#21 - Finance minister: The World Bank’s “Doing Business”

[miriamson07]

Hey guys, let me see if I can help you both! In order to see if the author's claim about doing better on next year's report is reasonable, we should be asking ourselves whether the small and medium sized businesses in the author's country are comparable to the businesses covered by the report. If they are, then the claim makes sense and seems to be supported; if they are not, then the claim is weakened.

So, if the medium sized businesses in the finance minister's country ARE smaller than the businesses in the report, then making business easier for those businesses won't have any impact on the country's standings in the report. The affected businesses would be too small to matter. If, on the other hand, the medium sized businesses in the finance minister's country are at least as large as the businesses covered by the report (NOT smaller), then the report would be applicable to those businesses, and the argument would be strengthened. That's what you want to see when you apply the Variance Test!

Whether compliance with the new laws been better than with the older laws or not has no impact on whether they will improve their standing on the Doing Business report next year. We need to know whether the simplified tax laws will impact the rankings or not, and those rankings are based on the ease of doing business and have nothing to do with whether businesses take advantage of that ease or comply with the laws, but only whether they could easily do so.

I hope that clears things up! This was a tough one!

I see that the midsized business needs to be the same size as the hypothetical business for the finance minister's argument to hold. However, I did not know that if the midsized business is LARGER than the hypothetical business, the argument still holds. Wouldn't it require outside knowledge to assume that a business that is larger will have less trouble complying with regulations and paying taxes? I would appreciate some clarification very much.

[Amber Thomas]

Hi Miriam!

Let's break down our premises and conclusion to start:
P1: The "Doing Business" report ranks countries by how easy it is to do business with them
P2: This report assess how difficult it is for a hypothetical business to comply with regulations and pay taxes
P3: Since the last report, our government has simplified tax filing for small and mid sized businesses
C: Our ranking in the report will probably improve

Answer Choice D: Is what the finance minster considers to be a midsized business smaller than the hypothetical business used to produce the "Doing Business" Report?

Essentially, we can think of the size of the hypothetical business used by the World Bank in making the report as a minimum threshold. Let's refer to company size by number of employees, and set up a potential scenario:

Hypothetical Business used by the World Bank: 500 Employees
Business Considered to be Mid-Sized by the Finance Minster: 300 Employees

If the World Bank is only measuring how easy it is for "large" businesses to comply with regulations and pay taxes, it wouldn't matter if it became easier for small and mid-sized businesses to comply with regulations and pay their taxes. Therefore, if the mid-sized businesses being referred to by the Finance Minster were smaller than the hypothetical business used by the World Bank, they wouldn't factor into the World Bank's consideration of how easy/difficult it is for businesses to comply with regulations and pay their taxes.

Now, let's consider the following:

Hypothetical Business used by the World Bank: 500 Employees
Business Considered to be Mid-Sized by the Finance Minster: 600 Employees

It doesn't really matter if the Mid-Sized businesses are larger than the hypothetical business used by the World Bank, as they would meet the minimum requirement for consideration, and their ranking would probably improve, as it would be easier for relevant businesses to comply with regulations and pay their taxes.

I hope this helps!

[miriamson07]

Hi Miriam!

Let's break down our premises and conclusion to start:
P1: The "Doing Business" report ranks countries by how easy it is to do business with them
P2: This report assess how difficult it is for a hypothetical business to comply with regulations and pay taxes
P3: Since the last report, our government has simplified tax filing for small and mid sized businesses
C: Our ranking in the report will probably improve

Answer Choice D: Is what the finance minster considers to be a midsized business smaller than the hypothetical business used to produce the "Doing Business" Report?

Essentially, we can think of the size of the hypothetical business used by the World Bank in making the report as a minimum threshold. Let's refer to company size by number of employees, and set up a potential scenario:

Hypothetical Business used by the World Bank: 500 Employees
Business Considered to be Mid-Sized by the Finance Minster: 300 Employees

If the World Bank is only measuring how easy it is for "large" businesses to comply with regulations and pay taxes, it wouldn't matter if it became easier for small and mid-sized businesses to comply with regulations and pay their taxes. Therefore, if the mid-sized businesses being referred to by the Finance Minster were smaller than the hypothetical business used by the World Bank, they wouldn't factor into the World Bank's consideration of how easy/difficult it is for businesses to comply with regulations and pay their taxes.

Now, let's consider the following:

Hypothetical Business used by the World Bank: 500 Employees
Business Considered to be Mid-Sized by the Finance Minster: 600 Employees

It doesn't really matter if the Mid-Sized businesses are larger than the hypothetical business used by the World Bank, as they would meet the minimum requirement for consideration, and their ranking would probably improve, as it would be easier for relevant businesses to comply with regulations and pay their taxes.

I hope this helps!

Hi Amber, thank you for your response. I am still confused on how we know that the size of the hypothetical business used by the World Bank in making the report should be considered a minimum threshold. For example, if the hypothetical business was larger than the business considered to be mid sized by the finance minister, is it not possible that the hypothetical business would be too large to be considered small or mid sized?

Thanks again for your help.