Millennium Villages Comments, We Respond

We received the following comment this morning from the Director of Communications at the Earth Institute, regarding the Aid Watch blog published yesterday, Do Millennium Villages Work? We May Never Know. My response is below.----- It’s unfortunate that the author of this post chose to publish such an uninformed blog on the Millennium Village Project’s monitoring and evaluation activities. She and William Easterly at Aid Watch were invited to meet with our scientists and discuss the science and research behind the Villages and the details of the MVP monitoring and evaluation process before publishing any commentaries. Instead the author hastily chose to publish without talking with MVP researchers. The inaccuracy of the blogpost is a reflection of the lack of rigor and objectivity with which the Aid Watch authors approach this subject time and again.

For readers interested in reading factually accurate information about the Millennium Villages project and its monitoring and evaluation strategy, please see: http://www.millenniumvillages.org/progress/monitoring_evaluation.htm

Erin Trowbridge Director of Communications The Earth Institute

----- Dear Erin,

I had hoped for a different kind of response, one that addressed the specific points made by the piece. Your only comment on content is to say the piece was "uninformed." It would be helpful if you would clarify exactly what you think the piece got wrong, and offer what you view as the correct information to replace it. I would be happy to post such a response on Aid Watch.

Your comment is in any case an inaccurate characterization of our interaction over the past two months. I sent seven separate emails to you and one to CEO John McArthur beginning in mid-August, asking for information on the overall MV evaluation strategy, and eventually asking specifically for an explanation of how the thinking of the team had evolved from 2006 (when Jeff Sachs said there were no controls) to 2009 (when we were informed that there are comparison villages for 10 MV sites). Your responses were represented fairly in the blog post that Aid Watch published yesterday. We expressed willingness to meet with the research scientists after you offered this; it is unfortunate that we were unable to find a mutually convenient time to meet before our publication deadline, which we had already postponed several times.

Thank you for sharing further details of the MVP evaluation process with the information that has now appeared on the link you provided. Interested readers can now independently judge for themselves the merits and demerits of the ongoing MVP evaluation.

Frequent readers here may tire of hearing it, but it is our belief that greater transparency and a greater willingness on the part of donors and aid practitioners to share information with supporters and skeptics alike will make aid better.

Laura

Laura Freschi Associate Director Development Research Institute

Can We Push for Higher Expectations in Evaluation? The Millennium Villages Project, continued

There's been some good discussion—here in the comments of yesterday’s post and on other blogs—on the Millennium Villages and what sort of evaluation standard they can (realistically) and should (ideally) be held to. Yesterday on Aid Thoughts, Matt was distressed that over 70 percent of the student body at Carleton University voted in a tuition hike—$6 per student, per year, every year—to fund the Millennium Villages. The students apparently concluded that the MV program "offers the most effective approach for providing people with the tools they need to lift themselves out of extreme poverty. It is also the only approach that, if scaled, would see countless lives saved, an African Green Revolution and, amongst other things, every child in primary school."

How is it that students are coming away with that glowing impression from a project that—as Matt points out—has yet provided little evidence that its benefits are scalable, sustainable, persistent or transferable?

Focusing in on results published on one specific MVP intervention, blogger Naman Shah pointed us to his analysis of the MVP scientific team’s early malaria results.  The project's claims to have reduced malaria prevalence were “disproportionate to the evidence (especially given the bias of self-evaluation)” and suffered from some “bad science” like a failure to discuss pre-intervention malaria trends.

Chris Blattman stepped into the wider debate to offer an evaluator's reality check, questioning whether rigorous evaluation of the MVP is feasible.  Chris said:

[T]here are other paths to learning what works and why. I’m willing to bet there is a lot of trial-and-error learning in the MVs that could be shared. If they’re writing up these findings, I haven’t seen them. I suspect they could do a much better job, and I suspect they agree. But we shouldn’t hold them to evaluation goals that, from the outset, are bound to fail.

But if the industry standard of best practice is moving towards funding interventions that are measurable and proven to work, why is the MVP encouraging the international community to shift limited aid resources towards a highly-visible project apparently designed so that it can't be rigorously evaluated?

Fact is, none of us know exactly what kind of evaluation the Millennium Villages Project is doing, or the reasoning behind why they’re doing what they’re doing, since they haven't yet shared it in any detail.  Perhaps someone at the MVP will respond to our request to weigh in.

Do Millennium Villages work? We may never know

Jeffrey Sachs’ Millennium Villages Project has to date unleashed an array of life-saving interventions in health, education, agriculture, and infrastructure in 80 villages throughout ten African countries. The goal of this project is nothing less than to “show what success looks like.” With a five-year budget of $120 million, the MVP is billed as a development experiment on a grand scale, a giant pilot project that could revolutionize the way development aid is done.

But are they a success? To address that question, we need to know: What kind of data is being collected? What kinds of questions are being asked? Three years into the start of one of the highest-profile development experiments ever, who’s watching the MVPs?

The most comprehensive evaluation of the project published so far is a review by the Overseas Development Institute, a large UK-based think tank. The review covered two out of four sectors, in four out of ten countries, with data collected in the MVs only, not in control villages. The report’s authors cautioned that “the review team was not tasked and not well placed to assess rigorously the effectiveness and efficiency of individual interventions as it was premature and beyond the means of the review.”

Despite this, a Millennium Villages blog entry on Mali says, “With existing villages showing ‘remarkable results,’ several countries have developed bold plans to scale up the successful interventions to the national level.” Millennium Promise CEO John McArthur described Sachs’ recent testimony to the Senate Foreign Relations Committee: “Sachs noted the success of the Millennium Villages throughout Africa and the tremendous development gains seen in the project over the past three years.”

The Evaluation that Isn’t?

In contrast, evaluation experts have expressed disappointment in the results they’ve seen from the Millennium Villages Project to date. This isn’t because the MVPs fail to produce impressive outcomes, like a 350 percent increase in maize production in one year (in Mwandama, Malawi), or a 51 percent reduction in malaria cases (in Koraro, Ethiopia). Rather, it has to do with what is—and is not—being measured.

“Given that they’re getting aid on the order of 100 percent of village-level income per capita,” said the Center for Global Development’s Michael Clemens in an email, “we should not be surprised to see a big effect on them right away. I am sure that any analysis would reveal short-term effects of various kinds, on various development indicators in the Millennium Village.” The more important test would be to see if those effects are still there—compared with non-Millennium Villages—a few years after the project is over.

Ted Miguel, head of the Center of Evaluation for Global Action at Berkeley, also said he would “hope to see a randomized impact evaluation, as the obvious, most scientifically rigorous approach, and one that is by now a standard part of the toolkit of most development economists. At a minimum I would have liked to see some sort of comparison group of nearby villages not directly affected by MVP but still subject to any relevant local economic/political ‘shocks,’ or use in a difference-in-differences analysis.” Miguel said: “It is particularly disappointing because such strong claims have been made in the press about the ’success’ of the MVP model even though they haven't generated the rigorous evidence needed to really assess if this is in fact the case.”

An MVP spokesperson told me that they are running a multi-stage household study building on detailed baseline data, the first results from which will be published in 2010. The sample size is 300 households from each of the 14 MV “clusters” of villages (which comprise about 30,000-60,000 people each.) She also said that their evaluation “uses a pair-matched community intervention trial design” and “comparison villages for 10 MV sites.”

But Jeff Sachs noted in a 2006 speech that they were not doing detailed surveying in non-MV sites because—he said— “it’s almost impossible—and ethically not possible—to do an intensive intervention of measurement without interventions of actual process.” A paper the following year went on to explain that not only is there no selection of control villages (randomized or otherwise), there is also no attempt to select interventions for each village randomly in order to isolate the effects of specific interventions, or of certain sequences or combinations of interventions.

CEO John McArthur declined to comment on this apparent contradiction. The MVP spokesperson could say only that the evaluation strategy has evolved, and promised a thorough review of their monitoring and evaluation practices in 2010.

Comparison villages could be selected retroactively, but the MVP has failed to satisfactorily explain how they chose the MVs, saying in documents and in response to our questions only that they were “impoverished hunger hotspots” chosen “in consultation with the national and local governments.” If there was no consistent method used in selecting the original villages (if politics played a role, or if villages were chosen because they were considered more likely to succeed), it would be difficult to choose meaningful comparison villages.

Living in a Resource-Limited World

Imagine that you are a policymaker in a developing country, with limited resources at your disposal. What can you learn from the Millennium Villages? So far, not very much. Evaluations from the MVP give us a picture of how life has changed for the people living in the Millennium Villages, and information about how to best manage and implement the MVP.

Sandra Sequeira, an evaluation expert at London School of Economics, sums up the quandary neatly. “Their premise is that more is always better, i.e. more schools, more clinics, more immunizations, more bed nets. But we don't live in a world of unlimited resources. So the questions we really need to answer are: How much more? Given that we have to make choices, more of what?”

These are tough questions that the Millennium Villages Project will leave unanswered. For a huge pilot project with so much money and support behind it, and one that specifically aims to be exemplary (to “show what success looks like”), this is a disappointment, and a wasted opportunity.

Guest Post by April Harding on Health as a Human Right

Maybe it is not necessary that approaching health policy and health development assistance from a human rights framework undermine effective use of resources - but it often does. Bill has given the example of the misallocation of AIDS program funds (excess spending on treatment relative to prevention). I'd add excess spending on AIDS relative to other illnesses and activities where you can get much bigger "bang for the buck" like treatment of diarrhea and pneumonia (big killers of children, significantly cheaper to treat, and prevent, then AIDS). I could give pages of examples of this in action. I have never been able to figure out why this predictable dynamic unfolds, but it does, again and again.

It seems to go something like this:

A human rights frame (similar to the universal frame) for promoting attention and spending on health - is often accompanied by effort to get governments to committ to these values. These committments get recorded in global venues and also in domestic foundational legislation. Sometimes in a country's constitution (as in a number of Latin American countries).

However much is available, resouces for health are still always scarce. In order to achieve good "value for money" in health governments must prioritize in some way: among services (using partly cost effectiveness) and among populations.

Human rights (and universal) framing undermines prioritization. It undermines it by giving health policy makers an easier "out" for not prioritizing. Also, even in countries where they have prioritized, groups that want more (of whatever) can use the human rights (or universal) frame (and government committments) to push the government to giving more to their issue. This often works - and undermines rational use of funds. It very often shifts spending to less cost effective uses, and because middle and upper income groups are more organized, vocal and efficatious, it often shifts spending towards the things they value. And away from services that are needed by the poor.

Colombia right now is experiencing exactly this phenomenon - as their ability to NOT spend on costly treatments (excluded from the insurance package) has been undermined by court cases by higher income people. The judges feel compelled by the constitutional committment to universal healthcare to rule in favor of expanding the package to cover the uncovered treatments. And, as a result, they can subsidize insurance for fewer and fewer poor people.

The human rights frame is nice when it is being used to get governments who are spending way too little on health to allocate more. However, the formal committments to health human rights do a lot of damage, and we should take it into account.

Debating Health as a Human Right

Yesterday’s FT op-ed on the right to health generated a lot of heat in this blog's comments section. Several commenters disputed an absolute distinction between the “moral approach”—declaring health to be a human right, and the “pragmatic approach”—directing finite public resources to where they can benefit the most people at a given cost. Justin Krauss said:

I too am skeptical about the wisdom of claiming a “right to health” but I don't think that such a right AND a more pragmatic approach to healthcare are necessarily mutually exclusive. I can (although I am not sure that I do) believe that health is a "right" while approaching the problem of how to achieve that right in a pragmatic, most benefit for the most people, manner.

The geckonomist questioned the causal link between calling health a human right on the one hand, and inefficient use of public resources on the other. He argued that the real problem is the way that narrow political interests are able to manipulate public funds, "regardless of the underlying moral reason.”

ryan picked up this same thread, asking whether the rights approach is simply being applied selectively, benefiting some groups more than others:

The primary argument you seem to level is that the 'rights' approach is applied unequally along disease- and class-specific lines, and that the people advocating that healthcare is a human right are the same people that are really just hungry for big headlines and large commitments to a small but visible sector of the actual needs of developing communities….Your real problem is with the execution, not the intellectual framework, of global public health spending.

Others objected to the notion that a human right implies requiring unlimited resources, and suggested various kinds of limits like “basic needs,” “subsistence,” or “basic health care.”

But none of these concepts are precise enough to yield hard upper limits, they will be different in different countries, and the limits themselves will be the objects of political advocacy for obvious reasons.

Nor is there anything about the “limit” process that keeps the sum of basic needs from exceeding the available resources—in fact, it is highly likely that they will do so.

So the problem is back to the issue of how to decide whose basic needs to satisfy and whose to not satisfy. This will be a political debate, and so once again the most politically skilled and connected will win, which will usually not be the neediest. So the rights approach is inherently unequal -- it is not just a matter of execution. And ideas like human rights do matter if they obfuscate the likely outcomes.

It is true the cost-benefit analysis can also be manipulated politically, but it offers at least a chance to lead to a frank and open discussion about effective use of public resources to save as many lives as possible. The ideal that the lives of the poor are worth just as much as the rich is more likely to be realized in the pragmatic approach, ironically, than in the idealism of a human right to health care.

Human rights are the wrong basis for healthcare

Column published today in the Financial Times.

The agonising US healthcare debate has taken on a new moral tone. President Barack Obama recently held a conference call with religious leaders in which he called healthcare “a core ethical and moral obligation”. Even Sarah Palin felt obliged to concede: “Each of us knows that we have an obligation to care for the old, the young and the sick.”

This moral turn echoes an international debate about the “right to health”. Yet the global campaign to equalise access to healthcare has had a surprising result: it has made global healthcare more unequal...

Read the rest of the article here.

If hotels were aid agencies...

Me: Hello, I have a reservation for this evening, for a non-smoking room with one double bed. Hotel: Yes, the Hotel Reconstruction and Development Bank has approved an Overnight Accomodation and Poverty Reduction (OAPR) grant for this purpose.

Me: So can I have my room please?

Hotel: The OAPR committed the room, but in order for the room to be disbursed you have to present an Overnight Accomodation and Poverty Reduction plan, to be approved by our board. Here is the OAPR Preparation Guidelines and Best Practices Sourcebook (hands over thousand page document).

(hours later)

Me: Thanks for approving my OAPR plan, now can I have my key?

Hotel: The OAPR is a collaborative effort involving many donors. The keys are provided by the Swiss. Thanks to our improved coordination efforts, the Swiss aid office is only 60 kilometers away, and can help you complete the Swiss room key procurement guidelines.

(hours later)

Me: Hello, is this the front desk? I just got into my room, and there is a stranger who says that he also is sleeping in my room.

Hotel: The OAPR is available to all eligible beneficiaries. Best practice guidelines try to maximize the utilization of all available beds.

Me: But neither he nor I want to share a bed. In our culture, it is not usually considered acceptable for male heterosexual strangers to sleep in the same bed.

Hotel: All our programs are culturally sensitive and context-specific. I will refer your comment to our Oversight Committee on Safeguard Policies, which addresses fully both of the issues you raised: involuntary resettlement and cultural mores of indigenous peoples.

Me: Will this get the man out of my room?

Hotel: The Oversight Committee on Safeguard Policies will consider new guidelines affecting future Overnight Accommodation and Poverty Reduction grants. In order to hear all stakeholders, they are permitted one fiscal year from the filing of an initial comment to a consideration of a new guideline.

Me: I am extremely unhappy with how my hotel reservation has turned out, to whom can I complain?

Hotel: the Hotel Reconstruction and Development Bank is working with the local authorities on improving Local Empowerment and Accountability for Results.

Me: &*()%#$!@@#$%^&!

Hotel evaluation report: The Overnight Accommodation and Poverty Reduction program met its Fiscal Year benchmark for progress on increasing Commitments of Hotel Accommodation Facilities.

The Perils of Not Knowing that You Don’t Know

Suppose you needed to get from New York to Washington for a personal emergency. An airline told you that the projected time of departure for your one-hour flight was 2pm this afternoon. Of course, there is some uncertainty about this. The unstated promise of the airline is that this uncertainty will be kept within familiar bounds, with delays up to an hour not unusual, and delays of several hours possible with unexpected weather or mechanical failure. But suppose the airline secretly knew that due to a large set of unreliable links in the chain like a flight attendants’ union that might strike, a large risk of major engine failures throughout its fleet, and problems with the mechanics’ union that might prevent repairs, that the possible delays were not in HOURS, but in DAYS. You would be angry at the airline for not telling you this, and once you knew how much they didn’t know, you would quickly drop the airline and take the train instead.

The moral of the story is that knowing how much uncertainty there is about a projection – that is, knowing how much the projector DOESN’T KNOW – is often more important than the projection. An “estimated departure time based on the best available information” is meaningless to an airline customer if the uncertainty is about DAYS rather than HOURS.

Not knowing that you don’t know is at the root of many recent disasters, starting with the crisis itself. Holders of opaque derivatives apparently didn’t know how leveraged and exposed they were to shocks like falling housing prices, nor did they know how uncertain the housing prices were. Outside of economics, not knowing what we didn’t know is one of many causes for bad outcomes in Iraq and Afghanistan.

Not knowing that you don't know was our concern about the World Bank's global poverty projections. In his response on this blog and on the New York Times blog Economix, Ravallion misses our point. It is the degree of uncertainty of his poverty projection that is unacceptable. He said: “Faced with all these perceived “impossibilities,” Easterly and Freschi would apparently prefer to wait and see rather than take action when it is needed, based on the information available at the time.” Ravallion called our stance “analytic paralysis in the face of uncertainty.” He portrays us as unwilling to live with ANY uncertainty, which is ridiculous. Economics is filled with uncertainty.

But when the uncertainty is so large as it is with the poverty projections (for all the MAJOR reasons we pointed out, which Ravallion does not address*), then the implication is not “paralysis” but choosing actions that take into account the uncertainty. For example, you DON’T want to have a centralized bureaucracy like the World Bank allocate global poverty relief based on such wild uncertainty. It would be better to support local coping mechanisms (public or private) that flexibly respond at the local level using local knowledge about crisis effects like poverty, hunger, and dropping out of school.

An article in the Wall Street Journal illustrated well how uncertain theoretical economic predictions can be used in the very un-theoretical realm of influencing how scarce aid resources are directed, and to whom:

A joint development committee of the World Bank and the International Monetary Fund estimates the lingering financial crisis could drive an additional 90 million people around the world into "extreme poverty." To combat the staggering statistic, the World Bank is aggressively lobbying for its first capital increase in two decades.

Not only would it be the wrong response to channel poverty relief through the centralized bureaucracy, but confusion is here piled on uncertainty. The capital increase is NOT for lending to the poor countries, but to the middle-income ones, as was made clear in a number of other news stories which explained that the money would be shared between the IBRD, the branch of the Bank which lends to middle-income countries on near-commercial terms, and the IFC, which lends to companies.

This only strengthens our original argument that the poverty projection was a political exercise. We respect Ravallion’s academic work, but this exercise seems to be in a different category. Not knowing what you don’t know is indeed dangerous.

*The closest Ravallion comes is citing his paper that tests the assumption of distribution neutrality of growth ON AVERAGE, which still misses our point about variance around the average. His claim that what people thought would happen before the crisis is a good benchmark for what would have happened without the crisis simply begs the question of the accuracy of country growth forecasts--not responding to our concern that they are radically unreliable (with or without crises). Since his point is invalid, it remains true that his projection of the effect of the crisis on growth is based on no meaningful evidence.

Martin Ravallion comments on "We must know how many are suffering, so let’s make up numbers"

The following is a response from Martin Ravallion, director of the Development Research Group of the World Bank, on last week's Aid Watch post, We must know how many are suffering, so let’s make up numbers. Pull your head out of the sand Bill Easterly!

Faced with all these perceived “impossibilities,” Easterly and Freschi would apparently prefer to wait and see rather than take action when it is needed, based on the information available at the time. Forecasting is impossible in their eyes. What then is possible? The crisis will probably be over before we will no longer need to make forecasts or estimates to fill in for missing data. Counterfactual analysis of the impact of a crisis is also deemed to be “impossible,” even though the pre-crisis expectations for growth in developing countries are a matter of public record—hardly impossible to know! My Economix article last week defended forecasting against this type of analytic paralysis in the face of uncertainty.

Easterly and Freschi also suggest that the numbers coming from the international agencies are a muddle. Granted there are differences, but Easterly and Freschi have manufactured a good deal of the perceived muddle by mixing forecasts of different things made at different times (and hence with different information). As they could have readily verified, the 89 million figure quoted in the World Bank’s G20 paper is the estimated impact of the crisis on the number of people living below $1.25 a day by the end of 2010 based on our latest growth forecasts, as of mid 2009. “Impact” is assessed relative to the pre-crisis trajectories, as expected at the beginning of 2008.

The uncertainty about these numbers is, of course, acknowledged. But they appear to be the best estimates we can currently make given the information available.

IMF and World Bank Take On Istanbul: A Links Round-up

- Zoellick speech on the eve of Istanbul: Current upheaval = French revolution, Africa’s growth potential = Europe’s with Marshall Plan. Earth-shaking changes: "Bretton Woods is being overhauled before our eyes." - Impartial observers like Nancy Birdsall noticed more “the timidity of planned reforms” like glacial reform on quota/voting power at the IMF and the World Bank.

- A communiqué issued yesterday offered more of the same weak brew, and reiterated the World Bank’s imaginary new poverty numbers: “As a result of the crisis, by end-2010, some 90 million more people risk being forced into extreme poverty.”

- “To combat the staggering statistic,” reported the WSJ, the World Bank is now pushing for its first capital increase in 20 years.

- Everyone is squeezing on the World Bank to lend more money to poor countries without conditions. The UK said no more money for the Bank unless it could speed up loans to Sub-Saharan Africa. A group of African Finance ministers, represented by lavish aid recipient autocracy Ethiopia, asked for more money and more loans without conditions, like that tiresome governance crap.

- Should you need up-to-the minute updates on Zoellick's earth-shaking changes, you can follow the appointed World Bank/IMF “Tweeter-in-chief” who is live-blogging the conference, or try the tag #wbmeets for other tweets on the topic.

Paul Romer on Charter Cities: All That's Holding Us Back is a Failure of Imagination

Paul Romer, an economist and expert on economic growth, is the man behind the concept of Charter Cities. In this interview, we asked him about his objectives, the odds of achieving international consensus, and economic policy-making and voting rights in the proposed Charter Cities. Q: Describe briefly your Charter Cities idea.

A: The concept of a charter city is very flexible. The key elements that all the different versions share are an unoccupied piece of land and a charter. The land could be in a rich or a poor country. The charter could take many forms. The human, material, and financial resources needed to build a new city will follow, attracted by the chance to work together under the good rules that the charter specifies.

Action by one or more existing governments is required to create a charter city. One government provides land, and one or more governments grant the charter and stand ready to enforce it.

Q. What are your objectives for Charter Cities?

A. Economists as diverse as Gary Becker, Joseph Stiglitz, and Amartya Sen agree that poverty reduction is one of the most important practical benefits that can come from careful economic analysis. I agree.

To understand how to alleviate poverty, we must understand growth and progress. Progress comes from new and better ideas. Ideas come in two flavors, technologies and rules. To foster growth and development, the world’s poorest residents need an opportunity to copy existing technologies and existing rules that are known to work well.

In my talks, I use a picture of students studying under streetlights to illustrate how bad rules keep people from having basics like light at home. By replacing bad rules with known good rules, families who want well-lit homes can connect with the utility companies who want to provide it to them.

This type of mutually beneficial exchange, not charity, is the key to ending global poverty. Good rules give people access to existing technologies through this kind of exchange. People know what many of the good rules are but find it exceedingly difficult to make changes, especially from within systems of bad rules. Charter cities accelerate the adoption of known good rules, offering a truly global win-win solution.

By giving people access to better rules and the gains from exchange, charter cities reduce global poverty. They give people the chance to escape from precarious and harmful subsistence agriculture or dangerous urban slums. They let people move to a place with rules that provide security, economic opportunity, and improved quality of life.

Q. International action is not forthcoming on things like climate change and preventing genocide; do you think it would be difficult to get international agreement on Charter Cities?

A. While international cooperation between many nations is important for some problems, charter cities can be started with the cooperation of just a few nations. Consider a hypothetical two-nation agreement between Australia and Indonesia. Or consider the actual negotiations between China and the United Kingdom in the 1980s, which specified the charter under which Hong Kong would operate for 50 years after the handover of control back to the Chinese.

The proliferation and extension of bilateral and regional trade agreements in the midst of the stalled Doha Development Round demonstrates a point that is hopeful for charter cities even if it’s frustrating for global trade: It’s much easier to negotiate agreements with few rather than many nations.

Q. There is no consensus on economic policies among the many NGOs, academics and aid agencies (World Bank, UN) that comment on aid policy (e.g. free market proponents vs. those who worry about corporate exploitation of cheap labor). Are you worried that this could complicate policy-making in Charter Cities?

A. Deng Xiaoping said, "It doesn’t matter whether the cat is black or white so long as it catches mice." There may be several different sets of rules that lead to successful development. It matters less which set of rules a city-state adopts so long as they work.

Consider the difference between the development strategies of South Korea and Singapore. To get access to foreign technology, Singapore relied on foreign direct investment while South Korea developed domestic firms that could copy or license production techniques used abroad. Both strategies worked, but a random mix of the rules governing each could have missed important opportunities for growth and development.

People can and will argue about the relative merits of these two strategies, but whichever one a charter city adopts, the associated rules have to be coherent.

Ultimately, we can expect to see many charter cities that adopt different sets of rules. Competition between them will be good for the poor and for the world’s understanding of what works.

Q. Why would Charter City residents not be allowed to vote on who is in charge and what policies they make?

A. They could. The charter cities idea does not put any constraints on the local political structure, nor does it preclude changes in structure over time. It does force us to think carefully about the right way to design the local political system.

Societies always put limits and impose structure on democracy. In the United States, people can't vote to take property away from others or restrict speech. People with green cards and people under the age of 18 can’t vote at all. We can't vote on what the Fed Fund rate should be this week. So it's not enough to say that we believe in voting. You have to be more specific about the details.

Thinking about charter cities gets us to consider new options. Green card holders are an interesting example. I lived for a year in Canada as a resident who couldn't vote. It worked for me. I was very glad I lived in a place where voters could hold officials accountable, but it didn't matter to me if I could vote.

Now what if I lived in a city with lots of people in the same position that I was in. How would it differ? If the officials who ran the police, the courts, etc were accountable to voters in Canada, I could still live someplace with the benefits of democratic governance and accountability.

The political model in post-WWII Hong Kong under the British was one in which residents could not vote but administrators were accountable to voters who weren't residents. It was a very interesting hybrid, and very different from authoritarian rule.

This model could work well in some situations. Imagine Shiite and Sunni immigrants living in a charter city administered by Canadians. The immigrants might prefer to have Canadian voters hold accountable the people who run the police rather than having political contests between the Sunni and Shiites to see who gets to be in charge. If the contests are local, this can be very destabilizing and can lead to ethnic cleaning of neighborhoods.

Over time, the Sunni and Shiite immigrants should participate in local democracy in the same way as Canadians. But they might want to wait until local norms of nonviolence and tolerance are well established before putting the police under the control of a person who wins a local election.

Q. What do you think is the argument for Charter Cities that trumps these possible complications?

A. Consider once again the photo of students who lack electricity in their homes and end up studying under streetlights. This represents a huge missed opportunity. These students deserve a chance to reach their full potential. The technology exists and the rules that can make it accessible are well known.

Now scale this example to many different areas -- freedom from crime, access to safe water, a chance for children to get an education, a chance to get a job -- and hundreds of millions of people. I don't see any objection that could possibly justify failure to pursue such an enormous opportunity.

It's also low risk. Charter cities increase access to existing rules and technologies by giving people new options and letting them choose. Charter cities also give leaders new options for improving governance, options they do not have in the existing web of bad rules to which they are confined. Choice protects them both from the worst possible outcomes.

Choice and the potential to copy existing ideas are a powerful combination. All that’s holding us back from making full use of these mechanisms is a failure of imagination.

Set a Big Goal. Give All to Meet It. This is Stupid.

The first two sentences come out of thousands of commencement addresses, not to mention inspirational foreign aid addresses. But they’re bad advice. Social entrepreneurs in foreign aid might learn from private sector entrepreneurs, who don’t stick to fixed goals.

A University of Illinois graduate moved to Silicon Valley with a great goal (perhaps inspired by the Illini commencement address) – develop security software for hot-selling handheld devices like the Palm Pilot. He assumed that enterprises were soon going to be using Palms as primary means of communication and sharing documents, and would need security to protect business secrets. “Any minute now, there’ll be millions of people begging for security on their handheld devices,” he thought. He was wrong – he never found a demand for handheld security software.

He could have kept trying to make his original idea work. Entrepreneurs that do stick to fixed goals are very good at least at one thing – wasting investors’ money. An idea for an online grocery startup, Webvan, managed to go through $1 billion before finally pulling the plug.

Illinois Man was different. He shifted to Plan B. Sell his cryptography software. Still no takers. We can skip over Plans C, D, and E, which all failed.

Plan F was a system for securely transferring cash from one Palm Pilot to another. He put a demo on the Internet so people could see how great it would be for Palm Pilots. People liked the web demo and started using it for real transactions, while the demand from Palm users still failed to materialize. eBay users started asking if they could put the web demo in their ads for people to pay them. There was no demand for the product, only for the web demo.

Illinois Man finally realized what might succeed. He forgot about Palm Pilots. Plan G was a system for making secure online payments for sites like eBay. His Plan G company was called PayPal, and his name was Max Levchin. eBay eventually bought PayPal for $1.5 billion. The story is from a new book by John Mullins and Randy Komisar, Getting to Plan B.

This principle translates to social entrepreneurship. Mohammed Yunus was trained as an irrigation economist. If he had stuck to fixed goals they would have involved irrigation. We would never of heard of him or of microcredit (at least until someone else without fixed goals came along).

Why is entrepreneurship so hard? It is always very uncertain what you can do well that the customers will want. Finding that sweet spot is a process of trial and error and gathering feedback. Research cited by Mullins and Komisar shows it takes 58 new product ideas to develop one successful product.

An even better book on this theme of searching for what works rather than sticking to the pre-conceived plan is Bill Duggan’s Strategic Intuition. Duggan uses a nice military analogy. Why was Napoleon such a successful general? Before Napoleon, military strategy was about how to take a fixed position from the enemy. Napoleon realized that the point of a war was to defeat the other army. He said, forget the targets, just keep the army moving relative to the other army until you are in the most advantageous position, then attack.

Of course, this advice about flexible goals might conflict with previous advice about specialization. Yes, you want to get the gains from specialization, but be flexible about what your specialization will produce for the customers. So you might be a health specialist, but which among many interventions that you could do will pay off? James Grant, a former director of UNICEF, knew he wanted to save children’s lives, but he was open to any way to do it. He and his staff stumbled on oral rehydration therapy, which has since saved millions of babies from dying from diarrheal diseases at a cost of about 12 cents per dose.

The economists’ version of this mentality is to keep doing and redoing your cost/benefit analysis. The rational next step is one with the highest ratio of benefits to costs. Many goals are set that ignore cost/benefit analysis altogether (Millennium Development Goals, for example). Other goals might be set with some vague notion of predicted costs and benefits, but these predictions are usually wrong. You have to be willing to adjust as benefits and costs turn out to be different that expected, and often shift to another activity altogether – Plans B,C,D,…Z.

Obviously the official aid world of MDG Plans and Poverty Reduction Strategy Papers does not have a clue about the entrepreneurship needed to solve problems.

Official aid doesn’t know how to operate in a world where most Problems are solved by entrepreneurs who originally intended to solve a DIFFERENT Problem. So it’s up to you private and social entrepreneurs.

My own market experiment: where I am IN or OUT

Last week, some people wanted to meet up with me at the Clinton Global Initiative (CGI) meeting in New York. I was a little embarrassed to tell them I was not invited to CGI, and in fact have never been invited to CGI. Actually, there is a long list of distinguished groups wise enough to have never invited me to anything. I think each of us who makes some kind of public comment on anything have some places where we are welcome (INs) and others where we are not (OUTs). I thought it might be entertaining if I told you mine.

Coincidentally, I’m also working on a paper with some co-authors about export specializations that occur by destination country market, where there does not seem to be much rhyme or reason to which country markets a given exporter penetrates compared to other similar countries they do not. Maybe the same is true with intellectual markets.

Indeed, with some exceptions, I can’t detect much pattern in my INs and OUTs. It does not break down neatly by ideology or political spectrum, for example. There are many possible explanations: (1) my work is stupid, and some people are clever enough to figure this out, (2) my work is brilliant, and some people are too dumb to figure this out, (3) I’ve offended important people at some places but not others, (4) I have messages that are welcome at some places but not others, (5) some of my OUTs may have stricter standards than my INs (although I would NOT say that about those INs so kind as to invite me).

Some interesting exceptions to my IN and OUT pattern are (1) aid agencies, and (2) universities. Invitations to (1) and (2) include a representative spectrum and I don’t detect any OUTs in either category (although feel free to nominate yourself as an OUT if you have disinvited me without my knowledge).

I hope my example will cause others to come out with lists of their own INs and OUTs.

Anyway, in some awkward mixture of self-promotion and self-abasement, here they are:

- The INs that have invited to belong or speak or write, sometimes on multiple occasions (although other times only once and they might have changed their minds since: I have low standards to count myself IN).

- The OUTs where the invitations to write or speak or belong somehow got lost in the mail.

	IN	OUT
Think tank	Brookings	Council on Foreign Relations
International affairs magazine	Foreign Policy	Foreign Affairs
Ideas festival	Aspen Ideas Festival	TED conferences
Academic organization	National Bureau of Economic Research (NBER)	Bureau of Research and Economic Analysis of Development (BREAD)
Book Reviews	Wall Street Journal, Washington Post, Financial Times, New York Review of Books	New York Times Book Review
Software philanthropy	Google.Org	Gates Foundation
Fashionable confab	Davos	Clinton Global Initiative

The Newest Global Religion

The world economy with its multiple crises is a frightening place. To confront our fears, we have a new global religion. It developed slowly over the last couple decades, based on the sacred writings of the world’s leading shamans. The shamans have been releasing a new scripture of prophecy and comfort every year after secluding themselves in a remote location for several days of prayer and reflection. There used to be only seven of these shamans, and they were known for short as the G7. As of their latest retreat to the Burgh of Pitt last weekend, the number of shamans has grown to G20.

This year’s scripture, called The Communiqué, was the longest in G-ism history at 15 pages. It offered prayers of healing for many different ailments, from the pestilent OTC Derivative Contracts to the noxious Gas Emissions. It condemned the unholy Excessive Compensation in the Financial Sector as well as the evil Non-Cooperative Jurisdictions.

One of the greatest attractions of the G-ist religion is its concern for the poorest among us. G20 reserved their most fervent prayers of comfort and restoration for those who newly suffer, such as those who now hunger when they did not before. There are 90 million more who go hungry than at last year’s G-shaman meeting, after the Great Backsliding of 2008, whereupon “the financial crisis followed close on the heels of a global spike in food prices…{when} even before the crisis, too many still suffered from hunger …{and} recognizing the crisis has exacerbated this situation.” G20 offer to feed the hungry with GPAFS, CAADP, UNCFA, IDA, ADB, NGOs, FAO, IFAD, and WFP, using the holy mysteries of “coordinate efforts,” and “country-led mechanisms,” and “complement and reinforce other existing multilateral and bilateral efforts” (page 11, verse 39 of The Communiqué).

G20ism has proven to be tolerant and inclusive of other religions. According to a story in the Florida Catholic:

Most people in high levels of government “really do want to do the right thing for the poor. They really do have a moral compass,” said Stephen Colecchi, director of the U.S. Catholic bishops’ Office of International Justice and Peace, at a press conference in Pittsburgh Sept. 23. Part of the power of prayer and bringing together religious leaders at such an event is “the belief that we can influence people,” he said. Some 30 leaders of Christian, Jewish, Muslim and Sikh faiths attended the press conference before processing in full clerical garb to the Omni William Penn Hotel to meet with representatives of the U.S. delegation to the G–20 summit.

Alas, there are still many who do not believe, even mocking the true faith of the G20. The nonbelievers claim that reason and evidence is the best path to alleviate suffering, rather than belief in the mystical powers of the G-shamans.

The evidence on increased hunger numbers is a wee bit shaky when the last reliable numbers on undernourishment are from 2003 to 2005. Nor is hunger either necessarily the result of the crisis or a black and white categorization. Most malnutrition is chronic, not crisis-driven, and includes many different categories of nutritional deficiency, such as vitamin A deficiency, as well as not having enough to eat.

Then to make things worse, even the crisis narrative on hunger is faulty: the food price spike crisis and the global recession are not additive but partially offsetting. Global food prices in real terms fell because of the global recession to pre-spike levels (although lower income because of the crisis of course makes buying food more difficult).

Faith-based analysis leads to faith-based actions. Only the most fanatical G20-ist religionists could believe that more Coordinations, Frameworks, Partnerships and Programmes will feed the hungry.

To show the contrast between G20-ism and reason & evidence, here are two questions that address hunger:

(1) If you are an aid agency that covers hunger, exactly what is your excuse for not meeting the unmet needs for nutritional and vitamin supplements? These supplements are cheap, they have been demonstrated to work, and they fit well into other aid programs like conditional cash transfers.

(2) If you are the US government, how can you take a solemn vow to feed the hungry when there ARE food emergencies and yet you still insist the food come from American farmers and shippers? This leads to months of delays while people are dying from hunger. Sometimes the food arrives after the emergency is over, and then makes sustainable future food supplies worse by driving food prices down and driving local farmers out of business.

G-ism has already survived for many years even though the G-shamans did not keep previous promises. That is the tragedy of faith without reason.

We must know how many are suffering, so let’s make up numbers

As major world leaders jet from the UN General Assembly yesterday to the Pittsburgh G-20 today, the UN and World Bank have bombarded them with messages and statistics about the effect of the crisis on the global poor:

(1) We need to know how many are suffering where, so that help can be targeted to those in most need,

(2) Here are our precise numbers of how many additional poor have been created by the crisis,

(3) Since we based the numbers in (2) on thin evidence or no evidence whatsoever, you should also give us more money to expand our abuse of statistics.

Here are some examples to illustrate these three points:

(1) Secretary General Ban Ki-Moon announced yesterday, “We need to know who is being hurt, and where, so we can best respond.” He handed out a new UN report, “Voices of the Vulnerable” with lots of these numbers.

The need to know precise numbers is not so obvious, since the international aid system lacks any central authority that has the skill or power to redeploy aid resources from areas of less poverty to areas of increased poverty. Even in normal times, the relationship between level of poverty by country and aid given to that country (even correcting for quality of government) is not that strong.

(2) “Voices of the Vulnerable” says “in 2009 about 100 million more people will be trapped in extreme poverty ... than was anticipated before the ...crisis.” This figure is based on a World Bank paper prepared for the G20, which actually said “the crisis will leave an additional 89 million people in extreme poverty ... at the end of 2010.” This number is similar to the number in today’s FT oped by WB President Zoellick, except that he said that 90 million had already been pushed into poverty by “food, fuel and now financial crises” (i.e. 2007-2009)

The Bank’s 89 million claim, in turn, is based on a paper by Chen and Ravallion, which actually predicted “the crisis will add 53 million people to the 2009 count of the number of people living below $1.25 a day.” “Voices of the Vulnerable” report also cites figures from the ILO that “as many as 222 million additional workers worldwide run the risk of joining the ranks of the extreme working poor over the period 2007–2009.”

So precise estimates guide us to redeploy resources to the 100 million, or 89 million, or 53 million, or 222 million that were driven into poverty either in 2009, or 2009-2010, or 2007-2009, or 2008-2009.

There is an obscure piece of theoretical statistics called “garbage in, garbage out.” Calculating “additional poor in poverty due to crisis” requires (a) knowing what growth would have been in absence of crisis in every country, (b) knowing what growth will actually turn out to be in 2009 or 2010 in every country, not to mention in 2008, since the World Bank’s World Development Indicators do not yet have estimates for that year, (c) having good data on the current level of world poverty, (d) knowing the effect of growth on poverty, (e) projecting the effect of food and fuel prices on poverty, not to mention projecting food and fuel prices.

The reality: (a) is impossible, (b) is almost impossible, (c) Voices of the Vulnerable says the last real global poverty numbers were in 2005, which themselves reflected an upward revision of 40 percent ,(d) is unreliable and volatile, and (e) is impossible.

Economists can do useful projections sometimes, but the castles in the air implied by (a) through (e) should have caused a responsible analyst to NOT invent such a number.

Unfortunately, the made-up poverty numbers look positively respectable compared to other claims in the UN Voices of the Vulnerable that are based on no known statistics whatsoever:

“Women and children are likely to bear the brunt of the crisis…depression and drug and alcohol abuse could be on the rise….{including} consumption of strong local brews….{There are} rises in domestic violence…{There are} increased social tensions within communities.”

(3) In the same report, the Secretary-General admits: “More than a year in, what we do not know overshadows what we know.” But he offers to produce: “a networked 21st Century global system for real-time monitoring of the impacts of this and future global crises on the most vulnerable and poor: a Global Impact and Vulnerability Alert System (GIVAS). This system will require … resources.”

So ... give more “resources” to serial inventers of numbers to invent more numbers.

Why does all this matter? Because serious numbers are useful in analyzing how best to help alleviate poverty. The onslaught of imaginary numbers weakens that cause while accomplishing nothing for the poor.

Fake it till you make it

A new report slams the UK’s aid agency with accusations of spending money on “Fake Aid.” Produced by the London-based International Policy Network (IPN), “Fake Aid” casts a critical eye on the agency’s communications programming, finding that “increasing amounts of DfID funds are channeled through non-governmental organizations (NGOs) to fund lobbying activities, marketing and the promotion of political ideology, often within the UK.” The report uses DfID documents to show that the aid agency uses its communications budget to promote the human-rights based approach to development (which we have debated a number of times on this blog), intentionally crowding out other approaches. The budget for DfID’s communications programs has more than tripled since 2000, from £40 million in 2000 to £140 million in 2008.

Much of this money is spent through a group of NGOs—including Oxfam UK, Save the Children UK, ActionAid and Christian Aid—which receive unrestricted DfID funds thanks to long-standing relationships with the aid agency, rather than a competitive bidding process. According to a UK government audit document, open bidding was introduced after most of these organizations were already selected, and currently remains closed to new applicants.

DfID also lacks adequate information to judge whether the funds given to these organizations are appropriately spent, since reporting practices have been characterized by self-reported, inconsistent data, and a lack of external, independent evaluations, again according to a UK government audit and DfID annual reviews.

For example, over a five-year period, DfID faulted the Catholic Agency for Overseas Relief (CAFOD) for failing to provide “an overview of the progress and impact of the programme as a whole” and criticized them for measuring inputs rather than results, but still renewed their funding in 2008 for £13.8 million.

One organization funded by DfID persuaded the government of Gambia to ban all-inclusive package holidays, an outcome which seems to contradict the UK’s policy on trade and development to promote the private sector as an important driver of poverty reduction.

The effectiveness of another organization, both founded and entirely funded by DfID to “provide a forum for BME [black and ethnic minority] voluntary and community sector organizations and communities on issues relating to international development,” was challenged by an independent audit. The audit found that there was no working email address for almost half the group’s members, and that “there is a lack of clarity over the purpose of the organization.”

Despite these examples of poor practice, we would suggest a few points of disagreement with the conclusions in “Fake Aid”:

First, it is not unreasonable for DfID to spend money educating UK tax payers about what DfID does, or about international development issues, as the report implies. IPN calls this “propaganda” but doesn’t convincingly explain how “propaganda” is different from “making people aware of concepts that IPN happens to disagree with.”

Second, while £140 million is a sizable sum (enough for 230 million malaria treatments says IPN) it is still less than 3 percent of DfID’s total budget. In an industry with no consistent financial practices, it’s hard to say what is normal, but it would come as no surprise to find that most nonprofits, and most aid agencies, spend more than 3 percent on communications and publicity.

“Fake Aid” concludes: “As the total amount spent on these programs reaches the £1 billion mark, it is reasonable to ask whether they have improved the lives of people in poor countries.” It is a fair question. These programs may be an appropriate use of DfID funds, but the burden falls to DfID to prove it.

Celebrities finally swamp advocacy market -- an application of economic theory

After a string of deadly serious blogs on random variables and statistical evidence, industrial policy, the history of development thought, and Afghanistan issues, I think I’ve earned a break to do another (hopefully the last) in our popular series on celebrity advocacy. To keep a bit of seriousness, though, I’m going to propose a theory of international trade between Africa and celebrities. Africa exports stereotypical images of misery in return for celebrities’ advocacy for more Africa funds. The theory of trade says that trade only happens when both parties gain. Celebrities gain some combination of altruistic satisfaction, a good PR image, and a boost for their acting or singing career. Africa gains aid funds.

If there is still any doubt about the Africa stereotype thing, the awesome blog Wronging Rights removed it yesterday by awarding its “headline of the week” to the Independent (Ireland) for the headline "We can't abandon Africa to cannibalism and genocide."

(Thinking of the stereotypes associated with my birth-state, this headline made me imagine a domestic counterpart: “We can’t abandon West Virginia to feuds and incest.”)

As always, things are more complicated than the simplistic theory above. The stereotypes are usually from NGOs, official aid agencies, and journalists outside of Africa, while some of the funds for “Africa” may get eaten up by these same intermediaries – NGOs, the UN, etc. So some proceeds of Africa's exports of misery images gets captured by outsiders, the same as with some of Africa's other exports.

Celebrity benefits, in contrast, do usually go directly to the celebrities. I am sure Bono has noble intentions, but his high international profile as Savior of Africa has not exactly been catastrophic for U2 revenues.

And for a wee bit of anecdotal evidence that celebrity advocacy is bad advocacy, U2 and Amnesty International are teaming up on a concert tour and Demand Dignity campaign in which they are peddling the dubious notion that poverty is best addressed as a human rights violation.

OK getting back to economics, what is the current state of supply and demand for celebrity advocacy? We teach our Econ 101 students that the market price is simultaneously equal to the cost of the last unit produced by the suppliers and the benefit of the last unit consumed by the demanders. A lot of supply drives down the price such that the additional benefit to the demanders is very low.

Supply keeps growing as new celebrities keep entering the sector. 17-year-old Disney Channel star Selena Gomez just visited Ghana for UNICEF as its newest ambassador (I would have missed this except for a tip-off from my 13-year-old). See the mercifully short 32 second video.

The current celebrity advocacy market indeed seems to have abundant supply. At least that was the impression I got from a web site announcing an Oscar-like Awards show for Celebrity Humanitarians. The celebrities being honored including some that I’d never heard of, like Brett Ratner. Even after I looked him up on the Internet, I still can’t remember what he is not famous for. So with the upcoming Noble Humanitarian Awards at which Brett is a headliner, the celebrities are barely trading above the price of used books at this point.

So maybe celebrity advocacy has finally saturated the market, and we could now give advocacy back to people who know something about their causes.

And I think my making fun of celebrity advocates has also saturated my blog market.

I’ll stop if they will.

The Anarchy of Success

In the latest issue of the New York Review of Books I have a review (ungated here) of: Leonard Mlodinow, The Drunkard's Walk: How Randomness Rules Our Lives

Ha-Joon Chang, Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism.

The success of the East Asian Gang of Four—and now China—has exerted an irresistible lure to researchers of growth. Academic economists who were used to studying whether a politically difficult tax reform might make Americans better off by an amount equivalent to 0.1 percent of US GDP rushed into a field of inquiry that promises to explain how to increase your income seventeen times over. Theoretical breakthroughs in the late 1980s by Paul Romer (now at Stanford) and by Nobel laureate Robert Lucas helped inspire a remarkable effort by economists to find in the empirical data which factors reliably lead to growth. Yet hundreds of research articles later, we wound up at a surprising end point: we don't know.

In 2007, the dean of growth research, Nobel laureate Robert Solow, said: "In real life it is very hard to move the permanent growth rate; and when it happens...the source can be a bit mysterious even after the fact."

In view of this acknowledged ignorance, how can there still be so many writers who claim to know how to promote growth? The Drunkard's Walk by Leonard Mlodinow offers a crucial insight. Humans are suckers for finding patterns where none really exist, like seeing the shapes of lions and giraffes in the clouds. It wasn't that economists had no explanations of what causes growth. On the contrary, we had too many. One survey of the field counted no fewer than 145 separate factors that had been found to be associated with growth. But most of these patterns were spurious, because they failed to hold up when other researchers tried to replicate them. Economists can say something useful about economic success, but we have to clear away a lot of false overconfidence before we get to that point.

In Bad Samaritans, Ha-Joon Chang is both a critic and a purveyor of such overconfidence. He rightly criticizes those who have made overly strong growth rate effects for free trade and orthodox capitalism, but then he turns around and makes equally strong claims for protectionism and what he calls "heterodox" capitalism, which includes such features as government promotion of favored industries, state-owned enterprises, and heavy regulation of foreign direct investment.

Chang and almost everyone else, have also been suffering from a fallacy, what Mlodinow (following Nobel laureate Daniel Kahneman) calls the Law of Small Numbers. This is a sarcastic reference to the Law of Large Numbers, in which you can have a high degree of confidence in the average value of a sample if the sample includes a very large number of observations. The Law of Small Numbers is when you stop short of having "enough" observations and show high confidence anyway. The Law of Small Numbers is our tendency to judge performance by too small a slice of experience.

Chang at one point suggests as evidence that free trade isn't working the fact that Mexico had only 1.8 percent per capita growth from 1994 to 2002—the period following the enactment of the North American Free Trade Agreement. Chang also picks and chooses episodes in which it appeared heterodox policies were doing well. But economic growth is so volatile across and within countries that it takes a very long time to decide what policies are having a positive effect on growth, which lies behind the failure of both systematic growth evidence and anecdotal evidence a la Chang.

One way to escape from the Law of Small Numbers is to seek to explain levels of per capita income already attained today rather than rates of growth. The level of income you have reached today frees you from small numbers because it reflects the outcome of your entire previous growth experience. So let's ask, who are the richest and the poorest countries now, and what is the difference between them?

The now-rich countries leaped ahead during a long period in which they were more free-trade and free-market (although Chang is correct they were far from perfectly laissez-faire) than the rest of the world. More important than the policies that Chang emphasizes, the now-rich countries had far better institutions and transport infrastructure that made free trade and free markets possible; the now poor countries historically always had a lot of “protection” through high transport costs and lousy infrastructure.

This big stylized fact just confirms the Western consensus around the basic concept of a state shaped by representative democracy, safeguarding individual rights and supplying crucial infrastructure such as transport, while rewarding entrepreneurship and technological creativity. Such common-sense ideas have stood the test of time over the very long run, both in their acceptance by the population in most economically successful societies (compared to their absence and rejection in unsuccessful economies) and in their pragmatic consequences for prosperity (as showed by the comparison to the poverty of states that lack most of the above conditions).

Despite Chang's air of desperation about the experts getting it right (something shared by some of Chang's free-market opponents), in the end, third-world growth seems to have been fairly expert-proof. Perhaps prosperity is not after all designed from above; perhaps it emerges from below, from the independent actions of many individuals who figure out their own paths.