Activism and wonkery are the yin and yang

The first element of achieving change is a dissatisfied public that is able to speak up. In places like China, freedom of speech is circumscribed and it is not that easy to express dissatisfaction with the way things are going. In India also, freedom of speech is under attack, and particularly when it comes to our problems of crony capitalism, the threats that we face are dire. But in some other fields -- e.g. the protests against the events in Delhi -- there are no real barriers to speaking out.

When does democratic outrage genuinely change the republic?

Everyone is against rape. Shouldn't our outrage about rape immediately yield a world where women are safe? Unfortunately, the safety of women comes from the functioning of the complex machinery of laws, police, lawyers, judges, courts. To fix the problem, we have to modify this machinery.

The workings of government are a vast clanking machinery with many moving parts. When you see something going wrong in the outcomes, it isn't always easy to diagnose the problems of objectives, accountability, and organisation structure that are inducing the problem, and envisioning the change that is required in order to solve the problem. The protester is saying I'm mad because the car does not work. But it takes a skilled engineer to understand why the car does not work and how to fix it.

Sometimes, I see activists who are revulsed at the workings of the dark satanic mills; who emphasise the protesting and downplay the fixing. There is sometimes a mix of frustration and reverse snobbery in play. I think that at its best, democratic society needs both: the activism (that puts a searchlight on things going wrong in society) and the wonkery (that actually gets things done). I respect the work of activists: What is in the searchlight of the public debate is where we have a chance to break free from the tyranny of the status quo. But there is no escape from getting engaged in the plumbing, from figuring out how it works, and coming up with fully articulated blueprints for change.

In a blog post about Occupy Wall Street, Paul Krugman says:

It would probably be helpful if protesters could agree on at least a few main policy changes they would like to see enacted. But we shouldn't make too much of the lack of specifics. It's clear what kinds of things the Occupy Wall Street demonstrators want, and it's really the job of policy intellectuals and politicians to fill in the details.

This emphasises a two-part process: a democratic process throws up an opportunity for change, after which the quality of the change that is obtained depends on the capabilities of the policy intellectuals and politicians.

While voice is a precondition, it is not enough. The Anna Hazare movement set out to conquer corruption and achieved nothing. A great deal of energy was expended, and it generated plenty of television footage, but it came to nought.

A related example: a while ago, there was a public outcry about insecticides in soft drinks. I think the activists got it wrong : the really important target should be the low quality of drinking water, and not corporations peddling soft drinks. We did not have the policy intellectuals and politicians who could think about reforming water and sanitation, who could harness the outrage and get a meaningful reform program going. Hence, that episode has failed to alleviate the insecticide in India's drinking water.

Example: London's Great Smog of 1952

The Great Smog of China by Clarissa Sebag-Montefiore in the New York Times tells a great story. In 1952, London was hit by a terrible bout of air pollution, termed `The Great Smog of 1952'. 4000 people died. As she says: Most Londoners who lived through the Great Smog thought it was simply an especially foggy period until the undertakers ran out of coffins and the florists sold out of funeral flowers. This led to a `Clean Air Act' of 1956.

Look at the Clean Air Act of 1956. It takes a great deal of thinking to go from outrage at 4000 dead, to figuring out how to draft this. There are hundreds of decisions in the 15,389 words of the law, all of which have complex implications in terms of public administration, incentives for private households and firms, and so on. It isn't about setting up a death penalty for emitting smoke: it is about finding the smallest possible intervention that will get the job done, and one that is feasible given the implementation constraints of government.

Example: India and airports

Circa 2002, the airports were a disgrace. There was a public outcry. The government reacted. Today Bombay and Delhi have decent airports. Why did this work so well?

1. The outcome - a high quality airport - is visible and measurable and monitorable. In other fields -- e.g. criminal justice system -- it is much harder to know where you stand, which reduces accountability.
2. MPs and ministers use the airport. In contrast, with the criminal justice system, they have opted out of public systems. In a problem like corruption, many might actually want the status quo to continue.
3. Airports are relatively cheap and easy: All you had to do was to offend the employees of AAI. The government wrote contracts with GMR/GVK, and the passengers are footing the bill in terms of paying user charges every time they fly. There was no tradeoff between pushing airports and pushing welfare programs.

Under these circumstances it was possible for the political leadership to achieve airports, and make some in the elite (and themselves) happy, at no cost to their conventional focus on welfare programs and at no cost to anyone other than a few unhappy employees of AAI (who did not even lose their jobs).

There was the difficult problem of building regulatory capacity at AERA. The leadership in AERA of the early years did things better than most infrastructure or financial regulation in some respects. My personal experiences with AERA in recent months have left me enormously impressed at the capabilities in the organisation. But at the same time, the problem that they face is a relatively simple one. To use Pratap Bhanu Mehta's delicious phrase, building airports in Bombay and Delhi was not a wicked problem.

Example: London's Big Stink of 1858

Going much further back into time, London went through the `Big Stink of 1858', where the Thames was clogged with human waste. In the summer of 1858, within 18 days, Parliament drafted and enacted legislation that, in time, made the Thames one of the cleanest rivers of the world.

That's a remarkable story. As an illustration of the firepower amongst the policy intellectuals: they had Michael Faraday working on the problem! We don't have a Michael Faraday in our midst; we have yet to match the capabilities of the UK circa 1858.

Some areas are harder than others

Drawing on work by Lant Pritchett and Michael Woolcock, we should apply three tests to understand when doing something in government is hard: (a) Does a public service have a large number of transactions? (b) Do front line workers have discretion? (c) Are the stakes high?

When these three problems come together, building sound public systems is extremely hard. As an example of this thinking, financial regulation is hard while monetary policy is easy. By these three tests, building a criminal justice system is truly hard.

How do good countries grapple with the problem of constructing a criminal justice system? As an example, the John Jay College of Criminal Justice, at the City University of New York, works in this field. It has over 1000 academics working on this one field! In this one field, they have placed more than 2x the number of academics across all fields at IIT Bombay.

There are thus two reasons why making progress on the criminal justice system is hard. Unlike the airports example, these are difficult areas: Large number of transactions, front line civil servants have discretion, and the stakes are high. And unlike the partial success of the equity market reforms, we in India have not laid the foundations in terms of analysis of problems, consensus-building, and construction of key individuals that can play leadership roles in the change.

Example: India's stock market reforms

Financial regulation is a wickedly hard problem. There are a large number of transactions, front-line workers have discretion, and the stakes are sky-high. If all regulation and supervision were done in government, it would be truly hard to make things work, particularly in India.

Hence, there is a neat two-part separation of the work. The exchange is a unique private body that does regulation and supervision. In the bad old days, the exchanges in Bombay and Calcutta were riven with conflicts of interest and did not do a good job of supervision. This gave us stock market crises in 1992 and 2001, which had large-scale consequences for the country. Calcutta Stock Exchange was a small player in 2001, but the problems there were big enough to matter to everyone.

There was an outcry. This led to a dramatic program for change. A new governance model was put into place at NSE and BSE, where there is a three-way separation between shareholders, managers and trading members. The managers, who perform quasi-State functions in supervision, have no shareholding nor stock options. It worked.

Why did it work? It is important to look back into time. Right from the 1980s, ideas for reform had been tossed about. The G. S. Patel Committee, in 1984, had many of the key ideas of the following 20 years in its report. A little noticed feature of the G. S. Patel Committee report is in the preface, where the research support of a R. H. Patil from IDBI is acknowledged. Many of the names that figure in the story of the Indian stock market in the following 20 years were part of the G. S. Patel Committee; as an example R. H. Patil was the founding CEO of NSE.

As a consequence, in 1992, when the crisis came, there were people and ideas in the system that were ready to respond. The knowledge and consensus that was available then carried us half the way.

Through the 1990s, there was a process of analysis and thinking about policy alternatives. There was a view on how change should proceed, and the conservatives were able to stall it. In the listless years from 1996 to 2001, a lot of hard work got done on fully thinking through the next batch of reforms. When, in 2001, the next crisis came, the Ministry of Finance was able to access well-developed ideas and people that drove the next batch of change.

From the viewpoint of politicians, all change is risky. Fear of the unknown feeds into inertia: Why suffer a political cost for sure, offending the status quo, for a reform that might not work? We improve the probability of a reform being attempted when two properties hold: (a) We have a fully articulated blueprint for change, which is backed by high quality thinking and evidence, and (b) People who can staff the reform effort are available.

From 1980 to 2000, the committee process created a working consensus on what was needed to be done, took new ideas from heretical to mainstream, and built individuals who went on to play leadership roles in achieving the change.

That's the good part. And yet, in some ways, this has started turning into a failure story of sorts. After 2001, when the big changes fell into place, the policy community stopped focusing on the stock market. It was felt this is a solved problem. There was a lack of institutional memory about what had gone wrong in 1992 and 2001. The three-way separation between shareholding, management and securities firms was not remembered, and has been undone. We are going back to dangerous times.

Why has the wonkery been so weak in India?

Why are the policy intellectuals and politicians of India so weak on the questions that matter for India's future? There are two elements of an explanation. The first is money.

In India, we spend roughly 1% of GDP on research in four fields : defence, nuclear engineering, the space program and agriculture. But all these fields are of second order importance when compared with the main story of India's future, which is at the intersection of politics, economics, law, ethics and philosophy. In these areas, we are spending 0.001% of GDP. This ratio of 1000:1 of expenditure between these areas is inappropriate. As a consequence, we are failing to grow the intellectuals and university departments in these fields.

This matters for the wonkery. It also matters for the activism. If we could do better on the education that millions of people get in college, we could have a much more thinking citizenry which could be much more effective in mass political action. Our failures on universities are limiting the feedback loop through which growth should feed higher education and should feed back into better politics.

The second problem is development economics. What little is there of the social sciences and humanities in India matters less than it should, owing to the development economics worldview. Everyone outraged about violence in India should ask why the policy wonks of India are so interested in health, education and welfare programs, and so disengaged with the most basic public good of all, law and order. Why have economists thought the private goods of primary health centres are more important than the public goods of policing and courts?

To some extent, the two problems are related. India has offered little by way of career paths in studying India, and getting engaged in the project of building the republic. The development economics establishment, in contrast, offers a full career path: with Western aid agencies, NGOs, the World Bank, academic development economics, and much nourishment from a socialist government. This gives strong incentives for people to focus on poverty, inequality and welfare programs. This has enfeebled the wonks, for the big questions that India now faces are not poverty, inequality or welfare programs.

Conclusion

As Sunil Khilnani says, the most important task for each of us in India is to get involved in politics, in the sense of taking interest in how the State functions and undertaking actions small and large that will prod it towards better functioning. We have traditionally felt that the greatest threat that we face is that of an apathetic citizenry.

It now appears that we have a more active and participatory demos and this is a great thing. We are seeing profound changes in the world of activism. New technologies are reducing the cost of mobilisation. Millions of people have joined the conversation. We find that they care about core public goods and corruption. The voice of the people is negating the socialist claim of all these years, that what people care most about is garibi hatao and inequality. These are great developments.

But while this is a necessary element for a well functioning republic, it is not sufficient. The surge of policy involvement by citizenry is not getting translated into action on a commensurate scale. The constraint is the weakness of the elite. We lack the policy intellectuals and politicians who are able to pursue wicked problems, diagnose what is going wrong, and articulate a tangible program for change.

The policy intellectuals and politicians are missing in action on the questions that matter. The bulk of the existing policy establishment is focused on poverty, inequality and welfare programs. As Shekhar Gupta has emphasised, the ruling ideology among most politicians is ossified in the thought process of the 1970s. India has moved on, but our political ideologies haven't.

Intellectuals are the yeast that make a society rise. Our under-development in intellectual capacity limits our ability to translate a moment -- like the anti corruption movement -- into change. In addition, there is a danger that an irate public that is weak on political philosophy will settle for cartoonish solutions like Lok Pal or Naxalism or a death penalty for rape.

The wonkery is intellectually bankrupt today. The policy intellectuals and politicians who are able to reshape themselves to fit the needs of India from 2013 to 2038 will matter. A greater conversation between the two cultures will also matter greatly, with each cross-fertilising the other. Activism and wonkery are the yin and yang that must work together to build the republic.

Acknowledgements

This post grew out of email discussions with Joshua Felman.

Law and order: How to go from outrage to action

There is fresh rage on the bad state of law and order in India today. That rage is entirely appropriate.

My father was born in 1926 and experienced British rule. One of the high points of his life was participation in the freedom movement. He used to say to me with great regret that under British rule, the Shiv Sena would have never arisen. What has happened in India is a disgrace.

The interesting and important question is: How can the problems be solved?

Moral outrage does not lend itself to good policy analysis. As with the problem of corruption, the problem of law and order requires sophisticated thinking. Just as the young people who got enamoured by Baba Ramdev and Baba Hazare got nothing done in terms of combating corruption, we should worry about what comes next on law and order. Anger and outrage, coupled with low knowledge of political science and public economics, is a sure path to poor policy analysis. What matters is shifting from anger to analysis to action.

As an example, if laws are modified to prescribe draconian penalties for rape, then rapists are more likely to kill the victim. What is required is better quality implementation of the existing law.

What would it take to make the police and courts work better? The three ingredients that are required are incentives for politicians, resources and feedback loops.

Incentives for politicans

The first issue is incentives for politicians. Politicians will deliver law and order if they think that this is what will get them re-elected. From Indira Gandhi's time onwards, politicians in India have felt that the way to win elections was to focus on welfare programs for the poor. As long as this is the case, the narrative that will dominate the Indian State is that of poverty, inequality, and welfare programs.

Economists distinguish between public goods and private goods. Public goods are defined to be those that are `non-rival' (your consumption of safety does not reduce my consumption of safety) and `non-excludable' (it is impossible to exclude a new born child from the environment of safety). The legitimate purpose of the State is to pursue public goods. All citizens gain from public goods, and all voters should respond to these benefits. The first and most important public good is safety, which requires building the army, the police and the courts.

The Indian State has, instead, gone off on the adventure of building welfare programs: of government giving private goods to marginal voters. The first priority of the Indian State is the themes of poverty, inequality and welfare programs. Politicians need to learn that this hurts. Sheila Dixit should realise that her top priority in Delhi is law and order.

There are undoubtedly problems in the leadership and management structure of the police. I believe that once politicians want law and order, this will drive them to recruit the leadership that is required, and undertake structural reforms, so as to get results. As an example, look at how the politicians broke with PWD and setup NHAI, or setup Delhi Metro. The question that matters is : Do politicians want law and order? From the 1960s onwards, the minds of politicians have been addled by welfare programs.

If Rs.X is spent as a gift on a few marginal voters, it makes a certain difference to winning elections. If that same money is spent on public goods -- e.g. better safety for all -- it should make a bigger difference to winning elections since more voters gain. The question is: Do politicans see this and act in response?

Resources

The second issue is resources. India needs much more staffing in the police and the courts. This includes both technical staff (e.g. constables and judges) and support staff (e.g. clerical staff, operators of computer systems, etc).

Courts and police stations need to be high quality workplaces with air conditioning, computer systems, modern office equipment, canteens, web interfaces to the citizenry, lighting, toilets, and such like.

Policemen need to live in high quality housing. If policemen live in high quality housing and work in high quality offices, they will be more civilised both in terms of the quality of intake and in terms of how their behaviour evolves on the job. This will cost a lot of money. The State in India has very little money. To improve the police and courts will require cutting back on welfare programs.

As Robert Kaplan says, underdevelopment is where the police are more dangerous than the criminals. One element of this is the biases in recruitment. As an example, the police in Bombay tends to be male Maharashtraian and relatively low skill. This needs to evolve into a more sophisticated workforce, with gender, ethnic and religious diversity that reflects the cosmopolitan structure of the populace.

At present, in India, spending on police and courts (which are core public goods) is classified as `non-plan expenditure' and is treated as a bad thing. Spending on private goods like welfare programs is classified as `plan expenditure' and grows lavishly year after year. In the UPA period, plan expenditure has gone up by four times in 10 years. These priorities need to be reversed.

The other critical resource, other than money, is top management time. The simple question that I would ask Sheila Dixit or Manmohan Singh is: What fraction of your time do you devote to public goods? My fear is that the bulk of their time is spent worrying about welfare programs. When the top management is not focused on law and order, safety will degrade.

The lack of safety is a regressive tax: it hits the poor more than the rich. The rich are able to insulate themselves at a lower cost. When a policeman faces me on the street, he immediately speaks to me in a certain way once he sees that I come from the elite. Poor people are mistreated by both criminals and the police. Through this, the number of votes that should be affected by improved law and order is large. The people who care deeply about the poor, and would like to focus the Indian State upon problems of inequality and poverty, should ponder the consequences of what they have wrought.

Feedback loops

In order to think about law and order, we need measurement. I used to think that the murder rate is high quality data. Over recent years, I have come to believe that in many parts of India, not all murder is reported to the police. In this case, we are at ground zero about the state of crime: we know nothing about how much crime is taking place out there.

What you measure is what you can manage. I had recently written a blog post about health, and the same issues apply here. Our first priority should be to setup crime victimisation surveys [link].

The most important outcome that I think matters is a question asked in a household survey of parents: Are you comfortable when your teenage daughter is out alone at 11 PM? That's it. That's the end goal. Civilisation is where parents are comfortable when their teenage daughters are out alone at 11 PM.

Once the CPI is measured, and measured well, RBI can be held accountable for delivering low and stable inflation. In similar fashion, the Bombay police can be held accountable once we get a graph updated every month about the crime rate in Bombay, supplemented by quarterly data from crime victimisation surveys. This would generate feedback loops whereby we can judge whether Sheila Dixit has improved law and order in Delhi on her watch.

When Sheila Dixit gets anxious about the lack of progress on publicly visible statistics about the state of law and order in Delhi, she will have the incentives to recruit high quality leadership for the Delhi police, and to resource them adequately, to get things done.

Why are these good things not getting done?

This is the hardest question. I have three opinions about what has been going wrong.

The first lies in the incentives of politicans. Why do politicians pursue private goods for a few when they can instead spend money on doing public goods that benefit all? Why does democracy not push Indian politicans towards the centre? I think one element of the answer lies in first-past-the-post elections.

Today in India, winning elections does not require pleasing all voters; it only requires a base of 30% of the voters. This gives politicans a greater incentive to dole out goodies for the 30% and not work on public goods that please all voters. This reduces the prioritisation for public goods.

The second issue is that of urban governance. The defining challenge for India today is to make the cities work. But our constitutional structure is confused on the location of cities versus states. The feedback loop from the voters in Bombay do not drive improvements in governance in Bombay.
Delhi is unique in this respect in that it's the first city of India where the basic structure is correct. Sheila Dixit is the Mayor of Delhi. She is held accountable for making voters in Delhi happy. Voters in Delhi bother to vote in the Delhi elections. Hence, I am far more optimistic about the future of Delhi than I am with Bombay.

The third issue lies in the intelligensia. Western NGOs, aid agencies and the World Bank are focused on inequality, poverty and welfare programs. This generates incentives for individuals to focus on inequality, poverty and welfare programs, owing to the funding stream and career paths associated with western NGOs, aid agencies and the World Bank. These large funding sources and career paths have generated a distorted perspective in the Indian intelligensia. We need more minds in India who think in terms of first principles economics and political science, without the distortions that come from the worldview of development economics.

We blame politicians in India for being focused on welfare programs. But to some extent, they are influenced by the intelligensia. It is the job of the intelligensia to hold their feet in the fire, and hold politicians accountable for public goods. The politicians were too happy when, from the 1960s, the intellecturals proposed welfare programs, poverty action, socialism, etc.

Acknowledgments

I am grateful to Pradnya and Nandu Saravade who helped me think about all this.

Egregious Indian protectionism against trade in services

For many decades, India was one of the most protectionist countries in the world. This did great damage to growth and knowledge in India. Tariffs dropped from ridiculous levels to ridiculous levels in the early 1990s and then got stuck there. Yashwant Sinha, as Finance Minister, initiated a remarkable program of cutting the peak rate by five percentage points every year. This worked very well: It steadily got rates down and also gave a roadmap to the domestic industry about what would happen next.

In January 2004, Jaswant Singh as Finance Minister announced further cuts to customs duties even though it was not part of the budget. This was criticised in the press as being a `populist' move. I thought it was a big day in India's history: when a Finance Minister feels that trade liberalisation is so important that it cannot wait  for February 2005 (since Feb 2004 was to be a vote on account), and when he gets criticised on the grounds that this is populist.

While there is more ground to cover on removing barriers to trade in goods (e.g. barriers to trade in agricultural products), by and large, India is doing well on this. The old instinctive protectionism has subsided. Two big areas for work remain. First, all customs duty rates are not yet at zero. And, we have one big gap: the lack of a proper GST, through which we would get to residence-based taxation. The GST on imports would be charged on imports, giving parity between a factory just inside the border and one just outside. And, the zero-rating of exports would mean that the GST burden suffered by a non-resident is refunded to him. The fundamental law of tax policy in this age of globalisation is: You do not tax non-residents.

Does this mean that we're in good shape on trade liberalisation? No. The big gaping problem is trade in services. Most of world GDP and India's GDP today is services. Even if we do full free trade on agricultural and non-agricultural goods, that only covers 40% of GDP. The real story of international trade is now in trade in services.

With trade in services, old-style Indian protectionism reigns. For the first time now, we have some hard data on this. The World Bank has released a `Services Trade Restrictions Database' which measures protectionism in services across the world. To get the story about what was done, read the voxEU column by Aaditya Mattoo, Ingo Borchert and Batshur Gootliz. Here's the key picture:

The graph puts per capita GDP (in log scale) on the x axis and the measure of barriers to services trade on the y axis. Values of 0 imply perfectly open and values of 100 imply perfectly closed. The regression line shows us that by and large, when countries get richer, they reduce restrictions. The score goes down from roughly 40 (on average) for the poorest countries to roughly 20 (on average) for the richest ones.

India sticks out as an outlier, with a score of above 65.7. We are more restrictive than Iran. Only Ethiopia is more restrictive than India, among all the countries of the whole world. Here is some more detail about what is going wrong:

This shows us the variation of India's restrictions by sub-sectors and by modes. While there is some variation, it is all appallingly bad. If we only got to the conditional mean for the Indian level of per capita GDP, we'd have to get the score from 67.5 to roughly 37.5, which is a big decline. And there is no reason to stop there; we need to eliminate protectionism far beyond what's seen in the conditional mean.

To be open to trade in today's world is to be open to trade in services, given the preponderant share of services in GDP. What we are doing is profoundly wrong. We always had an instinctive sense that India does worse on trade in services when compared with trade in goods. The World Bank has made a great contribution by building a comparable database across countries, to give us a concrete sense of where we are and how bad things are.

If we want to harness gains from trade in goods, we have to open up to trade in services also. Finance, transportation, and other services are the vital glue that makes trade in goods possible. Our mistakes on services trade liberalisation are holding back our gains from trade in goods also.

You may like to also see older blog posts: Globalisation: the glass is half empty, 28 January 2011, and Getting to a liberal trade regime, 15 December 2009.

Why Ngozi Okonjo-Iweala should be the next head of the World Bank

by Lant Pritchett.

The US had a chance to lead. It abdicated that chance, to play domestic politics and put forward a US nominee who is manifestly less qualified to be head of the World Bank, than the alternative candidate nominated by African countries: Ngozi Okonjo-Iweala.

The World Bank is a full-service development institution that provides loans, grants and development advice to promote development, which is the transformation of countries towards prosperous economies that support broad based improvements in material well-being, democratic polities that respect citizen rights and respond to citizen demands, and capable administrations that allow governments to carry out their core functions: law and order, education, macro-economic management, health, infrastructure, regulation, security.

Therefore an ideal candidate should have:

• Some experience in government and the process of policy-making (as the World Bank's clients are all governments);
• Some acquaintance with economic policy and policy making: including the tough choices like allocation of resources across uses;
• Some knowledge of finance (it is, after all, a bank that makes income from lending money);
• Perhaps some management experience in a multilateral organization;
• Exposure to the breadth of development issues.

Experience in Government.

Ngozi has been the Minister of Finance of Nigeria, twice. If one had to name a tough job in the world, I think that would be it. She did it first from 2003 to 2006 and by all accounts handled a very tough situation -- including tackling entrenched corruption -- in an admirable way. Jim (to be fair we'll use first names for both) has no experience in government. He has been engaged in development as an academic and through NGOs.
Advantage Ngozi.

Acquaintance with Economic Policy.

Ngozi has had training in economic development from MIT. Jim has been trained as doctor and anthropologist. Ngozi has been a Minister of Finance making budget allocations and dealt with the entire array of economic policies to promote growth and prosperity. Jim has worked exclusively on health issues (rightly, as he is a physician) and never been in position of responsibility about economic policy. Health was just one of many sectors for which Ngozi had to allocate budgets and promote performance.
Advantage Ngozi.

Knowledge of Finance.

Ngozi has been a Minister of Finance as such, among other things, she led the Paris Club negotiations that led to billions of dollars debt relief for Nigeria. Jim has no demonstrable experience in finance, banking, the private sector.
Advantage Ngozi.

Management Experience.

From 2007 to 2011 Ngozi was a Managing Director of the World Bank. She therefore has in-depth experience running a large and complex multi-lateral organization. Jim was director of WHO's HIV/AIDS department, from 2004 to 2006, and so has some experience in a multilateral organization. Jim has also, for two years, been president of an American university. But while Ngozi was near the top of a large organization dealing with all development issues Jim was responsible for one disease in an organization that does only health.
Advantage Ngozi.

Breadth of exposure.

There is a massive difference between doing development policy, and doing charity work to mitigate the consequences of the lack of development. Ngozi has done development policy in many settings and in many positions both in Nigeria and within the World Bank. Jim deserves praise for having devoted his time, attention and expertise in medicine to improve the health care for people in the developing world -- which is certainly one component of development -- but his development experience is limited.
Advantage Ngozi.

Passport.

Jim holds an American passport. Ngozi is a Nigerian woman.
Advantage Jim.
In this day and age, is that still really all it takes?

Wanted: A genuine FSSA

See the editorials in Indian Express and Financial Express, Jayanth Varma, and the background to this.

What to do with the World Bank, by Percy Mistry

It has long been clear that the World Bank is an institution lacking a clear business model. The present situation offers an opportunity for achieving fundamental change. Percy, who is one of the people who understands the World Bank the best, has ideas about what should best be done [pdf].

IMF and World Bank : Where do India's interests lie?

A lot of people have been thinking about the evolution of the IMF and the World Bank. I wrote an article Fund and Bank: Where do India's interests lie? in Business Standard yesterday offering an Indian perspective on the question.

An Indian perspective on the IMF

Many in India view the Fund as a potential source of assistance in the event of a future currency crisis, as was the case in 1981 and 1991. This thought process leads to concerns about a better relationship with the Fund in a future crisis scenario.

I think that India's globalisation has gone so far that it will not be easy to mount a 'rescue' in the event of a currency crisis. In four years time, we will be a $1 trillion GDP with much more than $1 trillion moving in and out of the country every year. The IMF lacks the resources to cope with a currency crisis for a country of this size.

More importantly, the tools are at hand for largely eliminating the risk of a currency crisis. If we embrace a policy framework comprising a floating exchange rate, convertibility, and a narrow inflation-targeting central bank, then the contest between currency speculators and central banks (for which the IMF was designed) does not arise. It is better for India to walk down this path, where there will be no need for an IMF program in the future. Once we start thinking like a mature market economy, we lose interest in issues of who controls the IMF.

An Indian perspective on the World Bank

As far as the World Bank is concerned, there is a consensus on two issues. Gross capital formation in India is slightly below $200 billion a year. In this, $1 to $3 billion from the World Bank is just not a big deal, even after the problem of India's current account surplus is firmly out of the way. More generally, the market-oriented economics that has transformed India's growth opportunities and thus poverty reduction is now sustained by a domestic process of policy reform, where the World Bank is not an actor. The core business of Indian GDP growth, leading to poverty alleviation, seems to be driven entirely by private capital and the domestic political economy that sustains liberal economic policies.

That leaves the argument about knowledge riding alongside a World Bank loan. (See notes from Singapore by Ila Patnaik).

I am a skeptic on the knowledge inputs that the World Bank is able to bring when it comes to day to day reality. When we look at a program like Sarva Shiksha Abhiyan (SSA), where the World Bank was involved, it seems to look more like a traditional Indian government program - riddled with design problems - rather than a program that has been embellished with state of the art microeconomics of information and incentives. (Bibek Debroy's recent article Scrap the SSA is of interest in this regard).

Can the World Bank help by improving monitoring and evaluation? I didn't see that happening with SSA. It was Pratham - and not the World Bank - which discovered (at a tiny cost) that the kids getting enrolled through SSA aren't learning much. The bureacratic incentives of the World Bank are probably as unfriendly to discovering bad news as are those within the GOI.

Another perspective is that of incentives. Compare private sector financing versus World Bank financing in an infrastructure setting. Suppose a expressway project is packaged by Goldman Sachs and has private sources of equity and debt. Compare this against a traditional World Bank financed expressway project. I think the private sector version is superior for two reasons. First, there is generally less leverage with greater private sector involvement, which leads to more healthy project structure. Second, the private owners have an incentive to fight on all aspects of project success, from effective execution to O&M to revenues. In contrast, a World Bank bureaucrat is more likely to lose interest in a project once it is signed. It is better for India to have private financing rather than World Bank financing.

Finally, I instinctively dislike bundling. It is hard to think rationally about either knowledge services or cost of capital when the two are bundled together. I think unbundling of finance and knowledge leads to better procurement of both. The Indian project would be better off separately procuring the best knowledge services, and then procuring the lowest cost equity and debt capital. Mixing them up hinders clear thinking.

Hence, I'm unable to see an important role for the World Bank in a country like India or China, where high growth rates have already been ignited. High GDP growth, and thus poverty reduction, now rides on the domestic political problems of economic policy in these countries.

On the other hand, there are much more daunting problems with "failed states" which could merit a focused effort on institution building through an agency like the World Bank. These are big threats to global prosperity, in this post 9/11 age. If we think of WMD scenarios like a nuclear bomb on Manhattan island or an antiobiotic resistant smallpox virus that is let loose into the world, then the failed states count as major threats to global prosperity. I know, the World Bank's mandate prohibits involvement in political issues. But there is plenty of low-intensity work to be done in building a State, that I call "nation-building", which is not inconsistent with the World Bank's charter.

All around us, India has countries in dire need of nation building: Pakistan, Afghanistan, Central Asia, Nepal, Bangladesh, Burma, Sri Lanka. It is in India's best interest if these countries are able to achieve sound institutions and ignite high GDP growth. From a selfish Indian perspective, that's a great role for the World Bank - to give us a safer neighbourhood and enormous trade growth in our immediate neighbourhood.

That leaves the problem of a funding model. At present, the World Bank needs customers like India and China to make ends meet. If the Bank reorients itself to focus on nation building, it needs new sources of financing. In resolving this problem, I think it helps to see that nation-building in Afghanistan or Sudan is about producing global public goods. Everyone benefits when these countries are set on track. Placing the brunt of financing of these global public goods upon India and China does not sound like a fair arrangement. A reasonable solution could be to pass the hat around to the 25 biggest countries of the world, and ask for contributions in proportion to GDP.