional
consistency across administrations, and free from arbitrary or retrospective amendment.
4. Accountability. Investors must be confident that the laws will be upheld and applied equally to government
as well as the private sector and civil society: for example, anti-bribery and corruption issues.
5. Due Process. When disputes inevitably arise, they must be resolved not by ad hoc arrangements or special
interventions, but in a fair, transparent, and predetermined process.
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Indices/Surveys Sampled and Mapped
• 12 indices/surveys included in initial sample
•
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World Economic Forum: The Global Competitiveness Report 2014-15
The World Justice Project: Rule of Law Index 2014
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•
•
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Transparency International: Global Corruption Barometer 2013
Transparency International: Bribe Payers Index
Transparency International: Corruption Perceptions Index
Transparency International: Putting Corruption Out of Business Survey
Freedom House: Freedom in the World
Heritage Foundation: Index of Economic Freedom 2014
Global Integrity: Global Integrity Index
World Bank: Worldwide Governance Indicators
The World Bank and the International Finance Corporation: Doing Business
2015
Millennium Challenge Corporation: Selection Criteria and Methodology
•
• Due to methodological challenges out of the above 12 indices and
surveys 7 were used for the Dashboard
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Mapping, Extracting and Combining Indicators: a 3 Step Process
Mapping
•What is the purpose of the index or
survey?
•What does it measure?
•How does it measure it – what is
the methodology used?
•Scoring system – are
scores/indicators weighed? If so
how?
•What is the country coverage?
Extracting
•Identify RoL indicators
•Identify the relevant RoL business
indicators
•Extract indicators from index/survey with
any internal weighting system intact
Combining
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•Prior to combination
all scores from
existing
indices/surveys must
be standardized into a
percentage
•Group indicators from
separate
indices/surveys
together into 1
metric/overall
measure
Expanding the Dashboard to 60 countries
•
First Dashboard
limited to 1
region and 10
countries
•
Phase II has
expanded
Dashboard to 60
countries in total
with 4 new
regions
Asia
Australia
Bangladesh
China
India
Indonesia
Japan
Malaysia
Americas
Argentina
Bolivia
Brazil
Canada
Chile
Colombia
Costa Rica
Europe
Belgium
France
Germany
Greece
Hungary
Italy
Slovakia
Myanmar/Burma
New Zealand
Pakistan
Philippines
Russia
S Korea
Singapore
Thailand
Vietnam
Dom. Rep.
Ecuador
El Salvador
Guatemala
Haiti
Honduras
Jamaica
Mexico
Nicaragua
Panama
Paraguay
Peru
U.S.
Uruguay
Venezuela
Spain
10
Africa
Ghana
Ivory Coast
Kenya
Mozambique
South Africa
Middle East
Egypt
Iran
Israel
Jordan
Qatar
Saudi Arabia
Syria
Turkey
UAE
Overall Results
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No. rule of law business indicators, % of available indicators
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Overall Dashboard Results – Initial Impressions
• Countries in top-10 as expected – all developed high income countries


NZ, Singapore, Australia, Germany and Canada are top-5 – US outside at 6th
Quite a steep 20% drop from top (NZ and Singapore) to countries outside top-10
• Bottom 10 as expected, headlined by:
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
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Haiti and Myanmar at the bottom with 19-22%
Venezuela, Paraguay and Syria clumped together just after at 30-33%
Honduras, Ivory Coast, Ecuador, Iran, Bangladesh and Mozambique next group –
separated by less than 1.5% between 34.5-35.8%
• A few surprises


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Qatar at 10
Dom Rep 47th worst environment – 38% in total
South Africa strongest environment of BRICS – 20th best environment (China
27th, India 29th, Brazil 33rd, Russia 43rd)
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Overall results, top-30 countries, % available score
100
90
80
Success story:
Chile and Uruguay
ranked in top 15 –
ahead of Spain and
Italy
70
60
50
40
30
20
10
0
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Overall results, lower-30 countries, % available score
100
90
80
Challenges
abound:
Venezuela,
Paraguay and Haiti
in bottom.
70
60
50
40
30
20
10
0
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Individual Measure Results – Some Impressions
• By and large extraction results for each individual measure echoes broader
results – still, some important differences
• GCB and GII somewhat of outlier indices/measures – developed OECD countries
tend to do worse here than on the other measures:

GCB:
 China has 8th lowest corruption rate in the sample
 US (19th), France (14th) , Japan (23rd) all outside top-10
 Mexico, Indonesia and Russia (85-86%) highest perception of business related
corruption in sample

GII:
 Top-10 dominated by emerging/developing countries: SA, Turkey, Argentina, China,
Bangladesh, Colombia, Peru and Ghana
 US and Germany only developed countries in top-10 – Canada in bottom half!
 Quirky results consequence of GII methodology - heavy focus on legislative/de jure
RoL environment as opposed to enforcement/application of laws and regulations
• GCR, Doing Business, WGI and Index of Economic Freedom broadly similar in
country placement
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Zoom-in:
The Americas
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Headline Results
• Country sample for Americas increased significantly – from 10 to 22
• Top quartet of Canada, US, Chile and Uruguay far ahead of rest – Only 6
countries out of 22 get a score of over 50%
• Haiti, Venezuela and Paraguay score the lowest in sample
• Particular challenges include:

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Corruption: high levels of perceived corruption across number of underlying
measures (e.g. GCB, GCR, and Index of Econ Freedom) for many countries
Property rights: Challenging environment for sanctity and protection of property
rights e.g. Venezuela, Argentina, Nicaragua, Paraguay etc.
• Some bright spots:

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Colombia’s business environment, protection of minority investors strong across
many underlying measures
Chile and Uruguay in top 15 of Overall results for all countries – ahead of Israel,
Spain and Italy
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Overall Results, The Americas, % available score
Canada
US
Chile
Uruguay
Costa Rica
Colombia
Panama
Brazil
Mexico
Peru
Jamaica
Argentina
Nicaragua
Guatemala
Most countries
under 50%
Bolivia
Dom Rep
El Salvador
Ecuador
Honduras
Paraguay
Venezuela
Haiti
0
10
20
30
40
50
19
60
70
80
90
100
Conclusions and Next Steps
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Conclusions
• Dashboard is a new, innovative empirical tool – measure a critical policy area
for socio-economic development and growth
• Clear that Dashboard fills a void in the existing research
• Amount of data from Dashboard opens up wealth of follow-on research:


Policy deep-dive: Dashboard can be used as springboard for detailed policy
analysis on a regional or country by country level
Economic impact analysis: Modelling of economic impact of RoL and business
environment – e.g. how does the RoL and business environment in a country
correlate with levels of Foreign Direct Investment?
• But there is a need to complement existing work – Dashboard reveals gaps
relating to practical on-the-ground rule of law needs of business
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What’s missing? Next Steps for Further Research
•
U.S. Chamber has identified seven critical areas of rule of law and business
1. Corruption and bribery, specifically as they apply to government procurement and other business
activities
2. Regulatory and policy trade barriers, such as the adoption of protectionist measures
3. Existence and enforcement of real property and intellectual property protection laws
4. Adherence to trade, investment, and tax treaties or agreements
5. Resolution of business disputes and outcomes
6. Transparent government policymaking
7. Adherence to litigation and international arbitration rulings regarding sanctity of contracts and
agreements and the expropriation of land, facilities, or businesses
•
Current measures only cover parts of above categories – No index or survey mapped
includes indicators directly relevant to areas 4 and 7
•
Similarly, areas 2, 5 and 6 are only partially covered – less than half of indices and
surveys mapped include indicators relating to these areas
•
Inclusion of new and more detailed of rule of law business indicators in existing
measures would strengthen overall body of research
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Take Home Messages
• There is a real need to measure and understand the RoL as it relates to
business: ‘Good business demands good governance’
• Dashboard fills a role and void in the existing research and opens up
wealth of follow-on uses: e.g. policy deep-dive, economic impact
analysis, surveys etc.
• Key gap that of specific rule of law and business indicators
• Developing new and more detailed rule of law business indicators in
existing measures is an inclusive process
• We welcome feedback from all stakeholders on what more work and
specific indicators are needed
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Thank you!
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