Author: admin

My 2017 book “Building State Capability” (with Matthew Andrews and Michael Woolcock)–which is available for free download) proposes the idea there is a “Big Stuck” in state capability. We showed that many of the available cross- national indicators of country level state capability showed four things (in Table 1):

1. Many countries still show very low levels of state capability (below 4 on a zero to ten scale),
2. Very few countries classified as “developing” countries have reached a high level of state capability—above 6.5–and most of those are small states so the total population in high capability states is very small. 
3. There appears to be very little progress in state capability as the measured growth rates show most countries with negative growth.
4. Even for countries with positive growth, it is mostly slow and very few countries are on track to achieve high capability

Given the long lead times in producing a book, even though the book came out in 2017 the variety of country state capability indicators we used only extended to 2012 (now eight years ago) and mainly started in 1996 (when the World Bank’s Worldwide Governance Indicators (WGI) began).  I decided to bring that table up to date to April of 2020 using the latest available indicators.

In the course of doing so, I put four different (sets of) indicators on a common 0 to 10 scale and produced graphs showing both the cross-national correlation of those indicators and their evolution over time (and their evolution over time).   This note reports the results of this update of the key table with an indicator of state capability built from the Worldwide Governance Indicators as the simple average of their Rule of Law, Government Effectiveness, and Control of Corruption scores.  I also report exactly the same table calculated form the Quality of Government indicator Quality of Government web-site which is itself originally from the International Country Risk Guide (ICRG) (all this explained below in “methods”).

The table is the book’s Table 1 update showing a country’s WGI State Capability level in 2018 in four categories (fragile, weak, moderate, and strong) and their measured rate of growth over the 1996 to 2018 period in four categories (collapsing, slow negative, slow positive, and rapid positive), where trend growth is the least squares growth rate .   The three letter codes for each country are in each cell, sorted from the lowest to highest 2018 WGI SC level within each category so that, for instance, in the “moderate/slow negative growth” category Peru is the lowest, at just over 4 and Botswana is the highest, at just over 6. 

To give some intuition in interpreting the rates of growth the scale is 0 to 10 so a growth rate of .05 implies it would take 20 years to improve (or decline) by 1 point or 200 years to improve by 10 points.  For instance, in Latin America Haiti is roughly a 2, Peru roughly a 4 and Costa Rica roughly a 6.  So even if Peru were (just) in the “rapid” growth category and had a growth rate of .05 it would take 40 years at progress of .05 to reach Costa Rica’s current level of state capability (improve two points).  In Asia, the Philippines is 4.2 and Malaysia 6.4 so if the Philippines were just in rapid progress (.05) it would take 44 years to reach Malaysia’s current level.  The category of “rapid” growth is not in fact super rapid. 

Perhaps not surprisingly (as we have added only six years of data) the updated data confirm the main points of the “big stuck.”

First, 65/111 (only developing countries with population over 1 million are included) or 57 percent of all countries are still below a state capability level of 4, with 19 below 2.5 (fragile).   While of course all “lines” in this space are arbitrary, countries below 4 have serious capability issues, just below 4 for instance are countries like:  Egypt 3.81, Ethiopia 3.86, Zambia 3.82.

Second, only 6 countries are above the threshold for “strong” of 6.5.  The level of 6.5 is roughly the lower end of the traditional OECD countries, for instance, Spain in 2018 is at 6.7 as is the Czech Republic and the high capability OECD countries are well above that (e.g. Denmark at 9.2, 2.5 points ahead of Spain).  Of these six four have a population less than 10 million, Chile has 16 million and Korea is around 50 million so less than 100 million people total live in high capability developing countries.

Third, about 56 percent of countries (62/111) have recorded negative growth rates over the period 1996-2018. 

Fourth, even of those with growth that is positive most have slow growth, with only 9 recording rapid growth (over .05), which implies that even the 40 countries with positive but slow progress recorded less than a 1 point gain on a 10 point scale over the 22 year period.  Colombia, with a annual growth of .035 improved from 3.71 to 4.37, which, relative to most other countries is impressive progress, but at that pace it would take another 60 years to reach high capability.

		Total by level of capability	Collapsing (g<-.05)	Slow negative (-.05<g<0)	Slow positive (0<g<.05)	Rapid positive (g>.05)	Percent of all developing countries
Strong capability (l>6.5)	Names		0	CHL	URY, KOR, SGP	ARE, HKG
	Number	6	0	1	3	2	5.4%
Moderate capability (4<l<6.5)	Names		TTO, KWT, ZAF, PRI	PER, LSO, BRA, PHL, MNG, PAN, MAR, LKA, SEN, ARG, TUN, THA, IND, BHR, NAM, OMN, CRI, BWA	BFA, SWZ, COL, TUR, ARM, VNM, CUB, GHA, CHN, JAM, JOR, SAU, MUS, MYS	KAZ, IDN, RWA, GEO, QAT
	Number	41	4	18	14	5	36.9%
Weak (2.5<l<4)	Names		MDG, LBN, MRT	GIN, NIC, MOZ, GTM, KGZ, MLI, GAB, TGO, PNG, IRN, PAK, BOL, NPL, UGA, MWI, TZA, MEX, BEN, EGY, DOM, GMB	AGO, KHM, CMR, NGA, UZB, MMR, LAO, SLE, BGD, HND, PRY, NER, SLV, DZA, KEN, CIV, ZMB, ETH, ECU	LBR, AZE
	Number	45	3	21	19	2	40.5%
Fragile (l<2.5)	Names		YEM, VEN, SYR, LBY, ERI, ZWE	SOM, PRK, CAF, BDI, GNB, TCD, HTI, SDN, TKM	AFG, IRQ, TJK, COG	0
	Number	19	6	9	4	0	17.1%
		Total by rate of change	13	49	40	9
		Percent by growth category	11.7%	44.1%	36.0%	8.1%	100% (111 total)

In order to address the issues with the  fact that the  WGI variable are not technically adequate for comparing overall trends over time as they are re-normed each year (though they do compare trends over time of each country relative to the average country in each year) we turn to a variable called “Quality of Government” (QOG) which is the simple average of three variables from the International Country Risk Group:   Corruption, Bureaucracy Quality and Law and Order.  This variable has data available going back to 1984 but we use only the data 1996 to 2018 (the latest available in May 2020).    Reassuringly, this variable is very highly correlated with the WGI State Capability variable, the correlation in 2018 is .944 (Figure 1). 

Figure 1:  The cross-national correlation between the WGI State Capability and the ICRG QOG variable is very high

The QOG variable is meant to be comparable both across countries and over time and Figure 2 compares the growth rates 1998-2018 of WGI SC and the QOG variables.  The correlation of the measured trends in the two variables are less correlated (it is nearly always true changes are less correlated than levels across countries) but is still correlated at .5 (only countries over 5 million population are included in this graph).  Interestingly, the median measured annual growth in the QOG is  substantially more negative than the trend for this set of countries (developing countries with more than 5 million people) at -.019 versus -.004 for WGI.  This suggests the annual re-norming of the WGI, rather than masking a positive trend for developing countries may well be masking a negative overall trend.

Figure 2:  There is a strong correlation between the measured trends in the WGI State Capability variable and the ICRG QOG variable—and the median growth rate is lower for QOG than WGI SC

		Total by level	Collapsing (g<-.05)	Slow negative (-.05<g<0)	Slow positive (0<g<.05)	Rapid positive (g>.05)	Percent of all developing countries
Strong capability (l>6.5)	Names		0	KOR, SGP	CHL	IDN, ARE
	Number	5	0	2	1	2	5.6%
Moderate capability (4<l<6.5)	Names		GMB, CRI, LKA, ARG, IRN, TTO, MAR, NAM	EGY, GTM, PAK, PAN, PNG, UGA, BOL, MWI, TUR, KAZ, CHN, PER, TZA, CUB, JAM, MNG, VNM, JOR, KWT, PHL, BHR, TUN, MYS, OMN	DZA, LBN, ETH, GHA, BWA, URY, IND, QAT, SAU	0
	Number	41	8	24	9	0	45.6%
Weak (2.5<l<4)	Names		DOM, NIC, MDG, ZWE, PRY, SLV, MEX, GIN, LBY, ECU, THA, ZAF, KEN, SYR	CMR, SLE, AGO, AZE, SEN, BRA, GAB, HND, BFA, MOZ, ZMB	ARM, MMR, BGD, COL	GNB, NER
	Number	31	14	11	4	2	34.4%
Fragile (l<2.5)	Names		SOM, HTI, VEN, CIV, COG, YEM, PRK	SDN, MLI, TGO, NGA	LBR	IRQ
	Number	13	7	4	1	1	14.4%
	Total	90	29	41	15	5
		Percent by growth category	32.2%	45.6%	16.7%	5.6%

The four principal “big stuck” findings emerge using the QOG data for the 90 developing countries with population over 1 million for which there is both WGI and QOG data.

First, 43/90 (48.8 percent) of these countries have Weak or Fragile Capability.  This is lower than WGI SC mainly because QOG had more countries in the “moderate capability, slow negative growth” cell (24 versus 18 even though QOG has 20 less countries total) but, as can be seen in figure 1 many of these countries are just above the threshold of 4.

Second, only 5 countries are above the threshold for “strong” of 6.5. 

Third, given that the average recorded growth rate in QOG over the 1996 to 2018 period is lower, many more countries show negative trends.  70 of 90 (77.8 percent) countries have negative trends.  This data suggests that the re-normalization each year of the WGI data may prevent it from showing an overall downward trend in state capability.

Fourth, there are only 5 countries with rapid growth, two with high capability already (Indonesia and United Arab Republic (ARE)) and three recovering but still at low levels (Iraq, Niger and Guinea-Bissau).

I also examined the data from the Fund For Peace using their ranking on “Public Services” and the data from the Bertelsmann Transformation Index. In doing so, I create a large number of graphs that display the data for each country and display the cross-national correlations, both in levels and trends, among the six WGI variables plus the created State Capability variable, and the other indicators. All of these are available in the links provided.

Figure 3 and Figure 4 show the evolution of the QOG rating for the developing country population weighted average and for the largest eight countries by population: China, India, Indonesia and Brazil in Figure 3 and Pakistan, Nigeria, Bangladesh, and Mexico in Figure 4. This is to allow the reader to ‘groundtruth’ the ratings against countries they know something about. For instance, the QOG regards India (green dotted line) as well above the average and having had quite stable ratings over this entire period. Indonesia is seen by the QOG ranking to have experienced a substantial deterioration from 1996 to a nadir in 2004, after which a recovery to near 1996 levels by 2009, followed by some deterioration, followed by a large jump in 2018. TheQOG regards Brazil (green dash-dotted line) as having experienced a considerable deterioration over the period since 1996 (with some volatility). Having lived and worked in India off and on since 1991 I think the “stagnation” of state capability would be regarded as a generous assessment. Again, having lived in Indonesia from 1998 to 2000 and worked there off and on since, this general pattern of weakening capability from the “top down” authoritarian capability of the Soeharto era but re-built to 2010 seems plausible. I have no idea what the QOG thinks happened in 2019, I suspect this is a mistake but is in the original data. Brazil I know too little about to have a view.

Figure 3: Evolution of the QOG measure 1996-2018, developing country population weight average and four largest countries

Figure 4: Evolution of the QOG measure 1996-2018, developing country population weight average and next four largest countries

Appendix I:  Data and methods

There are four primary sources of data, here I describe each and the transformations made to each variable.  On the web site both the raw data and the programs that transform the data will be posted.

1. World Governance Indicators

The WGI data was downloaded form the web site (https://info.worldbank.org/governance/wgi/) and the latest update was 2019 with data through 2018 starting in 1996.

I made several transformations. 

First, to make the data annual I interpolated between the early years when the data are only available every other year (e.g. I filled in 1997 as the average of 1996 and 1998).

Second, I transformed each of the six WGI variables to a scale of 0 to 10 by taking the worst ever recorded value for any country any year and the best for any country any year and re-scaling zero to the worst and 10 to the best.

Third, I created a variable called “State Capability” as the average of Rule of Law, Government Effectiveness, and Control of Corruption.  I feel the other three are conceptually distinct from capability:  Voice and Accountability, Political Stability, and Regulatory Quality.  Note that this variable is not exactly scaled 0 to 10 no country was 0 or 10 in all three variables in the same year.

• Quality of Government

I downloaded this variable from the Quality of Government Institute web site (https://qog.pol.gu.se/) which provides cross-national, over time data on hundreds and hundreds of variables.  One of those is called (confusingly, if you ask me) Quality of Government and is the average from the International Country Risk Guide’s ratings since 1984 of Law and Order, Bureaucracy Quality, and Corruption.  (This is because the original data from ICRG is (or has been) proprietary and expensive so only the average could be shared).

I only use data from 1996 to 2018 as (a) this is the only period for which the WGI overlaps and (b) there are some questions about the long-run comparability.

This variable is scaled 0 to 1 and I rescale 0 to 10 in the same way as above.

• Fund for Peace:  Public Services

The Fund for Peace produces a Fragile States Index based on 12 indicators (https://fragilestatesindex.org/data/).  One of those indicators is “Public Services” and I used that indicator, which is described as:

The Public Services Indicator refers to the presence of basic state functions that serve the people. On the one hand, this may include the provision of essential services, such as health, education, water and sanitation, transport infrastructure, electricity and power, and internet and connectivity. On the other hand, it may include the state’s ability to protect its citizens, such as from terrorism and violence, through perceived effective policing. Further, even where basic state functions and services are provided, the Indicator further considers to whom – whether the state narrowly serves the ruling elites, such as security agencies, presidential staff, the central bank, or the diplomatic service, while failing to provide comparable levels of service to the general populace – such as rural versus urban populations. The Indicator also considers the level and maintenance of general infrastructure to the extent that its absence would negatively affect the country’s actual or potential development.

This data is available from 2006 to 2019.  I re-normed the data to the 0 to 10 scale from the raw data (in which high numbers are bad).

• Bertlesmann Transformation Index

This index of country performance has three components:  political transformation, economic transformation, and governance index.  The governance index has five elements:  the level of difficulty, steering capability, resource efficiency, consensus building, and international cooperation.  As indicators of state capability I only focus on two of those:  steering capability and resource efficiency, each of which has three sub-components.  The sub-components of steering capability are:  prioritization, implementation, and policy learning and of resource efficiency are:  efficient use of assets, policy coordination, and anti-corruption. 

The indicator I use in the graphs is the average of steering capability and resource efficiency, each of which is normed to 0 to 10 and then added (so again the added indicator is not again re-normed so it is not minimum of 0 and maximum of 10).

As can be seen in the graphs below, these four indicators are reasonably highly correlated across countries in levels—but some higher (e.g. WGI: SC and ICRG: QOG at .944) and some lower (e.g. FSI: PS and BTI: SC+RE at only .584).    The correlations are even lower in trends (again these graphs exist) over time and the BTI and FSI only exist since 2006 so have a relatively short time series. 

The BTI shows a much higher trend rate of improvement than the other indicators, for reasons I do not understand and therefore am not sure I trust but would produce a more favorable view of big stuck than the others. 

All of the transformations from raw data, calculations and the production of the graphs was done in GAUSS. In this folder the raw (excel) versions of the downloaded data and all of the programs are available and should allow replication.

Appendix II:  Descriptive graphs produced

In the course of producing this update I produced descriptive graphs of seven different types.  Here I describe each type of grand and show a single example (some graphs were produced for each of 177 countries so they cannot all fit in a single document).  All of the graphs will be made available on-line on the Building State Capability web site.

1.  Graphs showing the time series evolution of each of the six WGI variables

These graphs show the data over time for each of the six WGI variables, with an overall trend line, the trend of the last 10 years, and years to a high level (>6.5) at either the overall or the recent trend line.  All graphs have a vertical axis from 0 to 10 so that levels and trends can be visually compared across the variables and across countries.  The link has a folder with a downloadable graph for each of the 177 WGI countries, like the one shown below for Tunisia.

• Graphs showing the cross-national correlations of the six WGI variables and the derived State Capability variable

The second type has seven graphs that show the cross-national correlation in 2018 between one of the WGI variables and all other six and reports the correlation between the variables.  Shown below is the example graph showing the correlation between Voice and Accountability, the other five WGI variables and State Capability (which is the average of Rule of Law, Control of Corruption and Government Effectiveness and hence has a high correlation with those three measures by construction). These seven graphs are available here.

• Graphs of all seven WGI variables showing the association across variables of the trends

This set of graphs show the cross-national association of the trends in each of the WGI variables against each of the six other WGI variables.  Each point is the least squares estimated growth rate for each variable for each country.  Shown here is the graph for Rule of Law with all six other WGI variables and shows the extent to which the trends are associated across the variables. These seven graphs (each with six panels) are available here.

• Showing the level and trend in the seven WGI variables across countries

These graphs show, for each of the seven WGI variables a cross-national graphs showing the level of the indicator on the horizontal axis (either in 1996 or in 2018) and the trend on the vertical axis.  If the starting point is 1996 this potentially shows “convergence” if countries that start with low levels have a tendency to more rapid growth). Since there are many countries the graphs can get very cluttered so some of the graphs show just countries over a threshold population (like 1 million, 5 million, 10 million) for ease of identifying countries (the graphs shown is only for countries over 10 million and so excludes some interesting countries that had massive governance changes over this period like Rwanda and Georgia).  These graphs have lines dividing the levels and growth rates into exactly the thresholds used in Table 1 and hence are the exact graphic counter-part of the table (when 2018 is the endpoint).  Shown is the graph for state capability (which is exactly Table 1 above except that the Table is limited to developing countries and that the axis is flipped (e.g. in Table 1 levels are vertical and growth rates horizontal). These seven graphs (for each population threshold), each with two panels, are available here.

• Trends in four different indicators of state capability

As described above in “methods” I explored four different sets of indicators of aspects of the broad concept of “state capability”: (i) the World Governance Indicators which have six indicators, (ii) the Quality of Government indicator which is built from the ICRG ranking of three indicators, (iii) the Fund for Peace rankings of state fragility, which have ten variables, I focus on the “public services” indicator, (iv) the Bertlesmann Transformation Index which has a number of indicators and sub-indicators and I focus on the ranking of “Steering Capability” and “Resource Efficiency.”

The third set of graphs show the evolution over time for each of these four indicators (for whichever are available) for each of the 177 countries with WGI data.  Since the data is available for different periods the graphs show the trends for the 1996-2006 period (for just WGI and QOG), the 2006 until end of data (between 2018 and 2020) period for all four variables and the overall period (for just WGI and QOG).  The country example (of the 177 available) is Mexico. These 177 graphs are available here.

• Cross section of all four different sources of state capability

These graphs show, for each indicator, the cross national association another of the three indicators and the correlation.

The example shown here is the correlation of the BTI average of Steering Capability and Resource Efficiency with the FSI indicator of public services. These 12 graphs are available here.

• The association of the trends in the four indicators of state capability

These graphs show the cross-national association for any one of the four variables between the trend (over the available time period) of that variable and the other three variables over that same period.  This also shows the median of the trend growth in the two indicators. 

The example shown is the trends of the FSI Public Services indicator from 2006 to 2019 with the WGI State Capability variable from 2006 to 2018 (this is for countries with over 5 million in population).  These graphs (both for all countries and those over 5 million) are available here.

When I was in Australia in January 2020 (before 2020 travel was stopped) I spoke at the Development Policy Centre at ANU Annual Australasian Aid Conference organized (in part) by my friend Stephen Howes.

My topic, which is a subject I am grappling with and trying to come up with a better way of modeling and expressing, is “pre-mature load bearing.” This is probably the worst named of the concepts from my 2017 book Building State Capability with Matthew Andrews and Michael Woolcock (the notion of “isomorphic mimicry”–which is not original to us–is much catchier). Pre-mature load bearing is the idea that if one puts too much weight too soon on a not fully constructed bridge, or a not fully cured broken bone–or on a weak organization–the result in a collapse. We propose the idea of pre-mature load bearing as one way of explaining why, even after decades and decades of development efforts to “build institutions” or “create good governance” or “improve public sector management” the organizations of the state in many many countries remain weak.

In this presentation I discuss the possibility (with some mild evidence) that it is precisely the pressure to adopt “best practice” laws, regulations, policies, and programs in countries with weak public sector organizations (and weak background systems in which those organizations live) that actually leads to terrible outcomes. The “theory of change” often (implicitly) adopted is that “better laws drive better practices.” This (again implicitly) assumes a dynamic between laws and practices that is uniform–so small improvements in laws produce small improvements in practices and big improvements in laws produce big improvements in practices.

However, we are all aware of many everyday phenomena in which dynamics are non-linear (though of course we don’t explicitly think of them that way). For instance, we all know that if we want to move a steel object with a magnet we have to keep the magnet close. Small movements in the magnet produce small movements in the object but big suddent movements in the magnet won’t move the object. The force of magnetism declines with distance and non-linearly.

The example I use in the talk (which is in the slides) is a rubber band. If you put a rubber band around your fingers connecting your left hand and right hand then if you move your right hand it creates a force on your left hand. As your right hand gets further and further away the pressure on your left had to move gets larger and larger. But if you move your right hand too far from your left the rubber band snaps and there is no more pressure on your left.

My hypothesis is that it is possible that “good law destroys the rule of law.” That is, organizations have a set of capabilities that are embedded in their actual practices. Many countries are under pressure to and are otherwise politically attracted to making big pronouncements that adopt “best practice” laws and regulations (in taxation, in environmental regulation, in land use permits, in basic education). They assume that they can achieve Denmark’s (or Canada or Australia or etc.) practices by adopting Denmark’s de jure policies (laws, regulations, etc.). However, it is possible if the practices are too far from the existing organizational capability these new laws create too much pressure on the agents of the organization to deviate from the de jure. If this is the case then the de jure and de facto diverge and the left hand might know what the right hand is doing, but doesn’t really care. Once one gets into these negative dynamics of “pre-mature load bearing” then the “good” (but not achievable) laws actually make organizational practices worse and create pressures that prevent incremental improvements in practices.

This of course feeds the idea of “strategic incrementalism” that the way one gets to good laws is by first getting to good practices–and then enshrining these already accepted and (mostly) followed de facto “good enough” practices into the de jure policies.

Of course it is hard to get good evidence on the gap between the law and practice (as making this gap invisible is a very large part of what organizations do: bureaucracies often exist to fail without blame. But some co-authors and I can show some empirical results in a paper that suggest that countries with weak organizations for enforcement that make de jure regulations (about building permits) stronger actually end up with weaker de facto compliance.

Here are the slides. I also did a podcast Good Will Hunters with Rachel Mason Nunn, I was episode 67, so this is a pretty long-running series. Also, this is a variant on a talk I have earlier at Center for International Development’s conference of which there is a video. Also a version of this talk I have at a conference “From Politics to Power” at Manchester University. The advantage of that video is that explains the pictures of the cat named Duke, which is a funny, and instructive, story.

John Halstead and Hauke Hillebrandt have an interesting new paper posted on the Effective Altruism Forum. To be fair, it draws a fair bit on some of my research and so I am likely biased. But it does raise and argue some important points about effective altruism.

The “new philanthropy”–by which I mean mainly the philanthropy of the new fortunes, mainly in tech–has generated a lot of interesting thought and debates. The general idea of “effective altruism” with its focus on getting beyond just “warm glow” has a lot to be said for it. As a professional economist I am a big fan of the challenge to prove that the proposed “charitable” projects actually are better than cash (e.g. Blattman and Niehaus 2014). This is a hard standard as the overhead costs of delivering projects (particularly if they were costed at opportunity cost of the work done) are often very high and the incremental benefits over cash often low (or non-existent).

However, this debate about “which type of intervention/project/program is the most cost effective” is limited but one hopes not limiting. These types of interventions are still mostly “linear” in costs and benefits. Suppose giving a specific girl (targeted perhaps by a certain age, in a certain region (perhaps distance from school), a certain household income/socio-economic status) is a cost effective way of raising the likelihood the girl attends school (as suggested in Muralidharan and Prakash 2017 based on program of that type in Bihar India). Beyond a certain scale (and one reason why cash is often cost effective as programs have large overheads on small numbers of beneficiaries) this impact is (roughly) linear in costs–each girl getting a new bicycle requires buying a new bicycle–and (roughly) linear in benefits–each girl benefits the same amount (if anything, one would expect if targeting were effective the marginal benefits would decline).

However, one thing the creators of the new fortunes understand is non-linearity of costs, and maybe benefits. That is, all producers of software know that the marginal cost of an additional user is next to zero. Moreover, it could be that the value to an additional user of using a given product might be increasing in the number of users. If that can be turned into higher marginal revenue per additional user then one has (the possibility of) an enormous fortune as margins (marginal revenue over marginal cost) increase with number of users. These non-linear economics create “winner take all” dynamics in sub-segments: something like 90 percent of all searches are done on Google, across its platforms Facebook’s four platforms report 6 billion users (not all different individuals as some use multiple platforms). The economics of “infrastructure” (what I would take should define the term) are often “club goods” elements of delivering a service which are non-rival (until congestion externalities set in) but excludable.

Far and away the most important “club good” in the world today is the national development of the country you live in. What I mean by “national development” is the progress in the four-fold transformation of a country in having high economic productivity, a responsive state, a capable administration (of both state and non-state organizations), and equality of treatment of citizens. (Practically) all indicators of human well-being (income, poverty, health (infant mortality, malnutrition), schooling and education, safety) are very strongly predicted by national development. For instance, a country’s level of headcount consumption/income poverty is completely predicted by the consumption of the median (typical) household.

This is why it is kind of puzzling that people’s whose private fortunes are generated by non-linearity would spend so much time debating which was the best (cost-effective) linear way to give away their private fortunes: cash versus non-cash? Bicycles versus conditional cash transfers? Business training versus loans/financing? Giving away shoes? (just kidding, that was obviously dumb as altruism, but maybe super smart as corporate marketing).

Since human well-being is strongly determined by one’s access to the excludable club good of national development there are two obvious ways to promote human well-being: (a) reduce the numbers excluded from moving to good “club good” places (reduce barrier to labor/personal mobility) or (b) improve the quality of the club goods people who live in poor countries have access to without moving by improving national development.

There are four arguments against a focus by philanthropists on national development:

1. No one knows how to, or can know how to, promote national development, it just is what it is due to deep determinants.
2. While someone might know how to promote national development the instruments available to us, as private philanthropists, cannot be used effectively to promote those things that promote national development.
3. While there might be ways for us, as philanthropists, to effectively promote national development we cannot do so in ways in which the positive benefits of those actions can be reliably attributed to us so we cannot get credit for what we did.
4. Engaging in national development versus linear privately organized transfers might bring higher benefits, but it also brings much higher reputational (and other) risks to us of being engaged with national governments (or other actors).

All of these are arguments to explore with analysis and evidence.

However, one important point is that the argument against investing in promoting actions that would facilitate higher (and more stable) rates of broad based growth in poor countries that “we don’t know what to do” is insufficient. After all, the obvious response to “we don’t know what to do” is to fund and engage in research and learning to learn what to do. The wildly popular agenda for better causal identification in impact evaluation is premised on the idea “we don’t know currently what to do” (otherwise, why spend millions on research?). So the argument against philanthropic engagement in promoting economic productivity (one aspect of national development) has to be not just what “we don’t know what to do now” but also that “there is no set of learning activities or research that could improve our knowledge of what to do that passes a cost effectiveness test (of gains in the value of useful knowledge versus expense)”. That is a possible argument, but much, much tougher argument to make.

That is, I could argue that in the allocation of funding for physics research no new research into technologies for faster than speed of light travel of human beings should be funded because our best available physics theories say this it is impossible. I could argue against research into changing the rest mass of an electron on the basis that, in our best available theories, this is impossible and that it is a universal constant. Neither of those is true of economic growth. It is certainly not constant over time for countries–we see massive accelerations and decelerations of economic growth. And, it is not the case that our best available theories say it is impossible to influence growth–and we have seen leaders and elites of countries change strategies and accelerate growth, and change strategies and induce economic disasters.

A perhaps useful analogy is a decision a philanthropist concerned about the well-being of African-Americans in the USA would have had in the early 1960s. The United Negro College Fund was founded in 1994 and gave scholarships to individuals and supported funding of historically black colleges and universities. Suppose (and I don’t doubt it) that this linear funding opportunity was cost effective. This would be a very attractive investment. Against that, there was a new organization, founded in 1957, the Southern Christian Leadership Council that was engaged in advocacy around civil rights. There are lots and lots of reasons why support to the SCLC was risky–maybe it is impossible to change civil rights legislation in America over any reasonable time horizon, maybe this particular organization doesn’t have a correct “theory of change”, maybe funding this organization will expose me to reputation and other risks from their strategy and tactics. Moreover, there was no way to bring reliable “scientific” evidence to the UNCF vs SCLC decision. I think (and this isn’t my academic area) that ex post having been an early funder of the SCLC would be the equivalent of being early venture capital into Google or Facebook..but way better of course.

I think there should be a strong presumption that the allocation of a large philanthropic portfolio in the development space should not be 100 percent proven cost effective linear interventions and to identifying and proving the effectiveness of new innovative linear interventions. Just as with financial portfolio allocations the right allocation depends on the magnitude, the horizon, the individual’s risk tolerance, but it seems to be that a large share should be devoted to non-linear, potentially transformative agendas, in national development (including economic growth). At the very least, this debate is interesting and important.

My friend Jeff Hammer has helped create something both very cool and very useful. He has created a set of video recordings of 100 households in India that interactively show 360 degree views of the exterior, interior, kitchen, water source and other features of the home and household. Each of the 100 homes was chosen because they were, based on the usual kind of household survey, were at a given percentile of the income distribution. So one can see visually the poor and the rich of India, the world’s largest country, arrayed.

https://onehundredhomes.in

I sometimes say that, for all its hassles and expense, I have to travel because my imagination is both too powerful and not powerful enough. My imagination is too powerful as it can conjure up powerful and persuasive images based on words I use like: poor, rich, middle class. My imagination is not powerful enough to actually get it right without seeing it. This site gives you sight without having to travel.

There are two points that this site makes very powerful about the use of words like “rich” and “poor.”

The first is Dani Rodrik’s point from many years ago that “the poor of the rich” have much higher incomes than the “rich of the poor” and asks people whether they would rather be the 90th percentile in a poor country or the 10th percentile in a rich country. When people talk about the “rich” of India they often envision Mukesh Ambani’s house in Mumbai. And yes, that is one very rich person.

But he 100th percentile, not the 99th percentile or 95th percentile or 90th percentile “rich.” Here are pictures taken from the 100 Homes sites of the exterior, water source and kitchen of a household of Allahabad Uttar Pradesh who is “rich” in the sense of being in the 90th percentile of the income distribution in India.

The “statistical” rich in India are very poor by rich country standards. This 90th percentile household has a measured consumption per person per day of $8.47 (in purchasing power adjusted dollars), which is higher than the highest poverty line the World Bank reports of P$5.50. But the US “guideline” poverty line for a family of 4 in 2019 was $17.63 per day. The “rich” Indian household would have to have income twice as high to not be poor in the USA.

So next time someone says that something (like, say, economic growth) benefited “the rich” in India I hope this site can inform your imagination about whether that meant this 90th percentile household or the Ambanis.

The second important point the 100 Homes site makes, powerfully and visually, is that trying to divide Indian households into “poor” and “not poor” is making distinctions among households that are, for all practical purposes, indistinguishable. In the “lessons” section of the site it shows 3 pairs of households and asks you to guess which is richer (on the standard measure of spending per person per day). I got two of three wrong.

The current poverty line in India says 24 percent of Indian households are “poor.” Here are pictures of two homes (exterior and kitchen), one is a household that is poor (14th percentile) and one that is “not poor” (30th percentile). Which is which?

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The point is not whether you happen to get it right or wrong, the point is that it is hard. It is hard because the distinction between “poor” and “non-poor” is trying to make a distinction between households that are really, for all intents and purposes–economically, socially and politically–the same.

The “middle class” periodically gets attention. Here is the household at the 51st percentile in Jodhpur Rajasthan and their kitchen. Signs of incipient prosperity: a stone house, a cook stove, a daughter in school. But hardly what “middle class” might mean in the UK (where Michael McIntyre associates “middle class” with shopping at Waitrose) or the USA (where one thinks suburban house, two cars, two kids, cat, dog and all that).

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The 100 Homes project is a wonderful resource. It allows us to go beyond the “X$ a day” statistics and get a glance into what poor, middle class, and rich mean in concrete and visible terms in India today.

The debate at the Australian Aid conference is now available as a podcast so you can listen. But I wanted to point out the second reason debating about RCTs is fun: the examples that advocate use of RCTs are often self-refuting as to their importance.

For instance, in the debate the main proponent of the idea that RCTs were an important innovation in development economics used the example of TOMS shoes. He said (roughly, and I am just trying to summarize what he said, I have no first hand knowledge of this topic) that the owner or CEO of TOMS shoes had been in a developing country and seen kids without shoes and so had decided to donate a pair of shoes for every pair sold. Then, after some time, they had done a RCT of the impact. He said that from the RCT they had learned that the shoe donations had little or no impact. Moreover he (the RCT proponent) said the RCT taught them they were giving the wrong kind of shoe and, if they were going to give shoes, they should give sneakers, not loafers. This, he said was a good example of the way in which RCTs contribute to development and development economics.

The table below shows, from standard World Bank sources, the headcount poverty rates at PPP$ 5.5 and 1.9 per day and the table is sorted by the absolute number of people poor at the P$5.5 poverty line among the world’s 30 most populated countries. I (and a number of other economists) argue for much higher poverty lines (“who is not poor“) for measuring global poverty, more like P$10 or P$15 so let’s take P$5.5 as a “split the difference” between low bar and high bar poverty). (Even if we take the penurious “dollar a day” line (updated for inflation) it is roughly the same set of countries with just more weight to the poorest large countries).

These countries cumulatively have 2.7 billion P$5.5 a day poor people and hence, if one were going to address global poverty one would have to do so by addressing it in these countries.

Conversely, if your development issue/tool/learning is not addressing the important development concerns of these countries it is not really an important item on the development agenda.

Now, just imagine you had an opportunity to make a presentation to the leadership of any of these developing countries (where leadership could be political, intellectual, civil society). And here is your pitch: “Development economics has an important new tool, RCTs, and with that tool a good example of what we have learned about development is that giving away free shoes doesn’t really work, and secondarily, if you do give free shoes anyway, give the kinds of shoes that kids really want to wear.”

I can imagine two responses.

One. “Really? That is what you have to offer? This is what you think development is about? You have come to our country (India/Indonesia/Nigeria/Ethiopia/etc.) and what you think we care about, our vision of the future of our nation and people, our goals, dreams and ideals, our vision of national development, hinges on the effectiveness of the charity of an American shoe company? Is there any way you could have been more condescending to us, the leadership of this country, than taking up our time talking about giving away shoes?”

Two, suspicions about your own judgment, in two senses. First, how did you personally come to be spending your time talking about something so trivial? Second, in what way did you think economics or development economics “learned” from this RCT? The standard economics (from theory and long empirics of the impact of in-kind transfers) would have expected the impact of a pair of free shoes to be roughly the re-sale value, which, even for a poor person, is likely small as even for a household at the P$1.9 per day poverty line annual income is P$2777 so a pair of shoes in a small increment so what is new in a Bayesian sense? Second, standard economics (from theory and empirics) would have suggested that if one were going to give something in-kind as charity choosing something the household wanted would be best (if only to reduce the losses from transactions costs of re-sale).

Country Name	Total population	Headcount		People Poor		P$1.9 per day rank
		P$5.5 per day	P$1.9 per day	P$5.5 per day	P$1.9 per day
Total	5093			2764.4	506.7
India	1311	82.3%	13.4%	1078.6	176.0	1
China	1376	27.2%	0.7%	374.4	10.0	11
Indonesia	257	67.0%	7.2%	172.1	18.5	7
Nigeria	182	90.0%	47.8%	163.8	86.9	2
Pakistan	188	78.0%	5.2%	146.6	9.8	12
Bangladesh	160	84.8%	15.2%	135.8	24.2	5
Ethiopia	99	85.5%	27.0%	84.6	26.7	4
Congo, Democratic Republic of	77	97.1%	72.3%	74.8	55.7	3
Philippines	100	64.2%	8.3%	64.2	8.3	13
Egypt, Arab Republic of	91	61.9%	1.3%	56.3	1.2	20
Tanzania	53	91.0%	40.7%	48.2	21.6	6
Mexico	127	37.9%	3.3%	48.1	4.2	15
Brazil	207	19.4%	3.4%	40.1	7.0	14
Kenya	46	86.6%	37.3%	39.8	17.2	8
Myanmar	53	67.6%	6.4%	35.8	3.4	16
Uganda	39	87.4%	39.2%	34.1	15.3	9
South Africa	54	57.1%	18.9%	30.8	10.2	10
Vietnam	93	31.6%	2.3%	29.3	2.1	19
Sudan	40	59.1%	7.7%	23.6	3.1	17
Iraq	36	56.0%	2.2%	20.2	0.8	22
Colombia	48	28.7%	4.5%	13.8	2.2	18
Morocco	34	30.0%	0.9%	10.2	0.3	23
Iran, Islamic Republic of	79	11.8%	0.4%	9.4	0.3	24
Turkey	78	11.5%	0.3%	9.0	0.2	26
Peru	31	24.3%	3.6%	7.5	1.1	21
Thailand	67	7.1%	0.0%	4.8	0.0	29
Argentina	43	8.1%	0.6%	3.5	0.3	25
Ukraine	44	7.8%	0.1%	3.4	0.1	28
Malaysia	30	2.9%	0.0%	0.9	0.0	30
Korea, Republic of	50	1.2%	0.2%	0.6	0.1	27

As in the previous entry, if I had chosen the TOMS shoes give-away impact evaluation as an example of an RCT and what they can do and why they are a contribution I would have been rightly criticized as concocting a straw man. But I didn’t.

I was part of a debate about the value of RCTs in development and development economics at ANU’s Australian AID conference.  The moderator suggested I defend the title of my paper “Randomizing Development:  Method or Madness” versus a proponent who argued they had “revolutionary” impact. I did this with vigor, arguing that RCTs were too often focused on narrow, individuated, targeted programs due to methodological limitations in generating a clean experiment with adequate statistical power on bigger issues of broad importance.

After our opening statements, in response to questions from the audience the proponent of the value of RCTs used as a positive example of the usefulness of RCTs an RCT about giving away free shoes.  Apparently some shoe company CEO decided that giving kids free shoes would be a good idea to help “the poor” (and market his product).  After some time of giving away shoes he did an RCT and found, surprise, surprise, giving a kid a free pair of shoes didn’t make a big (any statistically identifiable) difference.  The RCT advocate said that they perhaps did learn how to give free shoes better: give sneakers instead of loafers (or vice versa, or who cares).  This, he said, was a good example of the benefits RCTs bring to development and development economics.

Imagine going to any developing country in the world (India, Indonesia, Haiti, Nigeria, Ethiopia, Egypt) and telling that country’s economists and economic policy thought leaders (or political leaders or civil society leaders or just the typical woman or man in the street):

“Development economics has this great new tool that is going to improve development. What we have learned with this great new method is that when a Western shoe company markets their product by associating it with beneficial philanthropy by giving away shoes it doesn’t work unless they should give the kinds of shoes kids are actually going to wear.”

I imagine a couple of possible (related) responses.

“This is madness. How could you have come to believe that anywhere in our top 10, nay, top 20, nay top 50 concerns about development and human well-being in our country was the question of whether (or how) to give away free shoes?”

“Do you not see how condescending to the aspirations of our people and our country this is? To reduce our desire for national development to questions of how Western corporations should design their “charity” to be effective marketing of shoes via buffing their corporate image because this type of “intervention” fits your method is beyond insulting.”

Or perhaps they would be polite and respond with bewildered silence.

If I had used this example of an RCT I think I would have legitimately been criticized as being snarky and sarcastic and attacking a straw man by picking the worst possible instance of an RCT to attack. But I didn’t. This isn’t a straw man. This is sincerely what at least one prominent proponent of the “revolutionary” impact of RCTs thinks is a good example. of the contribution of RCTs to development.

Here is the link to the YouTube version of the speech I have in Lahore.

I am adding this in part because the other day I was going to visit my grandson in Oakland and was running late so my daughter was showing him videos of his grandpa from the internet. Being under two years old he didn’t really get the mathy parts but did say “Red grandpa” or “Blue grandpa” so here is a video of “blue

Yogi Berra famously said:  “It is tough to make predictions, especially about the future.”  

However, there is one set of predictions about the future of the world’s advanced economies that are almost certainly right, are historically unprecedented, have dramatic implications, and yet are mostly ignored.  These are the demographic forecasts in the UN Population Division’s 2019 World Population Prospects. 

The UN’s seven (sub) regions of advanced economies: North America, Australia and New Zealand, Europe (with four regions:  East, West, North and South) and Japan are headed into a historically unprecedented demographic transition into much, much older populations. 

As fertility in these regions had dropped below replacement population growth has slowed.  But the overall growth of the population is not the main economic issue: it is the change in the age composition of the population.  Over the next decades the number of people who are old will continue to grow and the number of people who are young and of “labor force” aged will shrink.  Hence the ratios of prime labor force aged (25 to 64) to “retirement” aged (65 plus) populations will fall to numbers never before observed.

Figure 1 shows for these seven regions the evolution of the ratio of prime labor force aged (PLFA) to retirement aged (RA) population using actual estimates from 1950 to 2020 and the UN Zero Migration (ZM) scenario for predictions from 2020 to 2050 (the two are the same for 2020).  The Zero Migration scenario illustrates most clearly the demographic implications of lower fertility and extended longevity. 

Figure 1:  Ratios of prime labor force aged (25-64) to retirement aged populations (65 plus) without migration are forecast to fall to historically unprecedented levels in every advanced economy region

The lowest PLFA/RA ratio in 1950 was 5.  Before 2000 the lowest of any region in the world was 3.28 (roughly the same ratio in 2000 for North, West, and South Europe and Japan).  In 2020 this ratio is lower in every one of these regions than it was in any region in the world in 2000. 

The aggregate “advanced region” ratio in 2020 (2.76) is less than half what it was in 1960 (5.66). 

In 2015 Japan’s ratio fell below 2, less than two people of prime work force age for every retirement aged person.  In the Zero Migration scenario every advanced economy region is forecast to be below 2 by 2050. 

It is far from obvious that these ratios of work force to aged population can sustain the existing schemes of public and private pensions and social security for the aged and the implied health expenditures.  All of these schemes rose to maturity in a historical era in which “pay as you ago” support for these schemes was based on favorable demographics of large ratios of workers to retirees and growing populations (and growing numbers in formal sector employment and rising wages of the employed).     

Over the next few decades the aged population continues to growth whereas the growth of the younger population turns sharply negative.

Figure 2 illustrates the evolution of PLFA and RA aged populations separately.   In the UN WPP Zero Migration scenario the 65 plus population is forecast to grow by 95 million from 2020 to 2050, from 246 million to 340 million (annual rate of growth of 1.09%).  In contrast, the 25-64 aged population is forecast to fall by 121 million people (a negative annual growth rate of 0.65%).  So, while the average population falls by only .25 percent a year, a phenomenon that might seem small and ignorable and not a crisis or cause for action, the growth differential between the aged and younger populations is massive, leading to the very large changes in the ratios.   

Figure 2:  Way more old and way fewer work force aged leaves a massive gap in the workforce aged population needed to keep work force aged to retirement aged ratios constant

With these raw forecasts I do a very simple counter-factual calculation.  Suppose one wanted to keep the ratio of prime work force aged population to retiree aged population as its current ratio of 2.76.  What would the population aged 25 to 64 have to be to keep that ratio constant?  That is simple arithmetic as each older person would need 2.76 PLFA people so there would need to be 262 million (=95*2.76) more PLFA people in 2050 than in 2020. 

But, given the demographics without migration, there are not going to be more labor force aged people, there are going to be massively less PLFA people—121 million less.

So the “stable ratio (PLFA/RA)” population of these advanced regions would have to be 941 million whereas on demographics alone there are going to be 558 million.  The gap is 383 million people.

There are three ways in which 383 million is a massive number.

First, the entire 2020 population of North America (USA plus Canada) is 368 million and the entire population of West and North Europe is 302 million.  So the “prime aged population gap” of the advanced regions is equal to the total (all ages) populations of huge advanced regions like North America or the EU.

Second, and this is adding a hypothetical to a counter-factual, suppose that gap were filled by migration.  This would imply that 40 percent of the total PLFA population (=383/941) would by the result of migration. 

Third, according to the UN estimates of the stocks of migrants by destination and origin in 2017 there were only 119 million migrants from “less developed” countries in “more developed” countries.  This means that if the gap were to be made up by migrants from “less developed” regions (and of course since each of the advanced regions are losing labor force aged populations movement among them cannot change the overall ratios) this would imply the stock of migrants in more developed from less developed countries would have to triple over the next 30 years.

Let me conclude with the four points from the opening paragraph.

One, while lots of things about the future are hard to predict the demographics of the next few decades isn’t one of them.  Everyone who is going to be 65 in 2050 is already alive and 35 years old today so they are neither counter-factual or hypothetical people, the only question is predicting their survival and the actuarial tables have been quite stable and predictable.  So, compared to predicting political (who saw the collapse of the Soviet Union?) or economic (who saw the timing or magnitude 2008 financial crisis?) or social trends (who saw gay marriage coming so quickly in the USA?), demography is very predictable.

Two, these trends are historically unprecedented.    Humankind has never seen entire national and regional populations choose fertility rates so low the demographic pyramid inverts (more old than young) and total populations fall so dramatically for such extended periods.  The advanced economies of the world are moving into completely uncharted demographic territory.

Three, the implications of these demographic trends are likely to be dramatic (although the implications are hard to predict because these conditions have never existed before) for the economy, for fiscal balances, for politics, for society at large.

Four, so far, these coming demographic changes are largely ignored.  As everyone has parents and grandparents and everyone themselves ages (at the same rate in fact, one year per year) the importance for the typical individual in these advanced economies lives of these demographic shifts is likely larger than any of the other issues about the foreseeable future that do chew up column inches, articles, international conferences, and media attention.  My daughter is 35 years old and very concerned about how climate change will affect her child.  I think what demography implies for her (and her cohort) when she is 65 in 2050 is at least as pressing an issue but has no traction at all.

Individual actions that receive praise and social approbation are often those were the individual doesn’t act in ways consistent with their narrow self-interest but sacrifices self-interest for the public good.

A jargon economists use for one type of that public spirited action is “internalizing externalities.” An “externality” is something I do that imposes costs or creates benefits for others but which isn’t reflected in the costs and benefits I personally face. So I could litter and just throw trash on the ground rather than find a waste bin and that would be the privately optimally action given costs and benefits if I didn’t factor in the well-being of others. But my litter reduces enjoyment for others and I should expect social disapproval (“hey, jerk, don’t litter”) if I don’t internalize the externality.

Lots of actions, like not using single use plastic bags or using paper straws or not eating beef or driving a Prius are reflections that the full cost of our consumption decisions on the environment are not factored into the prices we face. When the price of carbon is too low, people want to internalize those externalities and want those actions to be acknowledged with positive social approval.

But for people living in rich countries most people are not considering at all their behavior towards what is the largest price distortion they face, by far. All rich OECD countries impose massive barriers to the mobility of labor. This means the domestic price of labor that rich country citizens face vastly overstates the global cost of low to medium skill labor. Estimates I have done with Michael Clemens and Claudio Montenegro on the Place Premium suggests that in the USA the domestic cost of low skill labor is roughly four to five times higher than its true availability cost to the USA.

That means that if you live in an OECD country, while your current consumption might have too many plastic bags or hamburgers and laundered towels relative to their true cost that factors in environmental damage (externalities not reflected in prices), that is trivially small compared to the fact that your consumption, by reflecting prices distorted by policy choices and not true scarcity values, has dramatically too little unskilled labor.

Here is an example of the odd economics this creates. Here is a automated check out machine at a convenience store in the UK charging me for use of plastic bags. Every economist; left, right, center, agrees that prices should reflect their total, all-in, scarcity value (including externalities, such as environmental damage, that might be under-priced by a free market). But I am being charged this fee for a plastic bag by a machine that has been invented and is being used because a distortion in markets that is larger than the under pricing of plastic bags, by orders of magnitude. Unskilled labor in the UK doesn’t reflect the true global scarcity of labor, it reflects massive policy based distortions to the mobility of labor in the UK that create local prices and availability of labor that do not reflect true economic costs and induce people to use far too little labor and use cheap capital and technology instead.

Using too little labor is bad because far and away the largest proximate cause of poverty is low wages for low skilled labor. Since raw labor is far and away the most important asset of the world’s poor anything that drives down the demand for labor creates a negative externality by raising poverty. So just as using too many plastic bags harms the environment more than its benefits, using too little labor relative to its true scarcity and productivity increases poverty more than its benefits in economizing on labor.

A second example, which gets all of the issues of private and public costs and incentives so badly muddled it is tragi-comic. I went to Norway awhile back and the hotel I stayed in had this door hanger. Given the very high cost of labor in Norway the hotel has powerful incentives to induce its customers to not have their rooms made up as this is likely the largest single element of their marginal cost of providing a room. So they are, in their private interest given costs, trying to convince their customers to voluntarily forgo having their rooms cleaned as it increases their profits. I understand that.

The hotel is trying to convince customers to increase hotel profits is by convincing the customer they are more virtuous if they don’t have their room cleaned because (a) “it saves our planet” and (b) they will donate to victims of human trafficking.

First, the real virtuous thing to do if you want your consumption to reflect externalities is to insist that the hotel use the unskilled labor to clean your room every day (maybe twice a day) because labor is not globally scarce and the hotel should do the virtuous thing and use more unskilled labor reflecting is global scarcity not distorted domestic price.

Second, while not having one’s towels laundered might have some externalities if water and energy are under-priced I suspect these distortions are trivially small compared to actual costs, as water in Norway is priced and electricity in Norway is priced and these prices to the hotel may already reflect true environmental scarcity (particularly if electricity is from non-carbon using sources). So the idea this “saves the planet”–as opposed to “saves on the hotel’s expenses”–is a bit surreal.

Third, and this is truly where my head starts to spin, is the connection with human trafficking. So, Norway imposes an effective ban on low skill migration. This means that the wages for someone in Norway to clean your room is ten times higher than any income from employment a typical person could get in a poor African country. At these wage differentials, that actually reflect true productivity differentials, that is the hypothetical African worker’s marginal product in Norway really does justify the high wage, there is enormous pressure for people to get into Norway, legally or illegally. This desire to move to engage in perfectly ordinary labor–like cleaning rooms–is thwarted by Norway’s policy of restricting labor movement into Norway. This creates demands for “human trafficking” as people want to avoid the restrictions Norway has placed on their opportunities. So this hotel wants you to collaborate with them in driving down global demand for unskilled labor and in maintaining the distortions that make labor costly in Norway by not using unskilled labor to clean your room–and then make you feel good about that terrible choice by donating money to the victims of the illegal and extortionate and abusive industry those distortions create.

This could not be more economically wrong headed (except for about the hotel’s profits) and yet is accompanied by an encouragement to make the customer feel better about themselves.

Jesus once criticized people for “straining out the gnat but swallowing the camel.” People in the OECD today are busy using paper straws to strain out the environmental externality gnat while swallowing the the labor reducing effects of policy distorted labor costs, that are orders of magnitude larger, whole.

I completed a paper (ao-authored with Farah Hani) for the Oxford Research Encyclopedia: Economics and Finance on the economics of international migration. A lot of this was review of the wage differentials (like the Place Premium) but there were three new things.

First, this was the first time I had looked at the Gallup Survey data on whether people, if they were given the choice, would like to move permanently to another country and if so, which country. They then calculate the “net migration change” in the world if everyone who wanted to move did move to their first choice for all population and for youth. The graph is a scatter plot of that with the estimates of labor compensation per worker from the Penn World Tables 9.1 and is divided by terciles of wages (in ‘000s). The oil-rich countries (e.g. Kuwait, Saudi Arabia, etc.) are excluded. To make the graph more readable I compress some of the smaller high attractiveness countries, like Canada whose youth population would increase 343 percent. The median youth population loss in the bottom tercile is 29 percent and the median gain for highest tercile of wage countries is 111 percent–and the USA is right on the median. The middle tercile has very high variance as some regional destinations (e.g. Botswana, Panama) gain alot and some would lose more than 40 percent (Tunisia, Peru).

The second new thing to this paper was to revisit why labor mobility across countries has not been a bigger part of the development agenda (whereas labor mobility within countries, rural to urban, has always been seen as a part of the development process). Besides the obvious political explanation (rich countries didn’t want it to be) there is the point that if one’s growth theory had rapid convergence of TFP (as would be the case if TFP were primarily driven by easily portable codifiable knowledge of the type that “knowledge as an externality”) then accumulated factors (capital and human capital) should move to (newly) high TFP and low factor abundance places. However, and this is one of the biggest facts we learned about development from accumulating data and experiences with growth over time, TFP did not converge. Rather in most regions of the world TFP growth was slower than in the OECD. A lack of TFP convergence puts labor mobility back on the table in a big unavoidable way.

The third was a single paper but it is one of the most striking and borderline macabre economics papers I have seen. It is a “field experiment” by Bah and Batista about the expressed desires of youth in rural Gambia to move illegally to Europe. 46 percent express a desire to migrate illegally to Europe even though they estimate the risk of death is very high. When provided in the field experiment with the “correct” estimate that the trip involved a 1 in 5 chance in death the expressed desire to attempt the journey went up. The fact that about half of rural youth say they would risk a 1 in 5 chance of death to migrate illegally to Europe speaks volumes.