Jim Kim’s $1.25 fig leaf

Lant Pritchett cogently points out that the WB insistence that we can “end extreme poverty” relies on a very arbitrary definition of extreme poverty, namely people living below $1.25 a day.

Lant notes that, “No person in history has ever celebrated crossing the dollar a day threshold—any more than any other income gain—there is no line.”

But then he kind of drops the ball by not really attempting to answer the key question he poses, which is,

“So why does the thousand dollar a day crowd try to project an imaginary (and extreme) poverty line into a world in which it doesn’t exist—even as a social construct?”

I’ve written about that question before, and I think the focus on $1.25/day is simply a CYA, keep the money flowing, pay no attention to the man behind the curtain, attempt by the World Bank to find something, anything that doesn’t make them look like a complete failure.

Because $1.25 a day is the only “line” they can draw where it looks like they are doing a good job wrt reducing extreme poverty.

Lant talks about $10 a day as a realistic “line”; hell let’s just consider $2.00 a day!

Here’s the data (from the WB, clic the pic for a more legible image):

slide-3-638-1 

As you can see, there could be no claim of 800 million people lifted out of extreme poverty if we used even this paltry (and equally artificial) $2.00 “line”. It would be only around 100 million, with well over 2 billion left behind.

This puts the lie to WB claims that great progress has been made and that they are on the verge of eliminating extreme poverty. 

So pay no attention to Jim Kim’s $1.25 fig leaf. The simple truth is that the WB has been a massive failure with respect to eliminating extreme poverty.

 

 

Kicking away the ladder

The World Bank recently announced that it would no longer provide funding for coal plants, except under extraordinary circumstances (basically for very poor countries with no other options).  This comes after the announcement last month by the US government that it would no longer be funding coal plants internationally.  I’m surprised first that the WB would time their decision so close to the Obama administration’s.  That should certainly (and correctly) provide more evidence for the argument that the US essentially runs the bank.

I don’t have any problem if the bank no longer wants to fund coal plants, but what concerns me is that the reason they give.  They will instead finance “will focus on scaling up cleaner natural gas and hydroelectric dams in order to deliver electricity to hundreds of millions of people around the world who still don’t have it.”  I’m all for reducing carbon emissions and helping the environment, but I wonder if the developing countries see this in the same light.

Amazingly, the new World Bank president, Jim Yong Kim, stated that the “world’s top priority must be to get finance flowing and get prices right on all aspects of energy costs to support low-carbon growth.”  I’m surprised that as WB president that is what he thinks the world’s “top priority” is.

He does back off some though when discussing the possibility of funding a coal plant in Kosovo: “Climate change and the coal issue is one thing,” he said in April, “but the humanitarian issue is another, and we cannot turn our backs on the people of Kosovo who face freezing to death if we don’t move in.”

 

The Business of Doing Business

While Tyler and others have supported the continuation of the World Bank’s “Ease of Doing Business” rankings, I think that we suffer from ranking fatigue. We have multiple rankings of business friendliness, multiple rankings of “economic freedom”, and the dreaded ICRG indices among many others.

There are many problems with these rankings.

First off, in a “confusing the map for the territory” / “cargo cult science” manner, countries are actually targeting the rankings! My grad student from Cote d’ Ivoire reports that his country is considering such a policy. In a very nice essay, Ricardo Hausmann reports that, “Many countries – including Colombia, Liberia, Mexico, and Saudi Arabia – have at some point made improvement in the Doing Business ranking, or that of the World Economic Forum’s Global Competitiveness Report, a policy goal.”

Of course, since we have no notion of causality from the index (really any of the indices) to desirable real world outcomes, targeting the index is likely to work about as well as building an airstrip and waiting for the cargo to arrive.

Secondly, lazy researchers around the world are dumping these indices into the right hand side of regression equations and clogging the research pipeline with bad papers. These indices are not exogenous to outcomes. Even the selection of components is endogenous to the composers’ beliefs about outcomes.

Thirdly, as Ricardo also ably points out, the indices generally make no distinction between de facto and de jure. Suppose the legal, de jure burden of opening a business is onerous, but a $20 bribe to the mayor removes all obstacles. What is the actual ease of doing business?

And, isn’t it possible to be too easy to do business? Consider Ricardo’s example of a country where it’s very easy to comply with very bad regulations. Is that good?

Rich country economists generally fail to appreciate how important the World Bank is for policy in poor countries. WB pronouncements are taken way too seriously in the developing world, where there aren’t armies of professionally skeptical, social media proficient debunkers and snarkers.

I am very uncomfortable with the WB putting its inprimatur on an arbitrary index. Sure it’s great to poke China with their bad ranking, but wouldn’t virtually every developing country in the world like to BE China?

The World Bank: Unmatched at “Delivering” BS

People this is almost self parody by Jim Kim and his bank. Filling the investment gap didn’t work, getting the prices right didn’t work, increasing school enrollment rates didn’t work, fighting corruption didn’t work, so now the Bank wants to practice “the science of delivery”.

Deep in the West Village, in an obscure hipster coffee shop, Bill Easterly’s head must be exploding.

Deliverology seems to be a fancy way of saying “just do it”. Here’s the Head Deliverologist, Sir Michael Barber:

“It is a very simple process, but if you go through things rigorously you will make progress. What are the priorities for the World Bank Group as a whole? Kim has been clear: ending poverty and achieving shared prosperity.  What does that mean in a particular country? . . . At the moment there is insufficient connection between the World Bank headquarters and aspirations and what happens country by country. That is the delivery chain. How do you need to change the delivery chain — the line of sight between the front line and here [Washington]? Kim is aware of that as a major issue.” 

Can I get an LOL? What a steaming pile of jibberish.

And what exactly is Jim Kim doing to enact change at the Bank?

Kim also has tried to tame the bureaucracy by first creating more of it. He’s set up the Office of Change Management, created a new vice president’s post to run it and appointed 30-year bank veteran Pamela Cox to the job. She is now coordinating the work of perhaps a dozen task forces.

Ah yes, the office of change management. Good move. Nothing creates change in a hidebound bureaucracy like more bureaucracy.

The plain truth is that the World Bank has been a colossal failure when it comes to development or even poverty alleviation (Grandpa Deng’s market reforms in China have done more for poverty reduction than all the WB programs over the same time period combined).

Embracing pseudo-scientific mumbo-jumbo will neither change or hide that fact.

Cargo Cults: not just in the South Pacific?

Smithsonian magazine just ran a piece on a cargo cult in Vanatu

These cults started during WWII as the US air-dropped material all over the South Pacific. Well after the war ended, Islanders would create “runways” and build wooden planes and conduct ceremonies to induce the air-dropped riches to re-appear.

Image

Daniel Ellerman claims that the World Bank has systematically encouraged developing countries to practice a similar cargo cult religion, by encouraging them to adopt the outer trappings of rich countries and assuring them that wealth would follow.

Get the institutions right, increase your school enrollments, get a stock market going, privatize, get the prices right, create a competition authority, enforce intellectual property rights.

In practice, are these injunctions (which by and large poor countries have followed without the promised success) so different from the hollow planes and ceremonies of the South Pacific culters?

I don’t think they are.

Isn’t the WB guilty of practicing cargo cult science?

I think they are.

What do you think?