Will Paul Romer get the World Bank out of the randomista business and into Charter Cities?

Unofficially, the WSJ reports that the next World Bank Chief Economist will be Paul Romer.

Romer made his career on growth theory, but most lately he is known for his push for Charter Cities. Here’s his web page and interesting blog. (I’ve been a skeptic, but I like Paul a lot, and we’ve had an interesting back-and-forth on the idea. See my discussion and critique from 2009, Romer replied, and I commented again.)

Meanwhile, the World Bank has become known in recent years first for it’s push for more micro data on poverty, and now for a gush of randomized control trials.

It sounds like this is something Romer might try to change. Today, Tyler Cowen pointed us to a recent blog post from Romer, that he called “Botox for Development”:

The x-ray shows a mass that is probably cancer, but we don’t have any good randomized clinical trials showing that your surgeon’s recommendation, operating to remove it, actually causes the remission that tends to follow. However, we do have an extremely clever clinical trial showing conclusively that Botox will make you look younger. So my recommendation is that you wait for some better studies before doing anything about the tumor but that I give you some Botox injections.”

If it were me, I’d get a new internist.

To be sure, researchers would always prefer data from randomized treatments if they were available instantly at zero cost. Unfortunately, randomization is not free. It is available at low or moderate cost for some treatments and at a prohibitively high cost for other potentially important treatments. Our goal should be to recommend treatments and policies that maximize the expected return, not to make the safest possible treatment and policy recommendations.

I agree and I don’t.

I agree that governments (and the development agencies that support them) have to focus on growth. And most of the policies that promote growth aren’t friendly to randomized trials. But they can be theory and evidence based, at least to some extent. Macroeconomics has a tendency to be an evidence-free zone, though, so we also need to be careful.

When I teach my political economy of development class, I always end on a few quotes. One is from Karl Popper:

The piecemeal engineer knows, like Socrates, how little he knows. He knows that we can learn only from our mistakes. Accordingly, he will make his way, step by step, carefully comparing the results expected with the results achieved, and always on the look-out for the unavoidable unwanted consequences of reform; and he will avoid undertaking reforms of a complexity and scope which make it impossible for him to disentangle causes and effects, and to know what he is really doing.

Such ‘piecemeal tinkering’ does not agree with the political temperament of many ‘activists’. Their programme, which too has been described as a programme of ‘social engineering’, may be called ‘holistic’ or ‘Utopian engineering’.

Holistic or Utopian social engineering, as opposed to piecemeal social engineering, is never of a ‘private’ but always of a ‘public’ character. It aims at remodelling the ‘whole of society’ in accordance with a definite plan or blueprint…

This is one of the things I appreciate about randomized trials, is the regimented process of piecemeal tinkering. Even when they do not run a rigorous trial, a lot of what governments and the Bank are doing is piecemeal tinkering. And the charitable view would say that randomized trials help sort out the bad from the good results after some period of tinkering.

The good trials aren’t just Botox. One example: The Bank encourages countries to borrow hundreds of millions of dollars a year for various employment and labor market projects. A lot of my research suggests that most of the recommended programs don’t work. That is a big problem, and randomized trials have been part of the solution.

Romer would probably agree. But his blog post highlights some places where we differ.

The thing that worries me about policies that “maximize the expected return”, and that don’t “make the safest possible treatment and policy recommendations” is that development agencies and governments have a long history of getting the big answers wrong. Really wrong.

The number one book I have my students read is James Ferguson’s The Anti-Politics Machine (actually I think most of them read the short article version). I also get them to read Nic van de Walle’s book on structural adjustment. Both highlight the grand and unexpected consequences of grand World Bank plans of the past.

A next favorite is Seeing Like a State by Jim Scott. On a bigger historical scale, it too chronicles our history of big plans with big failures. I want to get some hubris and risk aversion settled into my student’s bones.

That’s not to say I’m opposed to big plans or ideas. Paul Seabright has one of my favorite critiques of Jim Scott, and why scientific and state planning are perfectly effective in some cases.  I just think any government, and every non-democratic development agency, ought to behave very cautiously and be very risk averse on behalf of the poor. It must make safe recommendations.

In any case, I welcome some new, big macro thinking at the World Bank. Alongside the piecemeal tinkering and randomized trials, I think it’s time for the Bank to do some innovative and more rigorous macro thinking beyond stabilization policies, improving the investment climate, and so on.

But I’ll leave you with the same quote I end my course on. It comes from Mark Twain: “It ain’t what you don’t know that gets you into trouble. It’s what you think you know that just ain’t so.”