U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

39–905 PDF 2008

THE FIGHT AGAINST GLOBAL POVERTY

AND INEQUALITY: THE WORLD BANK’S

APPROACH TO CORE LABOR STANDARDS

AND EMPLOYMENT CREATION

HEARING

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

OCTOBER 3, 2007

Printed for the use of the Committee on Financial Services

Serial No. 110–67

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

BARNEY FRANK, Massachusetts, Chairman

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

JULIA CARSON, Indiana 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin, 

LINCOLN DAVIS, Tennessee 

ALBIO SIRES, New Jersey 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

TIM MAHONEY, Florida 

CHARLES WILSON, Ohio 

ED PERLMUTTER, Colorado 

CHRISTOPHER S. MURPHY, Connecticut 

JOE DONNELLY, Indiana 

ROBERT WEXLER, Florida 

JIM MARSHALL, Georgia 

DAN BOREN, Oklahoma 

SPENCER BACHUS, Alabama 

RICHARD H. BAKER, Louisiana 

DEBORAH PRYCE, Ohio 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MICHELE BACHMANN, Minnesota 

PETER J. ROSKAM, Illinois 

KENNY MARCHANT, Texas 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III)

C O N T E N T S 

Page 

Hearing held on: 

October 3, 2007 ................................................................................................. 1

Appendix: 

October 3, 2007 ................................................................................................. 33

WITNESSES 

WEDNESDAY, OCTOBER 3, 2007

Bakvis, Peter, Director, Washington Office of the International Trade Union 

Confederation/Global Unions .............................................................................. 4

Lazarus, Suellen, Senior Advisor, ABN AMRO .................................................... 14

Lee, Thea M., Policy Director, AFL–CIO ............................................................... 11

Miller, Eric, President, Millers Rock Consulting, LLC ......................................... 7

Okonjo-Iweala, Ngozi, Distinguished Fellow, Global Economy and Development Program, The Brookings Institution ......................................................... 13

Polaski, Sandra, Senior Associate and Director of the Trade, Equity and 

Development Program, Carnegie Endowment for International Peace ........... 8

APPENDIX 

Prepared statements: 

Bakvis, Peter ..................................................................................................... 34

Lazarus, Suellen ............................................................................................... 41

Lee, Thea M. ..................................................................................................... 43

Miller, Eric ........................................................................................................ 48

Polaski, Sandra ................................................................................................. 57

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Frank, Hon. Barney: 

Chairman’s note regarding the testimony of Dr. Ngozi Okonjo-Iweala ....... 89

Responses to questions submitted to Peter Bakvis ....................................... 90

Report entitled, ‘‘The IFIs’ Use of Doing Business to Eliminate Workers’ 

Protection: Analysis of Doing Business 2008 and new country evidence, 

ITUC/Global Unions—Washington Office ................................................... 93

Castle, Hon. Michael N.: 

Views of the United States Council for International Business ................... 118

(1)

THE FIGHT AGAINST GLOBAL POVERTY 

AND INEQUALITY: THE WORLD BANK’S 

APPROACH TO CORE LABOR STANDARDS 

AND EMPLOYMENT CREATION 

Wednesday, October 3, 2007

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The committee met, pursuant to notice, at 10:02 a.m., in room 

2128, Rayburn House Office Building, Hon. Barney Frank [chairman of the committee] presiding. 

Members present: Representatives Frank, Waters, Maloney, 

Watt, Meeks, McCarthy, Scott, Green, Cleaver, Moore of Wisconsin, 

Davis of Tennessee, Ellison, Klein, Marshall; Castle, Jones, 

Hensarling, and McCarthy. 

The CHAIRMAN. This Committee on Financial Services hearing 

will come to order. The topic today is the ‘‘Doing Business’’ report 

issued by the World Bank. 

This committee does not have jurisdiction directly over the World 

Bank, and I often wish that we did, but the World Bank is an 

international organization. What we do have is jurisdiction over the 

relationship of the U.S. Government to the Bank. Funding requests 

come through us, and legislation that deals with the terms under 

which the United States executive directors—the voting members 

of the Bank board—should function also come through us. 

One of the major concerns of this committee, particularly those 

of us on the majority side, is the dilemma we face in a world in 

which increased wealth has been accompanied to a distressing extent by increased inequality. There has been a history in judging 

the success of economic development policies to look at countries as 

if they were undivided wholes and to talk about the increase in 

percentages and gross domestic product of this or that country. 

That is important, but increases in gross domestic product which 

are overwhelmingly enjoyed by a very small percentage of the residents of that country are much less of a good thing. 

We have this problem here in the United States, but it is a problem elsewhere in the world, where the way in which growth has 

gone forward recently—a combination of technology, of 

globalization—essentially what we have seen in recent years is a 

great freeing from constraint of capital, both technically and legally. Capital has been empowered to move very rapidly. 

That has very good aspects. It can get to the point where it does 

the most overall good. But it has allowed the owners of capital to 

2

leave everybody else very much behind in the sharing of these benefits. 

Now, that has been a particular problem in the United States. 

A couple of months ago, to the dismay of many in the business 

community and elsewhere, the immigration bill blew up. The President’s ability to negotiate trade treaties was allowed to die. There 

is an effort now, led by Democratic leaders in the Ways and Means 

Committee, to put forward a treaty with Peru which accomplishes 

some of the goals the Democrats have long had in the areas of 

labor and environmental rights, but it is still controversial, including with many who had previously been advocates of that. 

And the problems with trade, the problems with what I think is 

an excessive sensitivity to foreign investment, a skepticism about 

foreign investment that is unjustified as a general principle, the 

concerns with immigration, the objections we have in some cases 

to allow businesses fully to adopt more productive technology, it 

stems in the United States from the unhappiness that the fruits of 

these policies are so unfairly shared. 

We did a roundtable on the paper put forward by Don Evans, 

President Bush’s first Secretary of Commerce, documenting how 

badly wealth has been distributed, how much has gone to a relatively small number of people and how the great bulk of people 

have received nothing. This was a report put out by a former member of the current President’s Council of Economic Advisers, the 

former Under Secretary of Commerce for Trade. 

We have a serious problem. We are trying to deal with it here, 

but it is an international problem. 

We have seen, I believe, some improvement in the orientation of 

the international financial institutions. It is fairly recent. During 

the Asian crisis, in particular, of 10 years ago or so, I believe the 

IMF in particular was playing a very retrograde role. It was imposing on countries a degree of repressive economic policies that were 

not responsive to the problem. You don’t solve a liquidity crisis by 

cutting wages, and it had negative social consequences. 

The World Bank has begun to address this on the one hand, but 

what I hear and from what I read in some of the testimony, there 

is a certain schizophrenia in the Bank. At least at the operational 

level on its own, the Bank talks about trying to pay attention to 

the distributional qualities. But the ‘‘Doing Business’’ report that 

the Bank puts out and some of the work of the IFC take a very 

different view. 

Essentially what we get from the ‘‘Doing Business’’ report is that 

the nicer you are to your workers, the worse you are as a place to 

do business. It is an extraordinarily, I think, simplistic and regressive approach. And while the ‘‘Doing Business’’ report, they say, 

‘‘Well, it doesn’t have an actual binding effect,’’ of course it is important or they wouldn’t put it out. There is some evidence that it 

has some impact on some of the country assessment strategies, not 

on all of them. 

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. That is not only wrong in and of itself, but I 

want to go back to this other point. We have a certain unhappiness 

3

in America at the rise of regimes with whom we disagree. It is not 

in the interests of the world, of the United States for, kind of, proWestern democracy to be associated with unfair economic distribution. It is, in fact, not a good idea in general for people to get the 

sense that a free-enterprise system, a capitalist system, means that 

the rich get richer, the middle class get nothing, and the poor get 

poorer. 

So we are not just talking here about a moral imperative to be 

fair, we are talking about what I believe is one of the most difficult 

obstacles to the kind of economic policy many in the business community and elsewhere would like to see. Yes, I think in the right 

circumstances an embrace of technology and of globalization can 

produce greater benefits for everybody, but only if we combat the 

natural tendency for these benefits to be so unequally shared. 

And no one is talking about equalization—I shouldn’t have said 

equally—less unequally. Inequality is a very good thing; it is necessary in a capitalist system. But excessive inequality can become 

politically dysfunctional, and to the extent that it begins to depress 

consumption, depress savings rates, it can become economically 

dysfunctional. I think we are at that point in the world. And it 

troubles me to see the ‘‘Doing Business’’ report of the World Bank 

reinforcing those tendencies, to the extent that it has an influence. 

And I now recognize the gentleman from Delaware. 

Mr. CASTLE. Thank you, Mr. Chairman, for holding this important hearing. 

Mr. Chairman, we all agree that it is important to work to alleviate poverty, be it here in the United States or overseas, where the 

scenes we see are sometimes heartbreaking. And I am glad that 

today we will focus more on individuals or populations than when 

we often talk about the development banks or the International 

Monetary Fund. 

Too often we talk about the success or failure of big infrastructure projects, such as dams or roads, or about the success of an 

IMF program in stabilizing inflation. It is easy to forget that we 

are really talking about people. 

But for people to get ahead, individually or as a population, they 

really need jobs. And for that reason, I believe that the ‘‘Doing 

Business’’ report is important. It gives countries a good idea of 

what they need to do to attract new jobs, and companies a good 

idea of what sort of business climate they will face. 

I know that the focus of this hearing is on whether some portions 

of the report somehow make it easier to make people work in conditions that would not be acceptable here in the United States or 

in Europe, and while I agree that no one should work in unsafe 

conditions, the amount of hours a person chooses to work, or if they 

choose to work on a weekend, might be more their choice than that 

of a well-employed Westerner. I hope we will hear a discussion of 

both points of view of that today. 

Mr. Chairman, I have a unanimous consent request to insert into 

the record a paper expressing the views of the United States Council for International Business, who had hoped to be a witness at today’s hearing but were not able to be accommodated. These views 

are submitted by the Council’s executive vice president and senior 

policy officer, Ms. Ronnie L. Goldberg, who serves both as a U.S. 

4

employer delegate on the ILO governing body and vice president of 

the International Organization of Employers, IOE, whose membership consists of representative employer organizations from 138 

countries, the majority of which are in the developing world. 

I regret that the important voice of employers, who constitute 

one-third of the constituency of the tripartite ILO, will be missing 

from the hearing. Inserting this paper will at least make those 

views part of the permanent record. I offer that statement. 

The CHAIRMAN. Reserving the right to object, I would note that 

we did ask the minority to suggest two witnesses, and we have two 

witnesses who represent the minority. So, I think that we can’t 

possibly get everybody, but two of the witnesses are here at the request of the minority. 

Is there any objection? 

Hearing none, the statement will be put into the record. 

Mr. CASTLE. Mr. Chairman, thank you for the submission statement. But if I may just add, we are not complaining about it at all. 

It is just, as you said, a function of too many people who deserve 

to be heard. 

The CHAIRMAN. I thank the gentleman. I am just not used to people not complaining, and I apologize. 

Are there any further opening statements? 

If not, we will proceed with the panel of witnesses. Before we 

begin, let me say that the Democratic leadership has scheduled a 

press conference for 11:15 on the subprime crisis, so I will be here 

until about 11:05, and then I will go to the Senate. 

I hope I do not share the fate of many of the bills that we have 

sent to the Senate. That is, I hope I will not disappear and that 

I will be seen and heard from again. 

But I will have to go over there, and the gentlewoman from New 

York will be available to chair—Chairwoman Maloney of the Subcommittee on Financial Institutions—and I will try to get back. 

The first witness is Peter Bakvis, who is the director of the 

Washington Office of the International Trade Union Confederation/

Global Unions and represents the international trade union movement. They, understandably, often focus on the international financial institutions themselves. 

Mr. Bakvis? 

STATEMENT OF PETER BAKVIS, DIRECTOR, WASHINGTON OFFICE OF THE INTERNATIONAL TRADE UNION CONFEDERATION/GLOBAL UNIONS 

Mr. BAKVIS. Thank you, Mr. Chairman, and members of the committee. I thank you for the opportunity. 

My organization, the ITUC, represents 168 million members in 

153 countries, including 10 million members of the AFL–CIO. Twothirds of our members, however, live in developing or so-called 

transition countries. 

The U.S. Congress, I think it is clear, took the lead in urging the 

World Bank to pay more attention to the impact of its policies on 

workers when, 13 years ago, it instructed the U.S. representatives 

at the Bank to support policies and ‘‘guarantee certain internationally recognized worker rights.’’ Even though it took several years, 

5

I am pleased that the Bank has taken some steps to ensure that 

its operations are in line with the core labor standards. 

Starting in 2002, the Bank put itself on record as supporting 

them, after having done several years of research to determine if 

they were consistent with the Bank’s development goals. In 2006, 

the Bank took the first step to ensure that the activities and finances don’t violate the standards when its private-sector lending 

arm, the IFC, required that all borrowers respect them. And this 

year, the Bank began inserting the same requirement into contracts for infrastructure projects. Hopefully, this will put an end to 

child labor and other violations that were previously found on some 

Bank-funded sites. 

These are important steps. But in the area of labor law reform, 

the Bank is going in a completely different direction. The main approach is being set by the department that produces an annual 

publication, which you mentioned, called ‘‘Doing Business.’’ It includes an index on employing workers that gives the best scores to 

countries that have the least amount of regulations, whether they 

be minimum wages, notice for mass layoffs, payroll taxes to finance 

Social Security, and so on. It encourages countries to get rid of 

these so as to improve their ‘‘Doing Business’’ score, no matter 

what the impact is on workers. 

The results of this flawed rating system have been observed. In 

past years, ‘‘Doing Business’’ gave the best performer ranking for 

labor to nations that were not even ILO members. In ‘‘Doing Business 2008,’’ which came out last week, the ex-Soviet Republic of 

Georgia is praised as a top reformer because it did away with most 

of its worker protection rules. Any worker can now be fired without 

recourse, labor unions have been essentially marginalized and can 

be prohibited all together. 

The World Bank gave Georgia this top rating at the same time 

that the ILO was criticizing the country’s labor practices for contravening four of the eight core labor standards conventions, including 

the two child labor conventions. The European Union is currently 

investigating Georgia for possible violation of the E.U.’s GSP. 

And which country in this vast region gets the worst ‘‘Doing 

Business’’ rating for its labor standards? Slovenia, which has the 

lowest unemployment of all of those countries and the best labor 

conditions of all of the bloc of ex-communist countries. 

Let us take another example in our hemisphere. Haiti, which has 

almost no social program, 80 percent of its people in poverty, has 

had negative growth in the last several years, some very modest 

growth in the last couple of years, is among the best ‘‘Doing Business’’ performers for labor in Latin America. 

Brazil, which enjoys stable growth and has considerably improved social protection, is ranked among the worst. Other countries that you might be surprised to find get relatively good ratings 

for their labor policies from ‘‘Doing Business’’ are China, Colombia 

and Belarus. 

Now, it would be easy to dismiss all of this if ‘‘Doing Business’’ 

were not playing such an important role, but it is. The ‘‘Doing 

Business’’ labor indicators are used for determining countries’ level 

of access to concessionary lending dispensed by the World Bank’s 

IDA through a mechanism called CPIA. The indicators have been 

6

incorporated in the Bank’s overall labor markets strategy. A growing number of World Bank and IMF country strategies have used 

the indicators to do away with labor regulations. The ITUC, my organization, documented 16 new cases in a report last week, and I 

have copies of it for those who might be interested. 

The IMF told Jordan, where the ILO has been working with the 

government to combat abuse of workers in free-trade zones, that its 

‘‘Doing Business’’ labor rating isn’t good enough and it should make 

it easier to fire workers. 

Several countries have been told to dismantle sector-level bargaining arrangements so as to improve their ‘‘Doing Business’’ 

scores, even though the Bank’s own research shows that countries 

with centralized collective bargaining tend to have lower unemployment. 

And in several countries, the Bank has included loans for labor 

regulations aimed at improving the ‘‘Doing Business’’ rankings, essentially made them into a conditionality for those loans. 

I will conclude, Mr. Chairman, with a few suggestions. 

If the Bank is to be involved in labor law reforms at all, which 

is a debatable question, I would submit, it should adopt the ILO’s 

‘‘decent work’’ agenda, which has the objective of maximizing employment but also pays attention to job quality, social protection 

and workers’ rights. 

‘‘Doing Business’’ should be removed from the World Bank’s labor 

markets strategy, and the issue of labor should be removed from 

the mandate of ‘‘Doing Business.’’ 

‘‘Doing Business’’ should not be used in the Bank’s CPIA mechanism to determine access to funds. 

The Bank should develop tools for assessing the qualities of social and labor policies with the ILO and prioritize projects that improve labor conditions, as it has done in one case that I am aware 

of, the ILO-led Better Factories Cambodia project. 

Finally, the World Bank should adopt an operational policy requiring that all the activities it finances conform to the core labor 

standards. 

Thank you for your attention, and I look forward to your questions. 

[The prepared statement of Mr. Bakvis can be found on page 34 

of the appendix.] 

The CHAIRMAN. Thank you. 

I guess the acting ranking minority member and I do want to 

note we have a new member of the committee to fill the vacancy 

very regrettably left by the death of our dear colleague, Mr. 

Gillmor. So we welcome the gentleman from California, Mr. McCarthy, to the committee. 

The next witness is Mr. Eric Miller, who is the president of Millers Rock Consulting. And he had previously worked for the InterAmerican Development Bank, one of the IFIs. 

Mr. Miller, please. 

7

STATEMENT OF ERIC MILLER, PRESIDENT, MILLERS ROCK 

CONSULTING, LLC 

Mr. MILLER. Thank you very much, Mr. Chairman, and members 

of the committee. It is a great pleasure to address you this morning. 

As the chairman said, I have a background in working for the 

international financial institutions, both on the inside and as a consultant on the outside. So that is the basis of my comments today, 

and also my experience in working with numerous governments. 

On employment-creation policies, the World Bank’s view and my 

view is flexible labor markets create more jobs than rigid labor 

markets. Also, flexible labor markets tend to create more opportunities and better working conditions for women, young people and 

the low-skilled. Research suggests that the jobs created under rigid 

labor markets tend to go to men with years of experience. Meanwhile, the rest of the population is pushed into the informal sector, 

where they receive no social benefits and no legal protections. 

Let us be clear that flexible labor markets do not mean the absence of labor law. However, flexibility does allow firms to readily 

change the composition of their labor force as market conditions 

evolve. 

The World Bank’s ‘‘Doing Business’’ report seeks to measure the 

effects of business regulations across 175 countries. One of its 10 

categories is employing workers. Some observers have noted that, 

in certain cases, countries with more restrictive union-organization 

practices have scored better than those with less restrictive practices. This is the result of two factors: first, the focus of the study, 

which is the effect of government regulations; and second, the 

methodology employed for gathering the data, which is the standard survey practice of assuming what a typical worker in business 

looks like across countries. 

In most countries, the majority of workers are not union members; therefore, the typical worker is not a union member. Without 

using the standard statistical techniques, the ‘‘Doing Business’’ report would lose its focus and swiftly become noncomparable across 

countries. 

The important contribution of the ‘‘Doing Business’’ report is that 

it has made governments begin to think about the incentive structures inherent in their business regulatory regimes and how these 

can be improved. 

For years, many countries have made it expensive and complicated for entrepreneurs to establish and operate firms in the formal sector. Everyone agrees that it is desirable to have more taxpaying firms that employ people. However, national regulatory regimes that make the formalization process long and expensive runs 

counter to this objective. The World Bank is a large bureaucracy 

that achieves uneven results. Despite its imperfections, the Bank 

does have an important role to play in the fight against global poverty. The IFC’s contributions in putting together the Equator Principles, the voluntary initiative among the world’s commercial banks 

to establish a universal framework for establishing social and environmental issues, was very important. 

Undoubtedly, the Bank could do more on core labor standards. 

The important work of the Inter-American Development Bank in 

8

pulling together trade and labor ministers during the CAFTA process is a useful example. Ultimately, though, the fight against global 

poverty can only be won if large numbers of the poor are able to 

access and harness the power of the global economy. The wealthiest countries of the world are also the most globalized. 

To bring the poor fully into the global economy, countries need 

three things: good policies, such as open trade and transparency; 

improvements to the basic plumbing of commerce, such as ports, 

telecommunications infrastructure, and financial systems that extend credit to nascent entrepreneurs; and improved education and 

training systems. 

The World Bank has a role to play in this process. However, we 

need to examine ways in which the Bank should be restructured 

to achieve its mission more efficiently and effectively. 

Ultimately, however, the impetus for the reduction of poverty 

and the improvement of labor standards will come at the country 

level. Having seen manufacturing jobs go to China, many developing countries now understand that low wages are neither a desirable nor a feasible strategy for long-term competitiveness. The only 

answer is to move up the value chain, where they can compete on 

the basis of factors other than strictly price. 

Thank you very much. 

[The prepared statement of Mr. Miller can be found on page 48 

of the appendix.] 

The CHAIRMAN. Thank you. 

Our next witness is Sandra Polaski, who is a senior associate 

and director of the Trade Equity and Development Program at the 

Carnegie Endowment for International Peace. 

Ms. Polaski? 

STATEMENT OF SANDRA POLASKI, SENIOR ASSOCIATE AND 

DIRECTOR OF THE TRADE, EQUITY AND DEVELOPMENT 

PROGRAM, CARNEGIE ENDOWMENT FOR INTERNATIONAL 

PEACE 

Ms. POLASKI. Thank you, Mr. Chairman, and thanks to the committee for this opportunity to comment on the World Bank’s approach to core labor standards and employment creation. 

I direct research and policy work on trade, employment and development at Carnegie, and previously had the pleasure to serve 

Secretaries of State Madeleine Albright and Colin Powell as special 

representative for international labor affairs, where I worked on 

many of the issues that are the topic of this hearing today. 

I would like to briefly mention four recent developments in the 

World Bank Group that I think are very important, three positive 

and one negative. 

On the positive score, first I would echo the comments that were 

made earlier, that the IFC recently adopted a new performance 

standard covering labor and working conditions in the businesses 

to whom it lends in the developing country. Previously, the IFC 

had standards on the environment, child labor and forced labor, 

but not on the core labor standards and not on broader workplace 

policies. 

Adopting this new standard in 2006 was very important for the 

work of the IFC itself in raising the level and performance of the 

9

firms that it lends to in developing countries, but also because it 

has broader impact. It has been adopted by the Equator Banks, 

and we will be hearing more about that from a representative of 

one of those banks in a moment. And I believe it actually paved 

the way for the very recent adoption by the main World Bank 

Group of a new standard on procurement contracts, which requires 

that all firms signing on to do work that is funded by the World 

Bank must observe the core labor standards. These are both very 

positive developments. 

Now, in the IFC, the new performance standard on labor is just 

now in the process of implementation. The Environment and Social 

Development Department has been charged with the responsibility 

for implementing this. It has done much to train the loan officers, 

whose ultimate responsibility it is to decide which firms get loans 

or not, and therefore to enforce the labor standards. 

And I think that the department that is overseeing this process 

has done a very professional and serious effort, but it will need a 

lot of support if it is to change the culture of the IFC with respect 

to working conditions, employment creation and core labor standards. And I think that this is work that deserves the support and 

attention of the committee and the U.S. executive director. 

That brings me to the negative point that I want to make, and 

that is on the ‘‘Doing Business’’ report, and specifically ‘‘Doing 

Business 2008,’’ which was issued last week. I think it is probably 

the most glaring example of inconsistency within the Bank, in 

terms of promoting good workplace practices. 

The ‘‘Doing Business’’ report, as you mentioned, ranks countries 

on how business-friendly they are, and it influences decisions by 

the Bank in funding and by outside investors. The report covers a 

number of appropriate topics, such as the ease of establishing a 

new business, licensing and registration requirements, for example, 

and access to credit and financial markets. 

However, the section that deals with employing workers is seriously off-track. It creates an index made up of three components, 

labeled ‘‘difficulty of hiring,’’ ‘‘rigidity of hours,’’ and ‘‘difficulty of 

firing.’’ A perfect score for a country means that it is a good place 

to do business. A low ranking suggests that investors should avoid 

that country and that the government should change its labor laws. 

Let me comment on each ingredient of this index. 

The ‘‘difficulty of hiring’’ index gives a perfect score to countries 

that allow the use of fixed-term—that is, temporary—contracts for 

workers who are hired to do permanent tasks, with no limitations 

whatsoever. It gives the worst score to countries that limit the use 

of temporary contracts to no more than 3 years for workers if they 

are doing permanent work. 

It should be noted that temporary contracts are widely used and 

abused in many developing countries, notably in parts of Latin 

America, to avoid putting employees on regular payrolls despite the 

fact that they are doing permanent work. These contracts keep the 

affected workers in a precarious economic position, not knowing 

whether they will be employed at the end of their contract, which 

can often run for as short as 3 months, renewed again and again 

and again. 

10

In some cases, the use of these temporary contracts means that 

the worker will not qualify for employment benefits, such as medical insurance and pensions. It discourages both the employee and 

the firm from investing in the temporary worker’s training and 

skills because of the uncertainty of continued employment. It discourages workers from joining unions or organizing unions because 

of the fear that their contracts will not be renewed. 

The effect is to create precarious employment and economic insecurity and to slow the workplace training that is so essential in developing countries. 

The ‘‘difficulty of hiring’’ index also discourages the use of minimum-wage legislation or encourages extremely low minimum 

wages if they are set at all by governments. It assigns a perfect 

score to countries that set the minimum wage at less than 25 percent of the average value added per worker. 

The ‘‘Doing Business’’ team ignores extensive research showing 

that carefully established minimum-wage policy can alleviate poverty and improve income distribution without, in any way, discouraging employment creation. Instead, it rewards countries that set 

minimum-wage rules that allow firms to capture the largest possible share of output and productivity gains. This encourages sweat 

shops, basically, where labor is paid the lowest possible wage, rather than encouraging increased productivity based on investment in 

workers’ skills and technology. 

The second ranking of the index, ‘‘rigidity of hours,’’ implicitly 

advocates rolling back any restrictions on hours worked. It assigns 

a perfect score to countries that allow 50-hour work weeks and 

limit vacation time. If developing countries established the kind of 

limits that we in our country came to believe were sensible, such 

as a 40-hour work week, they are labeled bad places to do business. 

In a world where unemployment and underemployment are 

major economic and social problems in most developing countries, 

the idea that workers already on payrolls should be worked to the 

maximum, rather than encouraging firms to hire additional workers, is going in entirely the wrong direction. 

Finally, the ‘‘difficulty of firing’’ index rates countries that require advanced notice of termination or layoff or that require that 

the options of retraining or alternative placement be considered instead of doing layoff as bad places for business. 

The index lists the firing costs in each country, which amounts 

to the cost of advanced notice and severance pay. This must be understood in the context that, in most developing countries, there is 

no unemployment insurance. Severance pay is the only buffer for 

households that lose the income of their wage-earners. To imply 

that this buffer should be eliminated by countries without unemployment insurance endorses an approach of shifting all economic 

risk from firms to households. This represents an extremist view 

of the balance— 

The CHAIRMAN. Ms. Polaski, you are going to have to finish up. 

Ms. POLASKI. —an extremist view of the balance that should be 

achieved. 

I won’t take time, then, to mention the fourth thing, which is 

positive, which is the establishment by the IFC and the ILO of the 

new program called ‘‘Better Work,’’ which will attempt to replicate 

11

lessons that were learned by an innovative project between the 

United States and Cambodia, but it is included in my testimony. 

And I thank the committee. 

[The prepared statement of Ms. Polaski can be found on page 57 

of the appendix.] 

The CHAIRMAN. And we will get to it in the question period. 

Next we will hear from Thea Lee, who is the policy director at 

AFL–CIO and is involved in research and strategy on domestic and 

international policy. 

Ms. Lee? 

STATEMENT OF THEA M. LEE, POLICY DIRECTOR, AFL–CIO 

Ms. LEE. Thank you very much, Mr. Chairman, and members of 

the committee. I appreciate the opportunity to come here today. I 

would like to thank you for holding the hearing today on this important topic. 

We believe that the fight against global poverty and inequality 

must include as an integral element the promotion of decent work, 

as the International Labor Organization has defined it. Both my 

colleagues, Peter Bakvis and Sandra Polaski, have spoken about 

the importance of decent work, which is not just about employment 

creation but also about the protection of workers’ human rights. 

There is a growing body of research showing that observing fundamental workers’ rights is good for growth, not an obstacle. 

Some have tried to create a false dichotomy, insisting that we or 

workers or the government must choose between decent work and 

any work, between rights and a job. We disagree fundamentally 

with this premise. It is both bad economics and bad politics. A vibrant democracy and a strong middle class are essential to sustainable development, not an inessential luxury. 

The subject of today’s hearing is the World Bank and the World 

Bank’s approach to core labor standards in its mission to reduce 

global poverty and raise living standards. The World Bank’s record, 

as the chairman mentioned, is mixed on this issue. There has been 

much criticism of the conditionalities imposed by the World Bank 

in its mission to end poverty, and questions raised as to whether 

those conditionalities have been imbalanced toward undermining 

progressive government initiatives and undermining the rights of 

workers. 

As other panelists have said, there has been some progress at the 

World Bank in recent years with respect to core labor standards, 

and we recognize and honor the progress that has been made, particularly with respect to the IFC and to some of the research that 

has been done. 

However, we also would like to add our voice to the criticism of 

the ‘‘Doing Business’’ report as the most glaring example of inconsistency within the World Bank, and also as emblematic of the failure of the World Bank to engage in meaningful policy coherence 

dialogues with other international institutions. The United States 

belongs to both the World Bank and the International Labor Organization. We shouldn’t be promoting one set of goals at the ILO and 

then allowing another institution to undermine those very same 

goals. 

12

I would submit to you that the ‘‘Doing Business’’ report, particularly the most recent version, is an international disgrace. It might 

be appropriate for a business organization, let us say the International Chamber of Commerce, to put out a report that is so onesided in its views about what a good business environment is. But 

it is not appropriate for an intergovernmental agency committed to 

ending poverty to send a message to both governments and to businesses that the way to attract business, the way to develop in a 

global economy is to undermine protections for workers. 

The ‘‘Doing Business’’ report classifies most protections for workers as investment impediments. It ranks human-rights abusers as 

stars and downgrades democratic countries with strong labor institutions and protections. Contrary to what some World Bank officials have said, this is not a neutral set of indices. It is a powerful 

policy document that has been used to determine loan eligibility in 

important World Bank reports. 

One of the key issues is whether the ‘‘Doing Business’’ report undermines the World Bank’s own stated goals and puts the World 

Bank at odds with other international institutions. 

The World Bank endorsed the Millennium Development Goal of 

eliminating extreme poverty. Yet the ‘‘Doing Business’’ report penalizes countries that have a minimum wage unless it is less than 

25 percent of average value-added per worker. This comes to less 

than a dollar a day in most sub-Saharan African countries, which 

is the threshold for extreme poverty. So in this case, the World 

Bank is actually instructing countries not to implement minimumwage provisions that would keep full-time workers out of extreme 

poverty, and in doing so, it is undermining the objective that the 

World Bank declared to be its overarching goal in 1999. 

Let me sum up by saying that, in terms of the interactions between the ILO and the World Bank, there have been many highlevel discussions about coherence, and meetings between the ILO 

and the World Bank. There have been many commitments to 

achieve better policy coherence between the ILO, the World Bank, 

the IMF and the WTO. And so far, we appreciate that meetings 

have been held, we appreciate that conversations have occurred, 

but we would like to see those conversations reach down into the 

mainstream of World Bank policy. 

To the extent that a publication like ‘‘Doing Business’’ exists, and 

it is the flagship publication of the World Bank, the most-read, the 

most-cited publication of the World Bank, and it comes out with a 

contrary message, an undermining message to protections for workers, this is an enormous problem. We hope that the U.S. Congress, 

in its instructions to the U.S. executive director to the World Bank, 

will use all the influence it has to ensure that the World Bank 

sends a single set of messages in conjunction with its sister institutions, particularly the ILO. 

Thank you very much for your attention, and I look forward to 

your questions. 

[The prepared statement of Ms. Lee can be found on page 43 of 

the appendix.] 

The CHAIRMAN. Thank you. 

Our next witness has three very important qualifications. First, 

she was the finance minister and foreign minister of Nigeria, the 

13

first woman to hold those positions. Before that, she was the corporate secretary of the World Bank Group. And she was also my 

very delightful seatmate on our trip to Davos last January. 

And in all three capacities, Dr. Ngozi Okonjo-Iweala, we welcome 

you. Please go ahead. 

STATEMENT OF NGOZI OKONJO-IWEALA, DISTINGUISHED FELLOW, GLOBAL ECONOMY AND DEVELOPMENT PROGRAM, 

THE BROOKINGS INSTITUTION 

Ms. OKONJO-IWEALA. Thank you, Mr. Chairman. I am very honored to be here today and to testify before you on this very important issue. 

You have already done my task for me of explaining that I see 

this from different, multiple angles. But most of all, I think that 

the value I can bring to this hearing is speaking from the point of 

view of a policymaker who has had to struggle with the issues that 

are being discussed here and with the kind of recommendations 

being talked about in the ‘‘Doing Business’’ report. 

And I must say that I am somewhat taken aback by the interpretations that I have heard about countries, this report instructing 

countries to do things in certain ways. Because that is certainly not 

the way on the ground that we saw this report when I was minister of finance in Nigeria and had to work with it every day. 

First of all, as countries, we increasingly like to make our own 

policies in the context of our own circumstances. And therefore, I 

think we see these reports as providing additional information, and 

not instructions or conditionality, because that is not the best way 

to work with us, with our countries. 

The ‘‘Doing Business’’ report has served as a very useful guide 

in terms of looking at those things that a country can do to enhance its position in terms of creating jobs. And I think that what 

has happened is that, looking at it perhaps from the World Bank 

side, is a struggle between protection of workers and flexibility for 

the labor market. This is an everyday struggle that we have. And 

the way we read the report is as a report that is trying to give information on balancing that very complex difficulty of: How do you 

ensure that you have an economy and a labor market that is flexible enough so that jobs are being created? 

The biggest problem we face in our countries is the creation of 

jobs. More than 50 percent of our population are youths under the 

age of 25. And if we don’t work hard to look at creating jobs for 

these youths, we will have trouble, even more serious problems of 

inequality, which the honorable chairman referred to. 

But we do not see that we can create these jobs on the back of 

our workers. No country ever grew or will ever grow on the back 

of unhappy workers. So we have always paid attention to how can 

we improve the situation with our workers, making sure we applied the minimum codes and standards which my country has 

signed up to. 

And I hasten to say that we are not there yet in Nigeria, that 

we have a ways to go, in terms of implementing. But, really, that 

is our objective. We don’t see it as contradictory to creating jobs, 

but rather that we need to maintain this flexibility in the labor 

market, while also making sure that our workers enjoy the minVerDate 0ct 09 2002 14:19 Jan 18, 2008 Jkt 039905 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 K:\DOCS\39905.TXT HFIN PsN: TERRIE
14

imum standards and codes that we have signed up to at the international level. 

I am, therefore, surprised from the point of view of a practitioner 

to hear that this is the way the ‘‘Doing Business’’ report is seen, 

because we certainly do not see it that way. We see it as an important guide which we factor as one more element in our decisionmaking. And we have to make our own codes and rules in the country and observe our own particular situation and decide what 

would be most favorable for our workers. 

We also see that, in the report, there are many countries that observe high codes and standards for labor but are also tops, in terms 

of ‘‘Doing Business.’’ So we really don’t see this as contradictory. 

The United States ranks very high, Denmark ranks very high, 

many other countries rank very high in ‘‘Doing Business’’ and in 

treating workers well. So this is not a contradiction, for us. 

What we have to do is what policies can we look at that are good 

for our country, that will both enable us to get workers employed 

so that we can attack poverty, so that we can deal with the increasing problem of inequality that the honorable chairman referred to, 

whilst at the same time making sure that our workers have the 

basic treatment that they need. 

So I want to submit that the report is an ingredient in the decision-making of developing countries. We do not regard it as instructions to us to do one thing or the other. 

And I think that, in the modern era, this idea of conditionality, 

you know, getting the Bank to make countries do things as a condition for getting its loans doesn’t work anymore. Countries have to 

believe in what they are doing. And we believe in decent standards 

for our workers. 

And second of all, we don’t see a contradiction between being a 

good country that respects workers and creating jobs. And I think 

that this is what the report is trying to do. 

Thank you very much, Mr. Chairman. 

The CHAIRMAN. Our final witness has made reference to the 

Equator Principles, and one of the organizers and administrators 

of the Equator Principles is Suellen Lazarus, who is a senior advisor at ABN AMRO, here in Washington. 

Please, Ms. Lazarus. 

STATEMENT OF SUELLEN LAZARUS, SENIOR ADVISOR, ABN 

AMRO 

Ms. LAZARUS. Mr. Chairman, and members of the committee, 

thank you for inviting me this morning. It is a pleasure to be here. 

ABN AMRO is a Dutch bank with operations worldwide and a 

strong commitment to sustainable development. Prior to joining 

ABN AMRO, I worked for 23 years at the World Bank and the 

International Finance Corporation. My responsibilities included 

serving as advisor to the U.S. executive director of the World Bank, 

working as principal investment officer in IFC for major projects in 

Asia, serving as special assistant to IFC’s executive vice president, 

running IFC’s syndications department, and working with IFC’s 

vice president for operations on major policy issues. 

In the fall of 2002, as director of the syndications department, I 

was asked by IFC’s executive vice president to structure a small 

15

meeting of banks to discuss environment and social issues in 

project finance lending. The origin of this meeting was at the request of the head of risk management of ABN AMRO. 

The Bank had experienced some financial losses due to inadequate environmental controls in several projects. They were also 

finding that environmental and social risks were making projects 

increasingly complicated, but the Bank lacked a systematic way to 

deal with these challenges. Their approach of turning down 

projects on environmental grounds simply was not working. It neither improved the environment, nor was it good for business. 

Projects that the Bank would decline were readily picked up by the 

neighboring bank. There was a clear need to level the playing field. 

Hosted by ABN AMRO and IFC, the first meeting of the banks 

was held in London in October 2002. Despite some initial denial 

that there was a problem, within a few hours the banks concluded 

that if they were to keep doing project finance business, they needed a better approach to environmental and social risk management. 

While they had expected appropriate environmental management 

from clients, the banks agreed that they often were unclear on 

what standards were applicable and did not enforce and monitor 

environmental covenants. 

Eight months later, in June 2003, the Equator Principles were 

launched here in Washington, when 10 banks announced their 

adoption. The Equator Principles are a voluntary set of guidelines 

developed and adopted by banks to identify, assess, and manage 

environmental and social risk in project finance lending. These 

standards now also encompass the core labor standards. 

The framework for the Equator Principles is based on the environmental and social standards of IFC. There are now, we are 

pleased to say, 54 financial institutions worldwide that have committed to using the Equator Principles. These include banks in 

such countries as Chile, Argentina, Brazil, and South Africa, as 

well as in the European countries and the United States. We estimate that 80 to 85 percent of the global project finance market is 

now covered by the Equator Principles. 

In April 2006, IFC revised its social and environmental performance standards to incorporate the core labor standards, along with 

a range of other changes. The banks had to then determine if they 

would incorporate IFC’s new standards in the Equator Principles. 

How to implement the expanded labor policies was one of the 

more difficult issues during the revision process. Many of the banks 

were active in countries where the right to organize and collective 

bargaining were not allowed. Did this mean that they had to stop 

working in these countries? 

The understanding that, in such countries, our clients instead 

needed to provide grievance mechanisms and ensure adequate 

working conditions and terms of employment provided a great deal 

of comfort. 

Ultimately, at ABN AMRO, we concluded it was about risk management. Not addressing the human element is a risk for the 

project and for the bank lending to the project, regardless of the 

country we are working in. Companies that deal effectively with 

labor issues demonstrate good management. And good managers 

16

are good clients. To us, incorporating labor standards is conducting 

business responsibly, and prudently. 

Today, environmental and social standards, including review of 

a company’s labor standards, are an essential component of risk 

management at ABN AMRO. The Equator Principles have allowed 

us to have greater expertise in advising our clients and improving 

the risk profile of our projects. Our clients appreciate that there 

will be one standard assessment process and a focus on internationally recognized environmental and social standards. Through 

this transparent and consistent approach, their costs are reduced, 

and difficult issues are addressed up front. 

The development and application of the Equator Principles has 

been a major step forward for the financial industry. We have concluded that the Equator Principles are, indeed, good for business. 

Thank you. 

[The prepared statement of Ms. Lazarus can be found on page 41 

of the appendix.] 

The CHAIRMAN. Thank you. 

I would just say, Mr. Miller, you mentioned rigidity is a bad 

thing, but my problem is, as I read the report, it does not seem to 

differentiate between good and bad kinds of rigidity or legitimate 

protections and excesses. 

Do you think that—I mean, it did seem to me that there was a 

sort of a—anything that made for any kind of protection became rigidity, and there really wasn’t a differentiation between good and 

bad kinds. Do you think the report adequately differentiates between good kinds of protections and excessively rigid ones? 

Mr. MILLER. Certainly the question of rigidity versus flexibility 

is a continuum. It is not an absolute that, if you have an absolutely 

flexible labor market with child labor and bonded labor, that it is 

better than having a situation like France, with a 35-hour work 

week, where it is very difficult to hire people. 

I think that we need to look at the fact that most people want 

to be somewhere in the middle, where there is labor law. Most 

countries have labor laws, and those labor laws are enforced. 

The CHAIRMAN. I appreciate that. But as I read the ‘‘Doing Business’’ report, it didn’t seem to make the distinction you were just 

making. It seemed to me, that in their measurement, less was always better. Is that an inaccurate reading? I mean, that they did 

not take the more measured approach you are taking, but that, the 

less you had, then the less rigid you were, and more flexible you 

were, and the better off you were. 

Mr. MILLER. Well, I think that it is important to look at where—

at why the report is being prepared and how it is being prepared. 

The CHAIRMAN. Well, no, it is important for me to look at what 

the report says. Do you think that the report accurately reflects 

that notion? Because it did seem to me that less was always better 

in that report. 

Mr. MILLER. I think that the question is that, that is not the 

what report is focusing on. It is looking— 

The CHAIRMAN. Well, excuse me, Mr. Miller. I understand that, 

but the fact that that is not what it is focusing on doesn’t mean 

it doesn’t also say that. And the focus consists of a lot of things. 

I guess I won’t keep trying to get you to answer that one question, 

17

but when people don’t want to answer the one question, I draw inferences. It may focus on that, but it does say what it says, as part 

of it. 

Let me ask the other witnesses if they would have—that does 

seem to me to be the issue, that it is not a case of an intelligent 

discrimination about what is or isn’t good labor protection, but 

rather a kind of, ‘‘if it is in there, it is no good.’’ 

Ms. Lee? 

Ms. LEE. Thank you, Mr. Chairman. 

Yes, I think that is exactly the problem with the report, that it 

makes no distinction between necessary social protections for workers and rigidities that might inconvenience or impede investment. 

What we would like to see is that you start from a bottom line, 

which is to start with the work that the ILO has done to identify 

what are the basic protections that workers deserve, and never try 

to encourage any government to go below that, to work workers 

long hours without any day of rest, without any protections from 

arbitrary firings and so on. 

Within that context, if you start with the base of the ILO protections, then it is legitimate for governments to make the kinds of 

trade-offs that Dr. Okonjo-Iweala was talking about, where governments do need to make trade-offs between trying to figure out how 

to attract investment to create jobs and how to protect their workers. 

But we need a baseline, and that baseline is missing from the 

‘‘Doing Business’’ report. 

The CHAIRMAN. Well, I appreciate that. 

I have a report here that we will put into the record, if there is 

no objection, and it does have the defect that I was hoping it 

wouldn’t have, which is ‘‘less is always better,’’ and if you don’t 

have any protections, you just get more points in that report. 

Yes, Dr. Okonjo-Iweala? 

Ms. OKONJO-IWEALA. Thank you very much. 

While I agree that perhaps the report would need to be more 

crystal clear in the future on this issue, I do point to the fact that, 

in a reading of the report, the report endorsed or made clear that 

the fundamental principles and rights of workers to all the basic 

things that has been agreed in the ILO conventions is important 

and should be respected. This is part of the report. 

However—and it refers to the fact that excessive rigidity, so that 

is what we are looking at, things like excessive rigidity— 

The CHAIRMAN. But, Doctor, that is not—you are making a case 

for the report that the report doesn’t make. In the ratings, I don’t 

see that distinction at all. In fact, while it says we like the ILO, 

when it does the ratings, the absence of ILO standards helps you 

in the ratings, and the presence would hurt you, in many cases. 

Ms. OKONJO-IWEALA. That is why I say, Mr. Chairman, that the 

report needs to make crystal clear. Because in the discussion in the 

report itself, it talks about the issue that the fundamental core 

labor standards have to be respected. 

The CHAIRMAN. I understand that. The rhetoric is there, but the 

rating system has to catch up. So I would say it doesn’t have to 

be crystal clear; it has to not be internally contradictory. And I 

think that is a problem that—maybe it is cultural lag, but there 

18

still is this problem. You and Mr. Miller both say, ‘‘Well, okay, but 

don’t look at what it says. Look at the focus. Look at the other 

things it says.’’ But we can’t not look at the things it says. And 

they ought to correct them and stop saying those things if they 

don’t mean them. 

Ms. Polaski? 

Ms. POLASKI. Directly to your question, Mr. Chairman, the rating 

itself, if you look at the way it is constructed, absolutely does give 

higher marks for lower regulation. The less regulation, the higher 

the mark; the more regulation, regardless of how carefully— 

The CHAIRMAN. With no balance. Less is always better. 

Ms. POLASKI. Absolutely less regulation makes you a better place 

to do business. And that is the ranking, at the end of the day. 

The CHAIRMAN. That would include if, in fact, you didn’t follow 

some of the ILO standards, you would get a better ranking in that 

particular situation than if you did, correct? 

Ms. POLASKI. That is correct. 

The CHAIRMAN. All right. Well, then, if that is not what they 

mean, I have a simple suggestion: Write it better. Don’t send very 

sophisticated people who are well-meaning here to say, ‘‘Oh, yes, 

but you have to read it in context,’’ etc. 

You know, I will tell you this. People say, ‘‘Oh, don’t take it out 

of context.’’ Every time I say, ‘‘Oh, well, I was quoted out of context,’’ I really mean, ‘‘I wish I didn’t say that, and next time I will 

say it better.’’ So, next time, they should say it better. 

The gentleman from Delaware. 

Mr. CASTLE. Thank you, Mr. Chairman. 

My question is going to be basically simple. It is going to be to 

all of you, but a couple of you have made comments that got my 

attention. Mr. Miller said something to the effect of national regulatory schemes that limit the establishment of business, for example. And Dr. Ngozi has been involved locally in Nigeria, as well as 

in international organizations, dealing with the issue of enforcement of various rules, laws, and regulations. 

And I don’t mean to speak for anyone here, but I think most of 

us would agree that most of those things that we are concerned 

about, in terms of employment practices, we could probably find 

agreement upon in this committee. But I worry about the intersection between the international institutions, the World Bank, and 

the other international institutions and the countries, and the enforcement of these principles. 

I guess I need a one-on-one lesson on exactly how the international institutions actually go about enforcing some of the principles of which they are concerned. Is it the persuasion of rankings, 

or is it making or not making loans? Or what is it that is done that 

gives you the ability to influence some of the outcomes that you 

want? 

Mr. BAKVIS. Sure. 

Well, it is a publication of the World Bank and is used—you 

know, we have documented dozens of cases—in World Bank and 

IMF reports. These are institutions that lend monies to countries, 

so that gives them a very powerful incentive, compared to, for example, the ILO, whose power essentially is the power of moral suasion. The ILO can tell countries they are violating the core labor 

19

standards, as it did in the case of Georgia, as I mentioned. But beyond that, it can’t use any pressure on them. However, the World 

Bank and the IMF, by bringing this into a vast number of their 

country reports, making them loan conditions in some cases that 

we cite in our longer report, they do have the possibility to impose 

these things. 

Now, I would like to mention that one central tenet of ‘‘Doing 

Business’’ is the claim that you have to get rid of these labor protections because that will create more jobs. Now, they cite studies, 

and they actually miscite them. The basic methodology was developed in an article that was published a few years ago in the Quarterly Journal of Economics. And they quote that particular article 

as saying that countries that have more regulation, as they measure it, push people into the informal sector; so more people work 

in the informal sector, the informal sector is larger. If you actually 

read the article, the study they cite doesn’t say that. It is misstated 

in ‘‘Doing Business,’’ and I think that is important. 

So it is not a surprise that you get the situation where ‘‘Doing 

Business’’ says that Afghanistan, Armenia, Georgia, Haiti, and 

Mongolia—which I don’t think many people would consider economic success stories—get better rankings for their labor scores 

than Finland, Korea, the Netherlands, Norway, Slovenia, and Taiwan, which all have very low unemployment, high working conditions, and very good social protection measures. 

So I think it is a thoroughly imperfect and flawed indicator to 

use to tell countries this is what you should be doing to create 

more jobs. It does not do that. They haven’t proved it through economic research. 

And if you peruse the rankings, you can see how ridiculous it is. 

Mr. CASTLE. Ms. Lee, you had your hand up? 

Ms. LEE. Thank you. I wanted to respond to your excellent question about how the different international institutions go about enforcing their principles. 

Just to build on what Peter Bakvis said, if you start from the 

ILO, and you mentioned earlier the IOE, the International Organization of Employers, what is extraordinary about the ILO is the tripartite structure of employers, workers, and governments from 181 

countries represented. The idea that those three groups from more 

than 180 countries were able to reach consensus on the core labor 

standards should give that tremendous weight. Yet, as Peter 

Bakvis said, the ILO has no enforcement power whatsoever. It can 

sanction, it can discipline, it can scold its members, but it doesn’t 

have the capacity to impose any economic consequences, even for 

egregiously bad behavior. 

If we are serious about the commitment that we made at the ILO 

to respect, promote, and realize the core labor standards, then we 

need to make sure that the other international institutions, like the 

IMF and the World Bank and the WTO, that do have economic 

power, are incorporating the principles of the ILO into their work. 

This will ensure that we put some economic consequences behind 

the commitment we have already made. 

Thank you. 

Mr. CASTLE. My time is up. I think Mr. Miller wanted to answer, 

Mr. Chairman, if we can get his answer. 

20

Mr. MILLER. Thank you. 

The process of actually implementing the core labor standards—

and when we understand core labor standards, we mean prohibitions on child labor, prohibitions on forced labor, prohibitions on 

employment discrimination, and prohibitions on collective bargaining and the right to organize, all of which are included in the 

National Labor Relations Act here in the United States. 

We have to understand that the process of developing loans, 

which is ultimately the most powerful mechanism that the World 

Bank has, is a dialogue between an institution and a government, 

which is long and requires a very extensive country bias. I think 

that, oftentimes, people begin to imagine that you can simply impose these things, but as was noted earlier, countries are sovereign, 

and they are making their own policy decisions, and they have a 

degree of skepticism about the effectiveness of the work of the 

international financial institutions. 

So I think that, while it is important for the World Bank to look 

at getting people together to have a dialogue on how one can deal 

with child labor in the developing worlds as they have done, it is 

not as simple as simply saying, ‘‘Well, you must implement these 

things, or you must inform your labor ministry.’’ That implies taking a loan, which oftentimes requires congressional approval, and 

I cannot imagine this Congress agreeing to increase the public indebtedness of the United States for something that it did not support. 

Mr. CASTLE. Thank you. 

Mr. GREEN. [presiding] The Chair recognizes subcommittee 

Chairwoman Maloney for 5 minutes. 

Mrs. MALONEY. I thank the gentleman for recognizing me. 

I thank all of the panelists for your statements today. 

One indicator in the ‘‘Doing Business’’ report is the employing 

workers indicator. This indicator measures the extent to which 

country labor markets are flexible, the assumption that flexibility 

creates employment. However, the employing workers indicator 

gives more favorable employing workers ratings to Saudi Arabia, 

which systematically discriminates against women—women cannot 

even drive a car to work there—and Georgia, which continues to 

repress unions, than to Finland or to Sweden, high-productivity 

economies with fine worker protections. This indicator gives recurrent violators of fundamental workers’ rights, including Belarus, 

China, Saudi Arabia, Swaziland, and Uzbekistan, a higher rating 

than most countries of Western Europe. 

Can someone explain to me how a country that violates fundamental workers’ rights, represses women or bans unions can be 

seen as a good thing for employment, earning a country a higher 

rating? I invite anyone to respond. 

Mr. BAKVIS. I cannot justify that. 

Mrs. MALONEY. Thank you. 

Ms. Polaski. 

Ms. POLASKI. I think that one of the fundamental problems with 

the ‘‘Doing Business’’ report is what you have just identified. There 

is not good research underlying the employing workers section of 

the report. The references cited, which have been mentioned here, 

do not say the things that they are credited as to saying, and to 

21

the extent that any sources are cited, they are very thin, and they 

lie at one extreme of the research spectrum. 

There is a lot of labor market research which says that a sensible 

balancing of the rights of workers with those of firms is going to 

produce better results in terms of overall employment, in terms of 

poverty reduction, in terms of income distribution, and in terms of 

clear labor standards. 

I think that a serious problem with the report is that it is not 

based on sound economics, it is not based on sound research, and 

I think that is one reason why the committee should think about 

instructing the U.S. executive director to work toward taking that 

section out until it can be reconstructed on a sounder basis. 

Mrs. MALONEY. Well, I will talk to the chairman about achieving 

that result. Thank you. 

I would like to ask about the paying taxes indicator. My understanding is that the paying taxes indicator quantifies the cost of 

total mandatory contributions in payroll tax, retirement, unemployment, maternity, housing or health insurance, and it encourages 

countries to have these contributions set as close to zero as possible. 

‘‘Doing Business 2008’’ highlights fining those countries that reduce pensions, maternity, and health insurance or compensation 

for workplace injury: Albania, Bulgaria, Mexico, Moldova, the 

Netherlands, Romania, Slovenia, South Africa, and Uzbekistan. 

Why should we be rewarding countries that are reducing pensions, maternity leave, health care insurance or compensation for 

workplace injury? What does the paying taxes indicator use to include the possible benefits these items have? 

Yes. 

Mr. BAKVIS. Well, I think your question puts the finger on a very 

important issue, which is that there is definitely a bias against 

countries that adopt all of these kinds of social protection measures 

that are very important and that are part of what should be seen 

as development goals if they finance them through payroll taxes. 

In countries that shift the burden to consumption taxes, valueadded taxe, or income taxes—as Denmark did, for example—it is 

not counted. 

Now, we see this as a bias against developing countries because 

value-added taxes do not exist in developing countries. They do not 

have that option. Income tax systems are very undeveloped in developing countries. Payroll taxes are something that are simpler to 

implement; they can identify payroll, and it is possible to gain revenues from them. So, when you are telling a developing country, you 

can no longer finance these things through payroll taxes, you are, 

essentially, going to get rid of them—get rid of maternity leave, get 

rid of pensions, get rid of the health benefits or whatever that are 

financed by these taxes. So we think this is, really, a very nefarious 

message for the World Bank to be giving to developing countries. 

Mrs. MALONEY. Can Mr. Miller respond? My time is up, but we 

look forward to your comment, Mr. Miller. 

Mr. MILLER. Briefly, I think that—while one could read the report in that way if one chose to, I think it is an overstatement, and 

I think that it misses the focus of the report. I think it is important 

22

to see these things on a continuum; that lower taxes on businesses 

are generally better than higher taxes. 

The unfortunate thing about the ‘‘Doing Business’’ indicators is 

that it was born as a process of trying to approximate the impact 

of business regulations across countries, and it has become something which has been demanded to be quantitatively perfect. It is 

not quantitatively perfect, and I think that one can make fair criticisms of the ‘‘Doing Business’’ report. 

However, I think what is important about it is its impact on 

helping to begin the process of dialogue within countries on reducing business regulations, and so one can make a criticism about 

this particular submeasure or that particular submeasure, but I 

read it as being based on sound statistical practice. 

Mrs. MALONEY. Thank you. 

Can she comment? 

Mr. GREEN. Of course. 

Ms. OKONJO-IWEALA. Thank you very much for recognizing me. 

I just wanted to add to that, that, indeed, it is true that the improvements can be made, and it is not quantitatively perfect, but 

we do not also, in making policy, look at it as something that is 

a perfect report in which we have to, you know, go according to 

every single indicator. It is a report that lets us know where it is 

as countries they are having the greatest problems in terms of creating employment and improving the economy and getting access 

to jobs for the poor. And that is the way we read it, and I think 

it would be a shame if it is not read correctly in that light. That 

is certainly the way that we applied it. 

Again, I hasten to say that countries have a great deal of autonomy. I want to come back to that. The idea that some institution 

can force you to do something, or you can load up conditionality on 

the back of a loan is a dated idea, and lots of studies have been 

done by Danny Roderick, David Dollar, and others to show this 

does not work. A country has to believe in what it is doing, not because some institution comes to impose it. 

So I think we are looking and seeing that having proper labor 

standards and codes for workers is the right thing to do, and I 

think that this report is a guide. It is not an instruction. 

Thank you. 

Mr. GREEN. Thank you. 

We will now recognize the current ranking member, the gentleman from North Carolina, Mr. Jones. 

Mr. JONES. Mr. Chairman, thank you. 

At this stage of life, the only way I can get here is to fill in for 

somebody else. 

So I want to thank you for this presentation. I have a lot to 

learn; I have been in Congress for 14 years, and I have really found 

this to be very interesting and educational. So, from that standpoint, I want to thank you. 

I want to ask—Ms. Lee, I will start with you because my concern 

as a Republican and as a conservative is what I have seen happening to not only this country, but—can we do a better job, when 

we pass these trade agreements, of helping the workers and the environment? Can we do a better job than we are doing now? 

23

My reason for that question is from the World Bank report, but 

when you really come down to it—and I think the doctor said this 

just a moment ago—a Nation that is relatively strong—of course, 

many of us are concerned about the debt of this country, but that 

is another issue. I remember the Central American Free Trade 

Agreement debate. I remember meeting with several elected officials from the five Central American countries and some priests 

and some preachers and elected officials, and they were so concerned that we are doing nothing to help the low end of the population because we are not more forceful in the area of environment 

and labor standards. 

Ms. LEE. Thank you so much, Congressman Jones, for the question. 

Absolutely, we can do more, and we should do more to help workers and the environment through our trade agreements and also 

through our interaction with the international financial institutions. In representing American workers, we see every day that our 

members are impacted by unfair terms of competition. When workers in other countries cannot bargain collectively for their fair 

share of the wealth that they create, they are undermined; their 

lives are impacted, and our members lose their jobs. 

So these issues are important in a moral sense, that we care 

what happens to workers in other countries, and they are important in an economic sense, because this is about the terms of competition. That is why it is so important that an institution like the 

World Bank should live up to its mandate, which is to reduce poverty and inequality and to raise living standards in the rest of the 

world. In order to do that, there has to be a lens which is broader 

than a narrow private investor’s lens. We have to look at the world 

with a social dimension and try to figure out what it would take 

to empower workers, to build a strong middle class, and to build 

stronger democracies in developing countries. There is no question 

that the challenges the developing countries’ governments face are 

tremendous. They are trying to attract foreign investment in a 

tough global economy. If the message that they get from investors, 

from financial institutions, and then from international intergovernmental organizations is, ‘‘The way you attract foreign investment is to undermine the bargaining power of your workers by 

weakening labor standards, and by making everything comfortable 

for foreign investors,’’ that is a dead-end road. Ultimately, they are 

going to cheapen labor, but they are not going to be creating a 

strong, vibrant middle class that will allow us in the future, we 

hope someday, to have a stronger reciprocal trading relationship. 

Thank you. 

Mr. JONES. Is China an example? 

When I look at the environmental conditions in China, which are 

so deplorable, and yet we have sent so many jobs to the Chinese—

we have a $300 billion, roughly, I think, trade deficit—again, if the 

World Bank—and, Mr. Bakvis, I think you said it in your statements. Is it your responsibility, do you think, to be more assertive 

as it relates to some of these issues that we are talking about with 

the environment and with the labor standards? I think you mentioned that, at this point, you have not been that assertive as an 

organization. Excuse me. 

24

Mr. BAKVIS. Yes. 

Well, as I mentioned in the introduction, two-thirds of our members are in developing countries, and obviously we are very concerned. And I think Ms. Lee just explained some of the factors that 

motivate the AFL–CIO and also developing countries. 

Now, you mentioned China. That is an interesting case. I am not 

an environmental expert, but I do work a lot on labor issues. Now, 

China, over the past 20 years, has evolved from a low-income and 

relatively equal, in terms of distribution of income, country into one 

of the most unequal countries—middle income, but one of the most 

unequal countries—in terms of income distribution today, to the 

point that the Asian Development Bank came out with a report 

last month calling attention to this and seeing it as something very 

alarming for the long-term development potential of China. 

Now, why has China become so unequal? Well, one issue is the 

way they have treated the rural sector there. They have shut down 

services to the rural sector. Everything is going to the new upper 

and middle classes. Another major problem is that it is a country 

that does not respect the core labor standards. Trade unions, outside of a very strictly controlled, government-run body, are not allowed. Workers are put in jail when they try to found independent 

trade unions. Therefore, in effect, wages are being artificially 

pushed down by the fact that workers cannot exercise their full 

rights, and that is one of the reasons you have this terrible inequality now that has developed in China. 

What has the World Bank done? Well, you know, we were somewhat shocked last year. The World Bank prepared a policy paper 

on social and labor policy where it told China the so-called ‘‘international labor standards’’—and they called it like that and put it 

in quotation marks—are something you should not really pay attention to except to the extent that you have to abide by them to 

prevent protectionist measures. Now, for the World Bank to be saying that to China, which is one of their biggest client countries, ‘‘Do 

not pay attention to these standards,’’ I think, comes out of the 

whole ‘‘Doing Business’’ approach. It is very serious. 

The World Bank could make a positive contribution, as Mr. 

Wolfensohn did when he was president a few years ago—he said 

to China, ‘‘Improve your rights; improve your social policies.’’ But 

to be telling China today, ‘‘Do not pay attention to these things,’’ 

that is only going to make the situation worse. 

Mr. GREEN. Yes. I have been informed that we have a series of 

votes that are imminent, and so as to avoid trying to have you 

come back at a later time, we are going to ask that the members 

stay within the 5 minutes, and that we move as expeditiously as 

possible. 

With this said, we will now recognize the gentlelady from New 

York, Mrs. McCarthy. 

Mrs. MCCARTHY. Thank you, Mr. Chairman. 

This might be a little bit off the beaten path, but in the Budget 

Committee and even in Financial Services, when we had the World 

Bank in front of us, for a lot of the questions that I asked, I never 

really got a solid answer. 

It seems to me that the World Bank has a trickle down, so they 

have the money on the top to the countries, and yet, from everyVerDate 0ct 09 2002 14:19 Jan 18, 2008 Jkt 039905 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 K:\DOCS\39905.TXT HFIN PsN: TERRIE
25

thing that I have seen, and certainly through documentaries and 

everything else, these microloans, actually, in many ways do a very 

good job. One of the documentaries I just saw over the weekend 

was of a leper colony in India. They had built a village. They had 

no income. It was all off the government. A private, inside organization in India started doing microloans. The village today is the 

most successful village out of all the areas around the leper colony. 

They started a barbershop. A woman had one cow; now she has 

five cows. 

I mean, is the World Bank doing enough on the microloans to 

help from the bottom up? Because when you work with people from 

the bottom up, it gives them the respect; it gives them the opportunity to see what life could be like, you know, in, obviously, trying 

to move up to be middle-income families. 

I was just wondering if anybody had—Mr. Miller. 

Ms. LAZARUS. I can probably respond to that. I think that there 

are a couple of things I would say. 

First of all, the World Bank funds a major organization called 

CGAP, the consultive group for action for the poorest, which is a 

resource on microfinance operations. It is funded by both the World 

Bank and other donors, and it fosters microfinance work globally. 

I think it is important to remember that the World Bank, of 

course, lends to member governments. Most often microfinance operations are done by nongovernmental organizations or by the private sector. So much of the funding of microfinance lending is happening in the World Bank Group through the International Finance Corporation, the IFC, which does private-sector lending, and 

they have a very large microfinance operation where they are helping to develop microfinance institutions and lending to them. The 

policy work about the creation of microfinance institutions and 

helping governments set up frameworks for allowing the flourishing of microfinance institutions is happening through CGAP. 

Mrs. MCCARTHY. But once we give money to ‘‘the government,’’ 

how do we track that it is actually being used to do what it is supposed to be doing on the oversight? 

Ms. LAZARUS. ‘‘We,’’ meaning the World Bank, or— 

Mrs. MCCARTHY. Yes. 

Ms. LAZARUS. —once the World Bank lends to a government? 

Mrs. MCCARTHY. Right. 

Ms. LAZARUS. Oh. The World Bank requires that the government 

report. They have an audit function. There are checks and balances, so there is a country supervision program. 

Ms. OKONJO-IWEALA. Maybe I can speak. 

Perhaps to complement what Suellen said, on the ground, when 

you sign the loan agreement, you also undertake that you will receive missions from the World Bank that are cost supervision missions, you know, that will come to see how the loan is functioning. 

The government itself also has to—because the government implements the project, it has to set up a mechanism to track how the 

project is going and how the loan is being used or the credit. So, 

when the supervision mission comes, typically both the government 

officials and the officials in the World Bank go to wherever the 

project site is, and, of course, records are kept, and you have to 

show what has been disbursed, where it is going and all that. 

26

That does not mean that, you know, projects are perfect and that 

you do not have issues, but there is a tracking mechanism you sign 

onto. Where the ability does not exist, they often provide technical 

assistance to help build it so that the loans can be properly 

tracked. And the government also has an interest in tracking actual—you know, when you borrow, you have to pay back that 

money, so you have to make sure that you have mechanisms to 

make sure the money is going where it is supposed to go. 

Mrs. MCCARTHY. Mr. Miller. 

Mr. MILLER. One of the things that, I think, would be useful for 

the World Bank to look at is to examine the lessons of the Multilateral Investment Fund at the IDB, which was set up to finance innovative projects for the private sector in Latin America and in the 

Caribbean, because I find often that the World Bank’s approach is 

rather too rigid because dealing with entrepreneurs is very difficult. 

When I was running a USAID project in Panama, I spent a lot 

of time working with entrepreneurs, and the process can be timeconsuming, but you really have to get down to that micro level, and 

you find that people on the ground have a lot of really good ideas, 

but I do not find that there are really sufficient grant mechanisms 

in place to allow those ideas to be actualized. 

Mrs. MCCARTHY. Thank you. My time is up. 

Mr. GREEN. We will now recognize the gentleman from Georgia, 

Mr. Scott, for 5 minutes. 

Mr. SCOTT. Thank you very much. 

Let me start off by asking, how much of the World Bank’s funding comes from the United States? 

Ms. LAZARUS. As someone who worked at the World Bank, I can 

probably say, first of all, I do not know the exact number anymore, 

but the World Bank’s share—I am sorry, the United States’ share 

in the World Bank is somewhere around 16 to 17 percent. 

I think that it is important to remember that the World Bank—

and we are talking about the IBRD, the International Bank for Reconstruction and Development. The share capital for the Bank was 

paid in many years ago. The Bank now funds itself by borrowing 

in the capital markets. So the amount of money that the United 

States has actually put in is not significant. What the United 

States does do, as all member governments do, is they back up 

World Bank bonds in the market. So, if there were to be a default 

on the World Bank bonds, the member governments have guaranteed them. It is called ‘‘callable capital.’’ So the actual contribution, 

in monetary terms, of the United States is quite small; it is the 

shareholding that is significant. 

Mr. SCOTT. So the World Bank borrows from countries and 

charges an interest rate to countries? 

Ms. LAZARUS. The World Bank borrows in the capital markets 

just like any other bank. It funds itself, and then it lends to governments, and the differential between its borrowing rate and its 

lending rate is how it funds its operations. 

Mr. SCOTT. Okay. Then, with that understanding, as the World 

Bank plans to lower its interest rates, it charges middle-income 

countries. There is a plan to do that, to borrow money and then 

pledge to significantly increase the aid for the poor nations. 

27

Do you believe there is a specific plan in place to ensure that 

these funds are used effectively in addressing employment strategies of some of the poorest nations? 

Ms. LAZARUS. I just want to make a clarification. There are two 

separate arms of the World Bank. There is IBRD, the International 

Bank for Reconstruction and Development, which does lend to the 

middle-income countries and is talking about, as you said, lowering 

rates; and then there is the International Development Association, 

which lends to the poorest countries, and that is the money—the 

IDA replenishments that are under discussion now, the current 

IDA replenishments—that governments each contribute, and that 

is where there is scope for putting in the kinds of conditions that 

you are talking about. 

Mr. SCOTT. I guess what I am trying to say is, is there a plan 

in place, though, to accurately account for these funds in relationship to their effectiveness in coming up with sound employment 

strategies? 

Yes, Mr. Bakvis. 

Mr. BAKVIS. Well, I think the short answer is ‘‘no.’’ 

The World Bank has adopted a labor market strategy recently 

which uses the acronym MILES, which stands for different elements of the labor market strategy. We were quite concerned when 

this strategy was adopted last year that the ‘‘I’’ stands for ‘‘investment climate,’’ and it is stated in that document that the ‘‘Doing 

Business’’ labor market indicators will be used as the instrument 

to help countries develop a correct investment climate for employing workers. 

You know, again, as several of us have tried to point out, this 

is an extremely imperfect, erroneous approach to developing employment. Economic literature does not back it up. The studies that 

have been invoked to justify the whole methodology have either referred to industrialized OECD countries that are not applicable—

and, in fact, that have been discredited by studies done by the 

OECD itself—or in one case, the Bank cites an article which actually says the opposite of what it claims it says, namely, that the 

rigidity of labor markets, as they measure it, stimulates growth of 

employment in the informal sector; that is, unprotected jobs. 

So, if this is to be part, and it is, of the overall labor market 

strategy, no, the Bank does not have a proper strategy for employment creation. 

Mr. SCOTT. Thank you, sir. 

Mr. GREEN. We will now recognize the gentleman from North 

Carolina, Mr. Watt. 

Mr. WATT. Thank you, Mr. Chairman. I will try to be brief. 

Ms. Lazarus, I was here for the testimony and had to leave, but 

I heard all of the witnesses, and you seem to be the only one who 

never really expressed an opinion about whether this ‘‘Doing Business 2008’’ report was constructive or counterproductive in the way 

it addressed the labor standards issue. I think I understand where 

everybody else has come from. Maybe you did not get on this panel 

with the intent of getting into that discussion. I am just wondering 

whether you had an opinion about that. 

Ms. LAZARUS. Thank you for your question. 

28

The point that I would make is that the ‘‘Doing Business’’ report, 

the audience of the ‘‘Doing Business’’ report, is in addition to countries looking at how they rank relative to one another, it is also private-sector companies looking to invest in developing countries, 

looking to go overseas. Companies do pay attention to that report, 

and the rankings make a difference for them. 

So I would say to the extent that you are encouraging companies 

through that report to invest in one country over another, it is inconsistent with the way private-sector financial institutions and 

the IFC are looking at those countries or are looking at companies 

in those countries, because, within our lending, my bank’s lending, 

to a particular company, we would require the company to meet 

certain labor standards that might be different than those required 

by the country in which they are operating. 

There are ways to overcome that by the way the client itself 

manages the company, but there is an inconsistency between the 

way we are wanting to operate and the standards that we are 

going to be imposing—requesting our clients to meet—and the way 

that particular report ranks countries. 

Mr. WATT. Now, that is the business side of it. 

The gentlelady from Nigeria, whose name I cannot pronounce, 

made it pretty clear that sophisticated countries that deal with the 

Bank, such as Nigeria, the United States and other countries that 

have some experience with the Bank, probably do not view anything in this 2008 report as a conditionality. 

In your experience, would some of the countries that did not have 

the experience and the knowledge of dealing with the Bank view 

this in a different way? Would they view this report as an invitation to drive down their labor standards to create a more businessfriendly environment? 

I am asking both Ms. Lazarus and Ms.— 

Ms. OKONJO-IWEALA. Okonjo-Iweala. 

Mr. WATT. Say it again. 

Ms. OKONJO-IWEALA. Okonjo-Iweala. 

Mr. WATT. Okonjo-Iweala. That is a beautiful name. 

I would like both of your opinions about that. 

Ms. OKONJO-IWEALA. Well, perhaps in the past I would have 

said—you know, in the 1980’s and 1990’s—the Bank had a very 

heavy weight in terms of the issue of conditionality and in making 

countries do things, you know. You know, some people call it ‘‘buying development’’ or ‘‘buying compliance.’’ There was a very heavy 

weight on that because many countries did not have access to alternative sources of capital, and so they had to do whatever the Bank 

or the Fund said. 

I think the world has evolved. I am not saying— 

Mr. WATT. But isn’t that true still for some—I mean, it is probably not true of Nigeria, obviously. 

Ms. OKONJO-IWEALA. Yes. 

Mr. WATT. Isn’t it still true for a number of countries that deal 

with the Bank? 

Ms. OKONJO-IWEALA. There are some countries that are poorer, 

you know, where the Bank and the Fund may still have that kind 

of weight. So I am not saying that does not exist. 

29

What I am saying is the incidence or the ability of these institutions to do that, very frankly, in today’s world is diminishing because the overall aid architecture is changing. There are so many 

foundations, funds, bilaterals, and other people who are coming in 

that the ability of these financial institutions to really work in that 

way with the countries has changed. But I want to say that does 

not mean that the Bank and Fund are not important. It is just that 

they are—and IDA is crucial for that reason. I am just saying that 

they are recognizing that it is counterproductive to force a country 

to do something, because the minute you turn your back, they will 

reverse it. So they are working differently to make countries understand and believe that this is important for them. 

Mr. WATT. My time has expired, but I would welcome Ms. Lazarus’ opinion on the same question briefly. I do not want to deprive 

the other members of an opportunity to speak. 

Mr. GREEN. I am going to ask that the summary be very brief 

because we have other members who have not been heard. 

Ms. LAZARUS. Well, I really do not have much to add. It would 

be difficult to speculate, from my position, on the impact of this report with governments. 

Mr. WATT. Okay. That is fine. 

I yield back. 

Mr. GREEN. Mr. Cleaver from Missouri is recognized for 5 minutes. 

Mr. CLEAVER. Thank you, Mr. Chairman. 

The one disappointment—well, there were a number of disappointments, but one disappointment that I have to mention in 

the ‘‘Doing Business 2008’’ is the absence of the World Bank’s supporting sustainable and renewable economic opportunities for developing nations. It is a little difficult for me to believe that a report, ‘‘Doing Business in 2008,’’ could exempt, leave out, forget one 

of the most significant issues of our time, which is the climate 

change. And I believe that we are on the cusp of a new industrial 

era as companies begin to move toward green products, and so it 

seems to me in sub-Saharan Africa, and particularly where the 

desert is moving about a half a mile southward a year, and where 

people have been subjected to colonialism and neocolonialism and 

now just a number of ‘‘isms,’’ that the World Bank is not trying to 

support sustainable and renewable economies, because what is 

going to happen is, you know, 25 years from now they will be 

where China is in starting a new coal-fired plant every week, producing 500 tons, each plant 500 tons, of sodium dioxide, which is 

going to push them further and further back economically, because 

by then we are going to have carbon taxes or cap and trade or 

whatever. 

Was there intentionality in leaving that out, or did you forget? 

Yes, sir. 

Mr. MILLER. The report focused on business regulations, and it 

has a certain set of indicators, and I think the Bank does regard 

those issues as something that is very important. 

For example, their antigas-flaring initiative has been something 

which has been very positive. But the ‘‘Doing Business’’ report 

looks at a certain snapshot. It acknowledges that there are many 

other issues which need to be incorporated, but you cannot put evVerDate 0ct 09 2002 14:19 Jan 18, 2008 Jkt 039905 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 K:\DOCS\39905.TXT HFIN PsN: TERRIE
30

erything into one report, and I think it is important to see this as 

one contribution of many. 

Mr. CLEAVER. Yes, except this is so significant now. I mean, 27 

nations of the EU have already moved toward revamping their entire economy based on climate change, based on the greening of the 

world, and so if we are not going to address this issue with Third 

World nations, and particularly sub-Saharan Africa, we are pushing them further and further behind. 

Ms.— 

Ms. OKONJO-IWEALA. Okonjo-Iweala. 

Mr. CLEAVER. I was going to say that. 

Ms. OKONJO-IWEALA. I think that the honorable gentleman certainly has a very important point. 

The climate change issue is crucial for sub-Saharan African countries, and I would like to say that, for this reason, you know, 

maybe the ‘‘Doing Business’’ report needs to look at how you can 

encompass that. But there is an arm of the World Bank that addresses the sustainable development and climate change issues, 

and believe me, we experience them, you know, in Nigeria, you 

know, in repeatedly trying to interject into the projects we are 

doing a consciousness for the environment. In fact, one of the 

things that—complaints that the Bank has encountered, you know, 

in many cases is, you know, how countries—you know, that there 

is quite a heavy presence on the environmental issues, and countries would like to have the ability to work better with the Bank 

to make sure these issues are integrated into what they are doing. 

So they are there, but that does not mean that, you know, this 

report cannot also look at that. The only thing is that, you know, 

then if there is a report that looks at regulation, you might ask 

yourself is this the best vehicle, or should they sharpen the vehicle 

that is already existing to take charge of these issues? Otherwise 

this report will get all out of proportion. 

Mr. CLEAVER. Thank you. 

Mr. Chairman, this is the best this committee has run since I 

have been here. 

Mr. GREEN. Thank you for your kind comments. 

We will now hear from the gentlelady from Wisconsin for approximately 5 minutes as the vote is imminent. I think we have 

time if you have questions. The Chair recognizes you. 

Ms. MOORE OF WISCONSIN. Well, thank you, Mr. Chairman. 

What a privilege. 

Let me just get right to one of the series of questions that I had, 

in the interest of time. I guess I want to be the devil’s advocate 

here, because many times, I believe, Mr. Bakvis, you have indicated that there is absolutely no research backing up the employing workers section. But we have seen it played out, at least here 

in America, that businesses continue to strive to pay no pensions, 

no health care, to jettison the minimum wage for workers, to try 

to provide part-time work so they do not have to pay unemployment compensation. We have seen no notices before layoffs, dismissals, because their interest is in that short-term capital, and while 

there might be some benefits, as you see it as organized labor, 

worker satisfaction, worker safety, the bottom line is that slavery 

31

worked in terms of providing people long-term wealth. Child labor 

works. 

So, while you have said that they have no research to demonstrate that it does not, what strong, empirical data do you have 

that it works? Particularly when people put these hedge funds together, and they are in pursuit of short-term capital, quite frankly, 

they want to exploit the workers. 

Mr. BAKVIS. Well, I think what is clear is that is not a long-term 

development strategy for any country to exploit workers, to prevent 

them from getting more education and being more skillful workers 

and, therefore, contributing to overall growth. The point I made 

earlier is that this is not a recipe for job creation even when you 

do not take account of the kinds of jobs that are being created. 

Ms. MOORE OF WISCONSIN. But it sounds good to say you are creating jobs while you are making your big boom money. 

I want to address a question to Dr. Okonjo-Iweala. I cannot say 

your name. 

Yes, ma’am. Ms. Lee. 

Ms. LEE. Can I add something quickly on that subject? 

Ms. MOORE OF WISCONSIN. Yes. 

Ms. LEE. It is an excellent question, and it is the difference between an individual company making short-term profit and achieving broader social goals. There is no question that companies want 

to have fewer labor market regulations and constraints, but the 

question is whether it is good for economic growth and for society 

and for the long-term picture, particularly in a developing country. 

I would say a couple of things. 

One is in terms of the minimum wage. What the research shows 

is that a higher minimum wage leads to lower turnover, higher 

productivity, and more investment in workers. In fact, there is an 

offsetting advantage to companies when there is a higher minimum 

wage. There can be the higher productivity that offsets the higher 

wage. 

It is also the case that if governments do not invest in education, 

health care and infrastructure, they do not have a healthy workforce, and they cannot have the productivity that they need over 

the long term. 

So I just want to say that there is a difference between the narrow interests of a single company and the social interests that the 

World Bank should be trying to promote. 

Thanks. 

Ms. MOORE OF WISCONSIN. Precisely. 

So that is why I am a little bit perplexed, Dr. Okonjo-Iweala, 

about your indicating that conditionality is not the rule of the day. 

It seems to me that this ‘‘Doing Business’’ report that the World 

Bank is putting out—I mean, I did not know about this report before this hearing. It is very distressing to me that they are using 

the proceeds and the resources of the World Bank to recruit people 

who literally are looking for opportunities to exploit people. 

As to conditionality, I am wondering if these heavily indebted 

countries, of which we are now trying to look for ways to relieve 

that debt, are in debt because of the conditionalities that we have 

imposed upon them. 

You can answer that, too, Ms. Lazarus, if you would like to. 

32

Ms. OKONJO-IWEALA. Let me start. Thank you very much for 

pointing this out. 

I would say that, first of all, on the report itself, this has never 

been presented to us. When I was in office for 3 years, as to, ‘‘Here 

are a set of conditions you have to obey,’’ no, that has never been 

the case, and that is the truth. The report was presented to us as 

a guide, you know, for us to compare ourselves to other countries 

to see where we are in terms of encouraging an environment in 

which both our domestic—this is not only for foreign investment, 

but what are we doing as a government that would encourage our 

own domestic sector to invest as well as those abroad. 

Then secondly, on the issue of the— 

Mr. GREEN. I am going to have to ask that you summarize very 

quickly. 

Ms. OKONJO-IWEALA. Okay. 

They have actually worked to help reduce debt. My country got 

some backing from them, and we got $10 billion written off, and 

I want to thank you and the U.S. Government for the role you 

played through your presence in the Bank for that. 

Thank you. 

Mr. GREEN. Thank you. 

The gentlelady, I think, has about 5 minutes before the vote, 4 

minutes. 

Let me just close with these comments. Dr. King reminded us 

that life is an inescapable network of mutuality tied to a single garment of destiny; that what impacts one directly impacts all indirectly. 

My suspicion is that, in this global economy, a slight modification 

or a tweaking of this premise may be necessary, because what impacts one directly now in some distant place can impact workers 

in this country directly. We are finding that capital seems to flow 

to the place where, to borrow a term that I am not exactly fond of, 

the market is flexible, and with that flexibility, we are finding that 

jobs are flowing along with that capital. 

I sincerely hope that the asset test that the World Bank is continuing to project will at some point indicate that less is not always 

better, and that workers are human beings; that not only are they 

to be protected within this country but also without this country, 

because, in the final analysis, the global economy is looking at a 

single workforce as opposed to multiple workforces in various 

places on the planet. 

I thank all of the witnesses for your comments. It has been very 

enlightening. 

Without objection, the record will remain open for 30 days for 

members to submit written questions to these witnesses and to 

place their responses in the record. 

The hearing is now adjourned. 

[Whereupon, at 11:51 a.m., the hearing was adjourned.] 

(33)

A P P E N D I X

October 3, 2007

34


39905.001
35


39905.002
36


39905.003
37


39905.004
38


39905.005
39


39905.006
40


39905.007
41


39905.008
42


39905.009
43


39905.010
44


39905.011
45


39905.012
46


39905.013
47


39905.014
48


39905.015
49


39905.016
50


39905.017
51


39905.018
52


39905.019
53


39905.020
54


39905.021
55


39905.022
56


39905.023
57


39905.024
58


39905.025
59


39905.026
60


39905.027
61


39905.028
62


39905.029
63


39905.030
64


39905.031
65


39905.032
66


39905.033
67


39905.034
68


39905.035
69


39905.036
70


39905.037
71


39905.038
72


39905.039
73


39905.040
74


39905.041
75


39905.042
76


39905.043
77


39905.044
78


39905.045
79


39905.046
80


39905.047
81


39905.048
82


39905.049
83


39905.050
84


39905.051
85


39905.052
86


39905.053
87


39905.054
88


39905.055
89


39905.056
90


39905.057
91


39905.058
92


39905.059
93


39905.060
94


39905.061
95


39905.062
96


39905.063
97


39905.064
98


39905.065
99


39905.066
100


39905.067
101


39905.068
102


39905.069
103


39905.070
104


39905.071
105


39905.072
106


39905.073
107


39905.074
108


39905.075
109


39905.076
110


39905.077
111


39905.078
112


39905.079
113


39905.080
114


39905.081
115


39905.082
116


39905.083
117


39905.084
118


39905.085
119


39905.086
120


39905.087
121


39905.088
122


39905.089