CNN

Did the World Bank modify its ratings to manipulate the outcome of an election in Chile?

PNRJ current events, development economics, ethics, inequality, public policy , , , , , , , , , , , , , , ,

Jan 21 JDN 2458140

(By the way, my birthday is January 19. I can’t believe I’m turning 30.)

This is a fairly obscure news item, so you may have missed it. It should be bigger news than it is.
I can’t fault the New York Times for having its front page focus mainly on the false missile alert that was issued to some people in Hawaii; a false alarm of nuclear attack definitely is the most important thing that could be going on in the world, short of course of actual nuclear war.

CNN, on the other hand, is focused entirely on Trump. When I first wrote this post, they were also focused on Trump, mainly interested in asking whether Trump’s comments about “immigrants from shithole countries” was racist. My answer: Yes, but not because he said the countries were “shitholes”. That was crude, yes, but not altogether inaccurate. Countries like Syria, Afghanistan, and Sudan are, by any objective measure, terrible places. His comments were racist because they attributed that awfulness to the people leaving these countries. But in fact we have a word for immigrants who flee terrible places seeking help and shelter elsewhere: Refugees. We call those people refugees. There are over 10 million refugees in the world today, most of them from Syria.

So anyway, here’s the news item you should have heard about but probably didn’t: The Chief Economist of the World Bank (Paul Romer, who coincidentally I mentioned in my post about DSGE models) has opened an investigation into the possibility that the World Bank’s ratings of economic freedom were intentionally manipulated in order to tilt a Presidential election in Chile.

The worst part is, it may have worked: Chile’s “Doing Business” rating consistently fell under President Michelle Bachelet and rose under President Sebastian Piñera, and Piñera won the most recent election. Was that the reason he won? Who knows? I’m still not entirely clear on how we ended up with President Trump. But it very likely contributed.

The World Bank is supposed to be an impartial institution representing the interests of global economic development. I’m not naive; I recognize that no human institution is perfect, and there will always be competing political and economic interests within any complex institution. Development economists are subject to cognitive biases just like anyone else. If this was the work of a handful of economic analysts (or if Romer turns out to be wrong and the changes in statistical methodology were totally reasonable), so be it; let’s make sure that the bias is corrected and the analysts involved are punished.

But I fear that the rot may run deeper than this. The World Bank is effectively a form of unelected international government. It has been accused of inherent pro-capitalist (or even racist) bias due to the fact that Western governments are overrepresented in its governance, but I actually consider that accusation unfair: There are very good reasons to make sure that your international institutions are managed by liberal democracies, and turns out that most of the world’s liberal democracies are Western. The fact that the US, France, Germany, and the UK make most of the decisions is entirely sensible: Those are in fact the countries we should want making global decisions.

China is not underrepresented, because China is not a democracy and doesn’t deserve to be represented. They are already more represented in the World Bank than they should be, because representing the PRC is not actually representing the interests of the people of China. Russia and Saudi Arabia are undeniably overrepresented. India is underrepresented; they should be complaining. Some African democracies, such as Namibia and Botswana, would also have a legitimate claim to underrepresentation. But I don’t lose any sleep over the fact that Zimbabwe and Iran aren’t getting votes in the World Bank. If and when those countries actually start representing their people, then we can talk about giving them representation in world government. I don’t see how refusing to give international authority to dictators and theocrats constitutes racism or pro-capitalist bias.

That said, there are other reasons to think that the World Bank might actually have some sort of pro-capitalist bias. The World Bank was instrumental in forming the Washington Consensus, which opened free trade and increase economic growth worldwide, but also exposed many poor countries to risk from deregulated financial markets and undermined social safety nets through fiscal austerity programs. They weren’t wrong to want more free trade, and many of their reforms did make sense; but they were at best wildly overconfident in their policy prescriptions, and at worst willing to sacrifice people in poor countries at the altar of bank profits. World poverty has in fact fallen by about half since 1990, and the World Bank has a lot to do with that. But things may have gone faster and smoother if they hadn’t insisted on removing so many financial regulations so quickly without clear forecasts of what would happen. I don’t share Jason Hickel’s pessimistic view that the World Bank’s failures were intentional acts toward an ulterior agenda, but I can see how it begins to look that way when they keep failing the same ways over and over again. (I instead invoke Hanlon’s razor: “Never attribute to malice that which is adequately explained by stupidity.”)

There are also reports of people facing retaliation for criticizing World Bank projects, including those within the World Bank who raise ethical concerns. If this was politically-motivated data manipulation, there may have been people who saw it happening, but were afraid to say anything for fear of being fired or worse.

And Chile in particular has reason to be suspicious. The World Bank suddenly started giving loans to Chile when Augusto Pinochet took power (the CIA denies supporting the coup, by the way—though, given the source, I can understand why one would take that with a grain of salt), and did so under the explicit reasoning that an authoritarian capitalist regime was somehow “more trustworthy” than a democratic socialist regime. Even in the narrow sense of financial creditworthiness that seems difficult to defend; the World Bank knew almost nothing about what kind of government Pinochet was going to create, and in fact despite the so-called “Miracle of Chile”, rapid economic growth in Chile didn’t really happen until the 1990s, after Chile became a democratic capitalist regime.

What I’m really getting at here is that the World Bank has a lot to answer for. I am prepared to believe that most of these actions were honest mistakes or ideological blinders, rather than corruption or cruelty; but even so, when millions of lives are at stake, even honest mistakes aren’t so forgivable. They should be looking for ways to improve their internal governance to make sure that mistakes are caught and corrected quickly. They should be constantly vigilant for biases—either intentional or otherwise—that might seep into their research. Error should be met with immediate correction and public apology; malfeasance should be met with severe punishment.

Perhaps Romer’s investigation actually signals a shift toward such a policy. If so, this is a very good thing. If only we had done this, say, thirty years ago.

How can we stop rewarding psychopathy?

PNRJ ethics, market failure, public policy , , , , , , , , , , , , ,

Oct 1, JDN 24578028

A couple of weeks ago The New York Times ran an interesting article about how entrepreneurs were often juvenile delinquents, who then often turn into white-collar criminals. They didn’t quite connect the dots, though; they talked about the relevant trait driving this behavior as “rule-breaking”, when it is probably better defined as psychopathy. People like Martin Shkreli aren’t just “rule-breakers”; they are psychopaths. While only about 1% of humans in general are psychopaths, somewhere between 3% and 4% of business executives are psychopaths. I was unable to find any specific data assessing the prevalence of psychopathy among politicians, but if you just read the Hare checklist, it’s not hard to see that psychopathic traits are overrepresented among politicians as well.

This is obviously the result of selection bias; as a society, we are systematically appointing psychopaths to positions of wealth and power. Why are we doing this? How can we stop?

One very important factor here that may be especially difficult to deal with is desire. We generally think that in a free society, people should be allowed to seek out the sort of life they want to live. But one of the reasons that psychopaths are more likely to become rich and powerful is precisely that they want it more.

To most of us, being rich is probably something we want, but not the most important thing to us. We’d accept being poor if it meant we could be happy, surrounded by friends and family who love us, and made a great contribution to society. We would like to be rich, but it’s more important that we be good people. But to many psychopaths, being rich is the one single thing they care about. All those other considerations are irrelevant.

With power, matters are even more extreme: Most people actually seem convinced that they don’t want power at all. They associate power with corruption and cruelty (because, you know, so many of the people in power are psychopaths!), and they want no part of it.

So the saying goes: “Power tends to corrupt, and absolute power corrupts absolutely.” Does it, now? Did power corrupt George Washington and Abraham Lincoln? Did it corrupt Mahatma Gandhi and Nelson Mandela? I’m not saying that any of these men were without flaws, even serious ones—but was it power that made them so? Who would they have been, and more importantly, what would they have done, if they hadn’t had power? Would the world really have been better off if Abraham Lincoln and Nelson Mandela had stayed out of politics? I don’t think so.

Part of what we need, therefore, is to convince good people that wanting power is not inherently bad. Power just means the ability to do things; it’s what you do that matters. You should want power—the power to right wrongs, mend injustices, uplift humanity’s future. Thinking that the world would be better if you were in charge not only isn’t a bad thing—it is quite likely to be true. If you are not a psychopath, then the world would probably be better off if you were in charge of it.

Of course, that depends partly on what “in charge of the world” even means; it’s not like we have a global government, after all. But even suppose you were granted the power of an absolute dictatorship over all of humanity; what would you do with that power? My guess is that you’d probably do what I would do: Start by using that power to correct the greatest injustices, then gradually cede power to a permanent global democracy. That wouldn’t just be a good thing; it would be quite literally and without a doubt the best thing that ever happened. Of course, it would be all the better if we never built such a dictatorship in the first place; but mainly that’s because of the sort of people who tend to become dictators. A benevolent dictatorship really would be a wonderful thing; the problem is that dictators almost never remain benevolent. Dictatorship is simply too enticing to psychopaths.

And what if you don’t think you’re competent enough in policy to make such decisions? Simple: You don’t make them yourself, you delegate them to responsible and trustworthy people to make them for you. Recognizing your own limitations is one of the most important differences between a typical leader and a good leader.

Desire isn’t the only factor here, however. Even though psychopaths tend to seek wealth and power with more zeal than others, there are still a lot of good people trying to seek wealth and power. We need to look very carefully at the process of how we select our leaders.

Let’s start with the private sector. How are managers chosen? Mainly, by managers above them. What criteria do they use? Mostly, they use similarity. Managers choose other managers who are “like them”—middle-aged straight White men with psychopathic tendencies.

This is something that could be rectified with regulation; we could require businesses to choose a more diverse array of managers that is more representative of the population at large. While this would no doubt trigger many complaints of “government interference” and “inefficiency”, in fact it almost certainly would increase the long-term profitability of most corporations. Study after study after study shows that increased diversity, particularly including more equal representation of women, results in better business performance. A recent MIT study found that switching from an all-male or all-female management population to a 50-50 male/female split could increase profits by as much as forty percent. The reason boards of directors aren’t including more diversity is that they ultimately care more about protecting their old boys’ club (and increasing their own compensation, of course) than they do about maximizing profits for their shareholders.

I think it would actually be entirely reasonable to include regulations about psychopathy in particular; designate certain industries (such as lobbying and finance; I would not include medicine, as psychopaths actually seem to make pretty good neurosurgeons!) as “systematically vital” and require psychopathy screening tests as part of their licensing process. This is no small matter, and definitely does represent an incursion into civil liberties; but given the enormous potential benefits, I don’t think it can be dismissed out of hand. We do license professions; why shouldn’t at least a minimal capacity for empathy and ethical behavior be part of that licensing process?

Where the civil liberty argument becomes overwhelming is in politics. I don’t think we can justify any restrictions on who should be allowed to run for office. Frankly, I think even the age limits should be struck from the Constitution; you should be allowed to run for President at 18 if you want. Requiring psychological tests for political office borders on dystopian.

That means we need to somehow reform either the campaign system, the voting system, or the behavior of voters themselves.

Of course, we should reform all three. Let’s start with the voting system itself, as that is the simplest: We should be using range voting, and we should abolish the Electoral College. Districts should be replaced by proportional representation through reweighted range voting, eliminating gerrymandering once and for all without question.

The campaign system is trickier. We could start by eliminating or tightly capping private and corporate campaign donations, and replace them with a system similar to the “Democracy Vouchers” being tested in Seattle. The basic idea is simple and beautiful: Everyone gets an equal amount of vouchers to give to whatever candidates they like, and then all the vouchers can be redeemed for campaign financing from public funds. It’s like everyone giving a donation (or monetary voting), but everyone has the same amount of “money”.

This would not solve all the problems, however. There is still an oligopoly of news media distorting our political discourse. There is still astonishingly bad journalism even in our most respected outlets, like the way the New York Times was obsessed with Comey’s letter and CNN’s wall-to-wall coverage of totally unfounded speculation about a missing airliner.

Then again, CNN’s ratings skyrocketed during that period. This shows that the problems run much deeper than a handful of bad journalists or corrupt media companies. These companies are, to a surprisingly large degree, just trying to cater to what their audience has said it wants, just “giving the people what they want”.

Our fundamental challenge, therefore, is to change what the people want. We have to somehow convince the public at large—or at least a big enough segment of the public at large—that they don’t really want TV news that spends hours telling them nothing and they don’t really want to elect the candidate who is the tallest or has the nicest hair. And we have to get them to actually change the way they behave accordingly.

When it comes to that part, I have no idea what to do. A voting population that is capable of electing Donald Trump—Electoral College nonsense notwithstanding, he won sixty million votes—is one that I honestly have no idea how to interface with at all. But we must try.