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The Evolution of Ignorance

Paul Krugman’s recent talk of intuition vs. models has inspired me to dig up one of his old papers from 1994, “The Fall and Rise of Development Economics.” The paper is long but the theme is clear—knowing more sometimes causes us to know less.  Here is an (extremely) abridged version:

Krugman uses the example of the mapping of Africa where “the improvement in the art of mapmaking raised the standard for what was considered valid data. Second-hand reports of the form “six days south of the end of the desert you encounter a vast river flowing from east to west” were no longer something you would use to draw your map…And so the crowded if confused continental interior of the old maps became “darkest Africa”, an empty space. Of course, by the end of the 19th century darkest Africa had been explored, and mapped accurately. In the end, the rigor of modern cartography led to infinitely better maps. But there was an extended period in which improved technique actually led to some loss in knowledge.”

He parallels this to story of Hirschmann and how an idea was rejected by the economics community because it was impossible to be formally modeled—that is, until our modeling techniques got better and the idea was, well, modeled.  Like it or not, this is the way modern economics works—with models as necessary simplifications of reality.

“Still, there are highly intelligent and objective thinkers who are repelled by simplistic models for a much better reason: they are very aware that the act of building a model involves loss as well as gain. Africa isn’t empty, but the act of making accurate maps can get you into the habit of imagining that it is. Model-building, especially in its early stages, involves the evolution of ignorance as well as knowledge; and someone with powerful intuition, with a deep sense of the complexities of reality, may well feel that from his point of view more is lost than is gained.

But that initial narrowing is very hard for broad minds to accept. And so they look for an alternative. The problem is that there is no alternative to models. We all think in simplified models, all the time. The sophisticated thing to do is not to pretend to stop, but to be self-conscious — to be aware that your models are maps rather than reality.”

“The truth is, I fear, that there’s not much that can be done about the kind of apparent intellectual waste that took place during the fall and rise of development economics. A temporary evolution of ignorance may be the price of progress, an inevitable part of what happens when we try to make sense of the world’s complexity.”

I’ll stop my rampant butchering of the paper as there are many more interesting bits.  If you’re interested, more here.

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Long, Long Way From Home

I find the idea of migration-for-development pretty intriguing owing to the fact that it has the potential for wide-reaching effects, even if it’s often not practically never very popular in receiving countries.

The idea is simple—that wage and productivity differentials between the developing and developed worlds are large enough to benefit those who move from the former to the latter—but the mechanics are not, of course.

For example, the demand for skilled migrant labor in developed nations is typically higher than that of unskilled demand.  This is good in the sense that it provides incentives for workers to invest in their own skills in order to reap the benefits of migration.  But it’s also negative in that it isolates the poorest who lack resources to improve their human capital in the first place.

Temporary movement of persons (TMP) schemes can fix this problem by targeting the poorest and allowing them to work abroad for short durations.  This runs into a number of issues—what if they overstay their visas or become victims of exploitation?  Or what if, in the end, the durations are just too short to provide much benefit at all?  In a recent analysis of a program in New Zealand, these problems never manifested and program participants received much larger gains in annual income than did beneficiaries of other traditional types of interventions (more here).  Whether similar results could hold elsewhere remains to be seen.

Success will hinge on the development of the scheme itself—whether costs borne by migrants are low enough to justify their stay as well as whether migrants have repeated opportunities to work in foreign labor markets.  Equally important are the incentives behind labor demand, particularly regarding worker skill level.  Private sector demands should drive the migrant quotas so as not to undermine the receiving economy’s labor demand and supply disparities.

There’s more to the story, particularly in the implementation process.  But basically, much of this boils down to an incentive compatibility issue, i.e. how to ensure that everybody behaves as they should honestly or ‘truthfully’ behave.  And of course, that’s not so easy, is it?

Still, the success in New Zealand allows me some not-entirely-baseless optimism.  For some more on migration for development, check here for starters.


Dollars & Sense

A recent article in Fast Company critiques Mark Zuckerberg’s plan of spending $100 million dollars to remedy Newark’s struggling education system.  His chutzpah is reminiscent of good-intentioned celebrity activism that lacks actual impact.  If anything, the article definitely illustrates the diversity of opinion among the educational community about what is best—from investing in early childhood development to incorporating more parent-teacher interaction to rethinking the way we teach.

This makes me think of two things:

First, that throwing $100 million at educational reform idea is unlikely to do the trick, particularly if said big spender is inexperienced with educational policy.  Zuckerberg is of course not going it alone, but his approach is about finding what fits into his beliefs on what is the best “theory of change” for education as opposed to creating any compromise or innovation among the already disparate opinions of educationists.

Second, I’d like to see more of these ideas applied in developing nations.   Naturally there are a great many binding constraints that need to be eliminated before many of these things could be feasible—for example, early childhood development matters little in the classroom in face of illness and malnutrition which will stop any progress in its tracks.  But all things considered, the quality debate is a relatively new one in the literature on educational achievement in developing nations simply because the focus for so many years was just to get children into schools, regardless of whether they were actually learning or not.

That being said, it seems we are continually searching for the one mostly magic educational intervention that can have significant, distinguishable impact.  There is a new paper by Eric Hanushek (gated), a man who knows his stuff, claiming that the economic value of higher teacher quality is enormous.

Education is the furthest thing from a recipe, and it’s easy to see that quality is difficult to agree upon, implement, and measure in the US.  These problems are only magnified in situations with less infrastructure and fewer resources. Yet integrating quality dimensions more effectively into the strategic educational framework is crucial to bridging educational divides because it ensures that children are actually learning, rather than being tallied as enrollment statistics.

[Inspiration for the title.]


Risky Business

Though I have much love for Professor Collier, he was deservedly taken down a peg for his suggestion that the international community encourage a coup in Cote d’Ivoire.

Of course, when an alternative is the much less sexy sounding idea that a declaration of non-transferability on contracts can force Gbagbo into a financial bind, maybe we can’t blame him. (Nope…actually we still can.)

This suggestion was recently blogged by Todd Moss at CGD.  Translation?  It’s the idea that Gbagbo needs cash (to pay the military) so no one should loan it to him.  Why?  Because he ain’t gonna pay it and whoever comes to power next will have to pay those leftover debts.  And, if anyone is in fact willing to give him money, this is pretty risky which means the reflected interest rates on that debt will be high.  Basically, this is a way of saying that the next administration shouldn’t be punished for Gbagbo’s irresponsible borrowing today, while Gbagbo will come under pressure when he doesn’t pay up to residents or foreigners.

The key issue here is that maybe this is unnecessary because no one will loan money anyways since the risk is too high and any contracts would be widely recognized as unenforceable.  Or, squeezing Gbagbo’s pocketbooks might have negative effects on the general population depending upon how long this standstill holds out.   EU assets are already frozen but Gbagbo has struck back by getting his cash via other means—seizing the central bank.

On top of this, his rival, Outtara, is urging cocoa importers to boycott Ivorian cocoa in order to cut off Gbagbo’s financial lifelines.  Though this may be damaging to Gbagbo, it will alternatively hurt the livelihoods of farmers and encourage cocoa smuggling to neighboring countries.

Just like everyone else, we’ll be waiting to see what happens next.


An Upside to Conflict?

The conclusion that civil wars are destructive to development shouldn’t come as much of a surprise.  But what if the opposite were true—that is, what if there was something positive that comes out of war’s devastation?  The idea certainly isn’t obvious, but it is just what Philip Verwimp recently presented in a new working paper.

The gist is this: Being directly affected by violence changes an individual’s preferences.  That is, people affected by conflict don’t think in the same way as before.  This might not seem like breaking news.  In fact, it’s pretty obvious.  But for economists, who generally accept preferences as more or less given, it’s relatively grey territory.

Using games to test for social, risk, and time behavior, the researchers evaluated villages in Burundi.  Due to the somewhat random and indiscriminate progression of violence during Burundi’s civil war, they were able to compare the responses of those who had been affected by conflict with those who had not.

What’s the take away? Those affected by conflict tended to be more altruistic but also more impatient and risk-seeking.

What does this imply? That exposure to violence could foster stronger social networks but also increase the likelihood for individuals to want immediate returns over longer term ones.  These ideas link up with psychological studies and some recent research by Chris Blattman and others.  It’s all very muddy, but understanding more clearly how behavior changes as a result of external trauma like conflict is an extremely important dimension in the structure of development interventions.

And what about the limitations? Ignoring more technical points, the overall positive or negative effect here is ambiguous.  There is also a distinction between behavior and preferences—here they assume that behavior changes reflect preference shifts but this isn’t always so.  But, from common sense, behavior changes are no doubt more complex than the basic experiments shown here can gauge.

It’s a good start but only a start.


Index-a-thon

Since we bashed Transparency International’s Corruption Perception Index, it just wouldn’t be right if we ignored the brand new Human Development Report which is, it just so happens, chalk full of indices. Fortunately, it’s not all bashing this time.  (We have a love-hate relationship with statistics.)

Just which indices are we talking about here? The alphabet soup of HDR acronyms includes the well-known Human Development Index (HDI) and, this year, adds several others such as an Inequality-adjusted HDI and a Gender Inequality Index as well as a new Multidimensional Poverty Index.  The idea behind these measures is to look at aspects of poverty like education and health that can’t be seen through the lens of traditional income growth statistics.

Bear with us for a quick breakdown (or just skip ahead for some bashing):

The HDI includes three dimensions—health, education, and income—measured from life expectancy, school enrollment rates, literacy, and GDP per capita.  The new MPI expands upon this concept even further by combining health and education indicators like child mortality, nutrition, years of schooling, and child enrollment with standard of living measures such as access to electricity, drinking water, sanitation, flooring, cooking fuel and basic assets like a radio or bicycle.  The goal in all of this is of course to look at holistic deprivations, not just income poverty—recognizing that “people’s lives cannot be measured simply in terms of money or income.”

As we mentioned before, throwing a bunch of different ingredients together with arbitrary weights of importance can be a recipe for a completely muddled version of reality.  Because weighting (or giving importance to indicators) is pretty arbitrary, UNDP weighs everything equally and also has a website where anyone can build their own development index to assign their own weights to whichever indicators they want.

UNDP has also responded to past criticisms by providing disaggregations of the indicators.  For example, income can be the sole driver behind a country’s HDI improvement (which, by the way, is exactly the case for China this year).  Since this obviously doesn’t paint an accurate picture of what is happening, the report lists countries’ HDI improvements accompanied by gains from non-income HDI.  This emphasizes the point that indices are often misrepresentations of reality if taken at face value—but at least UNDP is trying to get that message out there, too.

The MPI is another story altogether.  It has come under more fire because it aggregates  even more poverty indicators.  The pros? MPI can add more nuance to the MDGs by showing overlap between different dimensions—that is, it can figure out in how many ways an individual is poor.  This is important for comparing inequality among regions and even within countries.  The cons? For starters, it compares “apples and oranges” while implicitly putting value equivalencies on human lives.  And the need for homogeneous data means the indicators were drawn from less rich data sets.  Looking at it this way means it amounts to no more than an intellectual exercise since the most useful part of the data, as is the case with the China example above, comes from when it’s broken down, not mashed together.

Kudos to UNDP for highlighting the complexities of poverty but, as always with statistics, proceed with caution.  Or, in other words: “Math may be the language of the Devil, but statistics proves that reality really is what you make it.” (Stephen Colbert)


Nigeria vs. The World Bank: The Palm Oil Debate

This is, perhaps strangely, not the first piece I’ve written on the topic of palm oil lately. But a recent NYT op-ed  called “The World Bank’s Palm Oil Mistake” caught my attention.  The article calls out the World Bank’s IFC for freezing its funding on palm oil projects while reevaluating its strategy for the environmental and social impacts of palm oil production, specifically due to the freeze’s negative effects on Nigerian producers.  And while I agree with the author on certain points, his attacks fall short.

Oil palms outside of Kuala Lumpur, Malaysia

Why do we care about palm oil anyways?

In a nutshell, it has a variety of uses and nutritional properties from biodiesel to  food products.  Its production can be used to diversify and strengthen developing economies.  On the darker side, palm oil production has been implicated in severe environmental degradation via deforestation as well as the exploitation of socially marginalized groups.

What’s the World Bank’s mistake?

Because the majority of palm oil production occurs in Asia, specifically Malaysia and Indonesia, the environmental issues arising from palm oil are often Asia-centric and may fail to take the specificity of other nations into account.  After all, the funding freeze occurred after complaints from “smallholder and indigenous groups in Indonesia” –a far cry from the Nigerian context.  By freezing investment in all countries, producers in Nigeria are put in a difficult economic bind.

But the article’s reasoning lost me right about here:

“According to the bank itself, since its inception, life expectancy in developing countries has risen by more than 20 years. Adult illiteracy in poor nations has been cut in half since 1980. And over the past two decades, the number of people living on less than $1 a day, while unacceptably high, has dropped for the first time.”

An interesting observation that of course tells us nothing whatsoever about causal impacts.  The piece then goes on to advocate that, because of this success, the World Bank should focus more on poverty reduction and less on issues such as environmental sustainability.  Ignoring this question for the time being, I looked a bit deeper into the research behind these claims.  A survey of Nigerian palm oil producers in recommendations to the World Bank revealed the following:

“With respect to a potential environmental harm (widespread clearance of forests, massive CO2 emissions and the theft of indigenous peoples’ lands) three-quarter of palm oil producers surveyed (75 percent) have never noticed any potential environmental harm caused by the palm oil production. In addition, they are not convinced that palm oil production can be a potential threat to the environment.”

Well, unfortunately, just because I don’t notice my CO2 emissions from flying in a plane doesn’t mean they don’t exist.  I’m being a bit harsh (note that the Nigerian method of production is generally less wasteful than others) but only to illustrate the point that there seems to be an inherent bias in a methodology that  surveys palm oil producers.  So, while I’m sympathetic to the argument that it’s unfair to lump Nigeria in with Indonesia on the basis of social marginalization, the existing research doesn’t hold much water.  Just like advocates can be accused of greenwashing and blackwashing to lobby for environmental causes, facts shouldn’t be exaggerated to make the opposite case either.

Prioritizing the issues

This brings us back to the question of whether poverty reduction should come before environmental sustainability or vice versa?  The author lambasts the World Bank for pandering to lobbyists and becoming “captured by environmental extremists” who put the needs of the environment before those of the poor. Yet both poverty and environmental concerns should go hand in hand to avoid creating negative consequences on one another.  I think this is the strategy the bank is attempting to adopt by reevaluating its investment policies altogether.   Is it a little drastic to freeze all investments completely?  Perhaps.  Should they take more regional specificities into account?  Definitely.   And should they keep funding Nigerian producers?  Sure, contingent on increased clarity about the environmental effects of doing so.  Palm oil has been a great engine for growth in Malaysia and Indonesia and, if given the chance to be farmed sustainably, it could provide the same opportunities for Nigeria and others in the region.

[Photo credit: the author]