Policies, Politics, and Poor Economics

Some gentle criticism of Banerjee and Duflo on political economy. From Poor Economics, they say:

Political economy is the view (embraced, as we have seen, by a number of development scholars) that politics has primacy over economics: Institutions define and limit the scope of economic policy. 

there is no reason to believe, as the political economy view would have it, that politics always trumps policies 

Which is a bit of a straw man.  For example, Benno J. Ndulu and Stephen A. O’Connell write:

Growth depends on the interaction of opportunities with choices.

The central message of the Growth project is to confirm the critical importance of policy for long term growth in SSA.

and Daron Acemoglu and James A. Robinson

Main thesis is that growth is much more likely under inclusive institutions than extractive institutions. 

Though growth is much more likely under inclusive institutions, it is still possible under extractive institutions.

Their basic point is valid, but maybe just a little oversold. I'm not sure that Acemoglu and Robinson really think that there is nothing at all to be done to improve things in countries with weak institutions.

Finally, they make a point also made by Tony Blair which you don't otherwise tend to hear too much - focusing relentlessly on delivery of something can help to improve governance.

Good policies can also help break the vicious cycle of low expectations: If the government starts to deliver, people will start taking politics more seriously and put pressure on the government to deliver more, rather than opting out or voting unthinkingly for their coethnics or taking up arms against the government.  

The political constraints are real, and they make it difficult to find big solutions to big problems. But there is considerable slack to improve institutions and policy at the margin. Careful understanding of the motivations and the constraints of everyone (poor people, civil servants, taxpayers, elected politicians, and so on) can lead to policies and institutions that are better designed, and less likely to be perverted by corruption or dereliction of duty.

Evidence for the Tony Blair "leadership matters" theory of governance and development

Is State Capacity a Political Choice? Two recent papers from IDS colleagues suggest that the answer to this question is “yes”. The paper by Santhosh Mathew and Mick Moore (2011) examines the weak capacity of the State of Bihar in India over the 1990-2005 period, and a paper by soon to be IDS Fellow Stephen Peterson (2011) on Public Financial Management in Ethiopia over the 1996-2010 examines the drivers of successful financial reform. The authors argue, In both cases, that deliberate and calculated political choices drove weak capacity in Bihar and strong capacity in Ethiopia --- Lawrence Haddad

Bit of a snarky rant about Mike McGovern. Might have overdone it.

After all the cooing from Chris, MR, Bill, and Loomnie (yes I believe in Oxford commas) about McGovern's article on Collier, I had rather higher expectations than what seemed to me like a familiar basic misunderstanding of economics and academic hesitancy for policy recommendations.

What follows is thus my attempt at an ethnography of the world—imaginative, discursive, but also technical and action oriented—of Paul Collier and, by extension, of the broader genre of popular economics, from Freakonomics to Dead Aid.

What on earth is similar in any way between the economics of Paul Collier's cross-country regressions and sweeping claims, and the precisely identified but largely irrelevant trivia of Freakonomics?

My aim in this essay is not to demolish Collier’s important work, nor to call into question development economics or the use of statistics. Many others have done a better job of exploring the emergence and growing power of statistics in the “low sciences” than I could.5 But the rhetorical tics of Collier’s books deserve some attention.

Right - the books are popular science. They are not academic research.

Paul Collier, William Easterly, and Jeffrey Sachs can all be tenured professors and heads of research institutes, despite the fact that on many points, if one of them were definitively right, one or both of their colleagues would have to be wrong. If economics really were like a natural science, this would not be the case.

Really? There have never been theoretical disagreements in the natural sciences? Come on.

there is an inherent selection bias in work like Collier’s because the model is built from existing cases of warfare, and thus tends to render counterfactual cases invisible. Places like Guinea, Tanzania, Ghana, and Senegal consequently don’t come in for much discussion while Chad, Sudan, Afghanistan, CAR, and the DRC do.11

Umm, except the work is based on a global dataset including all of the countries that have conflict and that don't. The model predicts the countries where conflict occurs and where it doesn't. I'm pretty sure he even says this in the Bottom Billion.

These are, however, human beings. There are no true control groups, least of all in the context of war or the daily scramble for survival that characterizes the lives of the very poor.

Umm, not really true.

In Collier’s depiction, we end up with two groups only—young men with guns, and the elite older men who lead, organize, fund, and instrumentalize them. Women are virtually absent.

Its a model. Models simplify things. That is the point of a model.

Development economics as a discipline has been systematically unsuccessful in producing desired policy results, at least in the countries where the bottom billion reside. Moreover, those countries such as China and India that Collier hails as truly and rapidly developing have been characterized to a large extent by their rejection of the ministrations of such institutions as the World Bank.

Oh right, yeah, because poor nations have of course just blindly followed every World Bank diktat to the absolute letter right?

I wish Paul Collier had opened The Bottom Billion with a passage like “In this book, I will present some intriguing and counterintuitive correlations between poverty and a variety of social and political phenomena. I will add to these correlations some insights from thirty-five years of experience as a development economist that may begin to explain some of the correlations. Some day, we may have a good enough understanding of these causal links in specific countries to make useful policy interventions there.”

And in the meantime.... let's all just sit and watch?......? Thank god nobody did anything about the Rwanda genocide huh, we clearly didn't understand the precise causal mechanisms right?

Towards a Growth Strategy for Africa?

Long before all those randomised evaluations, my youthful enthusiasm for microfinance was killed by this:

"in the long-run, a growth strategy is the most cost effective way of dealing with poverty. This is true for two fundamental reasons: first, growth lifts many of the poor out of poverty; second, it generates the government revenues necessary for anti-poverty measures. A donor strategy that focuses exclusively on short-term poverty alleviation is a dead end, condemned to last indefinitely ... 

Food relief, micro-finance, improved wood-stoves, and reforestation are all examples of interventions aimed primarily at helping the poor to deal with their harsh environment.1 In nearly all cases these interventions correspond to a real need. In many cases they are effective in alleviating the worst effects of poverty. But by themselves they cannot lift the African continent out of poverty any more than food relief, micro-finance, and improved wood-stoves were responsible for lifting England, Japan, or Korea out of their poverty."

1. This is not to deny that these programs also have expected growth benefits. But it is probably a fair approximation to say that their primary effect is poverty alleviation.

Marcel Fafchamps, Francis Teal, and John Toye

(Of course, I've now come full circle and lean closer to the Banerjee-Duflo "we have no clue really how to do growth so lets focus on helping the poor deal with their harsh environment")

Political Economy is Hard

2 big political announcements in South Sudan this week (umm, this was written on 31 Oct 2024) illustrate how difficult it is as an outsider to even begin to understand local politics.

The respected Minister for Civil Service Reform Awut Deng Acuil has resigned for reasons that have not been made clear, and top civil servant Aggrey Tisa Sabuni has been appointed Economic Adviser to the President (from Undersecretary at the Ministry of Finance. Congratulations Tisa!). The implications of these two moves are probably significant, but there just isn't any English-language media analysis.

Doing "political economy analysis" in the UK simply means picking up almost any newspaper on a regular basis. What is a donor supposed to do when they can't do that?

So the implications of this:
(a) if we believe that understanding politics is important for effective policy design, and
(b) we generally aren't very good at understanding politics in developing countries

---> we should probably go for simple interventions with either very high benefit-cost ratios, or with low dependence on understanding local systems.

Sidenote: I did a bit of googling for some analysis of the last Nigerian budget. Well done to PWC for coming up with something. But really, the rest of the whole entire world, we don't think its worth bothering to figure out some way of funding someone to take a really hard serious look at the spending decisions of the government of the most populous country in Africa, and then get surprised when things blow up??

When rigorous evaluation is NOT necessary?

Sometimes simple descriptive survey data is basically fine to tell us what we need to know. But if you want to get published in a top economics journal, you need a really convincing statistical demonstration of causality (unlike, say, some top medical journals *cough* American Journal of Clinical Nutrition *cough*).

Case #1 - Oster & Thornton's very cool paper on menstruation and school attendance. They found two things
(a) - from a simple survey/school attendance records - girls in Nepal miss an average of 0.4 days per 180 day school year due to menstruation.

(b) - a randomized intervention providing sanitary products has little impact on reducing that 0.4 days.

Now - the interesting part here is part a - based on simple descriptive statistics - which tells us everything we need to know. Part b - the randomized intervention - is basically irrelevant once we already know that girls are not missing school due to menstruation

Case #2 - Friedman, Kremer, Miguel & Thornton - on education and attitudes to democracy and ethnicity. By offering randomized primary school scholarships they get a very clean identification of the causal impact of education on attitudes. Which is great. But we also knew that there is a ton of descriptive statistics on this already.

From this simple cross-tabulation of Afrobarometer data (the website is pretty cool by the way) - I'm guessing that primary school probably doesn't have a huge impact on support for democracy, because almost everyone supports it to begin with. 

Get any presents?

Everything you ever wanted to know about RCTs and Microfinance but were too afraid to ask

If you’re looking for a thorough, careful, and clear summary of the latest research, and one that gets to those important design questions, you can do no better than read this review. My own chapter 6 is not nearly as complete and precise. --- David Roodman

When Cash isn't best

We randomly gave cash and in-kind grants to male- and female-owned microenterprises in urban Ghana. Our findings cast doubt on the ability of capital alone to stimulate the growth of female microenterprises. First, while the average treatment effects of the in-kind grants are large and positive for both males and females, the gain in profits is almost zero for women with initial profits below the median, suggesting that capital alone is not enough to grow subsistence enterprises owned by women. Second, for women we strongly reject equality of the cash and in-kind grants; only in-kind grants lead to growth in business profits. The results for men also suggest a lower impact of cash, but differences between cash and in-kind grants are less robust. 

Marcel Fafchamps, David McKenzie, Simon Quinn, Christopher Woodruff

Development: People or Places?

The Guardian's economics leader writer (with a.... history qualification?) has a long rant about the de-industrialisation of Britain, claiming that the government has written off an entire region. Here's the thing - I sadly don't have time to reference all of this but;

1 - Globalisation is not a government policy - it is a thing that is happening.
2 - Government-led area-based regeneration generally doesn't work
3 - So - government policy should be, and largely is, about supporting individuals wherever they live. The best that we can do to respond to the shift in jobs from the North-East to the South-East, is ensure that wherever they are born, kids get a great education giving them an equal opportunity to compete, and making it easy to move to where jobs are (allowing more house-building in the South-East would help with this).

So - support people not places - and let people move. Or social protection and migration. Works in Britain. Sound anything like a recipe for global development?

Addendum: Here's the thing about Thatcher - when she said "let Liverpool decline," she probably basically had the economics about right, as with weakening the unions, and as the Nigerian government with fuel subsidies today. Just don't be such a **** about it yeah?

Lessons for London (from Bosnia)

a unique field experiment involving Muslim and Catholic students in Bosnia-Herzegovina suggests one avenue for building emerging states: The existence of integrated civic institutions such as schools, the study finds, helps foster greater collaboration across ethno-religious lines ... 

In the study, students from an integrated school were willing to make financial contributions to the public good that were as much as three times larger than the contributions made by students from segregated schools, among other effects. The results appear in a paper published this week in the journal Science, co-authored by MIT political scientist Fotini Christia. (MIT News)

My take on the London riots came down to schools. If religions and social classes don't mix when they are kids then they probably never will. Need any more evidence that faith schools are a terrible terrible idea?

Drafts

There are 37 half-written drafts, ideas, and links sitting in my blogger account. Can I publish them all in the next hour?

Ghanaian Hip-Hop

I can't get enough of this

via the excellent http://www.okayafrica.com/ and http://africasacountry.com/

The Economics of the Nigerian Fuel Subsidy

Are pretty simple. Fuel subsidies are a terrible way of transferring resources to the poor. Economists have rightly been calling for their removal for ages.

But maybe just maybe, rather than heeding the Economist magazine's call to "End them at once!", it might have been a good idea to think about the adjustment costs that might exist to an overnight doubling of petrol costs, and also to consider another way of transferring resources directly to the poor in which they might actually notice. Putting those savings straight back into the government coffers for some kind of nebulous infrastructure spending just doesn't cut it.

The Roman Catholic archbishop of Abuja and former head of the Christian Association of Nigeria observes that the subsidy is a tiny resource transfer to the Nigerian people, who otherwise receive little or nothing from the current political economy. It is, therefore, morally justified, “no matter what the World Bank says.” (via John Campbell)

Oh economics, and your Kaldor-Hicks efficiency...