When I was at the World Bank I periodically sent short notes on economic development "Best Practices" to a list serve of about 200 economists. The best practice notes were generally grounded in the economics literature, but they frequently proved embarrassing and unsettling to World Bank management, who do whatever they want and call it good economics. Once a friend on the list stopped me in a hallway and asked when the next "Myers Missile" was coming out. When queried, he said that he and friends had dubbed them "Myers Missiles" because they felt that World Bank management had a bunker mentality: They would say, "Look out! Incoming missile," whenever I sent out another note. Below set out several missiles in reverse chronological order, beginning with the latest. You must scroll down to read earlier ones.
October 3 2002 Brazil's Anti-inflation Program is the Problem,
Not the Solution
Dear Friends and Colleagues,
Below is an unpublished
letter to the Washington Post.
Warm regards, Bob Myers
Dear Sir:
I don't believe Paul Blustein's
suggestions (The Post, 9/24/02, p. E1) that Brazil's exchange rate crisis
is due to electoral politics, and that things will improve if the labor
candidate "Lula" credibly embraces the anti-inflation policies of the present
government. The on-going economic crisis is due solely to the current government's
IMF-endorsed anti-inflation policies, which have involved financing
excessive expenditures and deficits with external rather than domestic
borrowing. Had the government eschewed foreign borrowing, successful anti-inflation
policies would have entailed smaller deficits and higher (but not the presently
ruinous) real domestic interest rates--and no economic crisis. Brazil has
an unsustainable $300 billion external public sector debt. The IMF's proposal
to raise this debt by another $30 billion is hogwash. Brazil needs a dramatic
write-down, by perhaps $200 billion, of public sector external debt coupled
with a government promise to never again incur public sector external debt.
This will allow private entrepreneurs to establish external commercial
(not political) creditworthiness, thus increasing Brazil's domestic tax
and financial bases and the availability of non-inflationary domestic financing
for the public sector.
Sincerely, Robert Myers
Nov. 15, 2002 Uncharacteristic Candor about Aid
Dear Friends and Colleagues,
I hope you are all
well. I go off to Nigeria tomorrow for twelve days on an aid-related mission
but would like to acquaint you with the content of some articles I've read
recently. The lightest but most surprising article is on p. 59 of The Economist
of November 2, 2002. The content of the article is summed up in its subtitle,
"Britain hopes good governments will help rebuild African states: Dream
on." The suggestion from the normally aid-friendly Economist is that a
lot of aid, including that targeted to improving political governance,
is at least wasted, and possibly damaging to faster economic development.
Aid can be damaging
if it accompanies, or worse, increases corruption. This question is considered
in an article in the latest American Economic Review ("Do Corrupt Governments
Receive Less Foreign Aid?" by Alberto Alesina and Beatrice Weder -AER,
Vol. 92, No. 4, Sept. 2002, pp. 1126-1137). The authors' strongest, quite
robust conclusion is that donors DO NOT DECREASE aid-flows in the face
of increasing corruption. The authors also find with somewhat less robustness
that
greater corruption is associated with greater aid-flows, particularly
for aid from the USA , but also from multilateral (IFI) donors. It may
be the case that corruption and aid go hand-in-hand because government
employees don't mind stealing foreign aid but dislike stealing revenues
raised domestically through taxes and local bond issues from their
compatriots.
A third article ["The Central
Role of Entrepreneurs in Transition Economies," by John McMillan and Christopher
Woodruff, Journal of Economic Perspectives, Vol. 16 No. 3, Summer 2002,
pp. 153-170] considers what's the better way to initiate private enterprise
growth in formerly socialist economies: a) by first privatizing public
corporations (monopolies) or, b) by first stimulating (subsidizing?) the
emergence of competing private entrepreneurs. The authors conclude that
b), emphasizing support for new entry of entrepreneurs is better. It
is also possible, as hinted by Nellis and Birdsall, that competitive private
sector development is a precursor to successful privatization of
public enterprises.
It is tempting to draw the
negative conclusion that donors should stop or cut back on aid-funds provided
for better governance, less corruption and privatization of public enterprises
(monopolies). However, there is another possibility: If aid that directly
stimulates entry if new competitive private sector activities is increased,
perhaps it will enhance the effectiveness of all the other uses of aid.
Warm regards, Bob Myers
October 1 2002- The Protestors are Right: Privatization Can be Harmful
Dear Friends and Colleagues,
John Nellis and Nancy Birdsall,
two very savvy friends, have written extensively about how privatization
affects poverty. An op-ed piece in the Christian Science Monitor of Sept.
26, 2002 (go to: http://www.csmonitor.com/2002/0926/p11s01-coop.html) loosely
sums up their empirically based view that privatization increases poverty
in the short run but theoretically reduces it in the long run. Since the
short run is all there is to life, it appears that the protestors are correct:
Privatization worsens poverty. But John, Nancy, and a host of others may
be looking at things backwards. They may be testing the hypothesis that
successful privatization causes greater GDP growth in the longer-term,
thus leading to reductions in poverty, assuming income growth is not too
skewed.
It may be the other way
around. Faster (private sector) GDP growth, if accompanied by unfettered
investor competition, may both reduce poverty and create an atmosphere
favorable to successful privatization. If this is correct, rapid private
sector growth and robust competition among investors are necessary conditions
for both successful privatization and poverty alleviation. If so, the World
Bank and other donors have wasted billions of dollars financing privatization
in inappropriate circumstances, involving private sector stagnation and
monopolization. Better would be much smaller amounts of widely distributed
subsidies (grants) to private investors that stimulate growth in competition,
output and employment. If these small subsidies stimulate competitive
private sector activity, we'd get a "twofer": reductions in poverty and
successful privatization.
Warm regards, Bob
Myers
September 4, 2002--Afghanistan: Choosing Between Commercial Agriculture and Heroin
Dear Friends and Colleagues,
If you were to ask development economists what should be done about agricultural
development, e.g., in Afghanistan, they'd generally advocate expanding
and modernizing peasant farming. John Mellor, a luminary in agricultural
economics with many like-minded ex-students, has argued persuasively that
stimulating more modern
peasant farming is a necessary ingredient for economic development.
A recent paper (go to
http://www.cid.harvard.edu/caer2/htm/content/confsite/htm/spkrbios/speakr_l.htm
and click on "DA21 Discussion Paper") argues for the adoption of government
policies and expenditure/credit programs that expand modern peasant farming,
thus increasing rural employment and reducing poverty. This will keep peasants
and their families out of the cities, where they would swell the ranks
of the "unsightly", politically volatile urban unemployed.
There is a problem with this bucolic solution. Peasant farms in Afghanistan
now grow so much poppy that according to PBS they provide 70% of the world's
heroin. Improving peasant farming in Afghanistan will significantly increase
the amount of heroin in the world, thus enriching a few at huge cost to
many. Aid bureaucrats will argue that they can solve this dilemma administratively,
by improving peasant farm incomes while wiping out poppy production. Cadres
of anti-drug personnel know that this is balderdash. Peasant farmers, ultimate
businessmen that they are, will simply figure out how to grow more poppy,
more cheaply.
A interesting, short article by Douglas Gollin and others in the May 2002,
AEA Papers (pp. 160-164), entitled "The Role of Agriculture in Economic
Development" re-introduces us to a long-standing solution, without considering
the drugs problem. The argument is that government policies must allow/encourage
increases in total agricultural productivity (TAP). This will involve market-based
consolidation of small farms into large commercial farms and the voluntary
migration of
large amounts of farmers/workers into urban areas. This is not bucolic,
but it will help solve Afghanistan's poppy problem because commercial farming
businesses generally don't grow dope. The Golin, et al, article implicitly
assumes that structural changes in rural areas occur without extensive
government interventions, through market-based sales of peasant-owned land
to commercial farmers. In addition, the article explicitly assumes rapid
growth in urban employment. It thus appears that an inexpensive and effective
way to reduce poverty and develop a dope-free Afghan agricultural sector
is to liberalize and legalize two things. One is the market exchange of
peasant land (assets). The other is investment of land-sale proceeds, etc.
in small, service-oriented urban industries. These now abound in informal
urban economies but are horribly inefficient and poverty sustaining because
they are "illegal" and harassed by officialdom.
Warm regards, Bob Myers
August 20, 2002-Comments on "The Free-Trade Fix" by Tina Rosenberg in NYT Magazine
Dear Friends and Colleagues,
Here are my
comments on an article several people sent me entitled, "The Free-Trade
Fix" by Tina Rosenberg, in the
August 18, 2002, New York Times Magazine. It can be accessed at the
following web site (copy & paste):
http://www.nytimes.com/2002/08/18/magazine/18GLOBAL.html?ex=1030645199&ei=1&en=61ecc21d3025b697
Ms. Rosenberg
makes many on-the-one-hand-on-the-other-hand points that obscure an overall
conclusion. There's no
clear message regarding what should be done differently. The author
ignores the major problem with "globalization," the
horrible consequences of excessive PUBLIC SECTOR FOREIGN DEBT. Brazil
would be better off today and have much
better future growth prospects if the Government of Brazil (GOB) had
not crowded out its own private sector's foreign
borrowing by incurring a flabbergasting $300 billion in foreign currency
debt. How can GOB possibly service all that debt
without taxing her own private sector to death? Toward the end of the
article Ms. Rosenberg cites a very important point
made by Dani Rodrik, among others: faster private sector growth leads
to more international trade, even without trade
liberalization. The point is that Brazil would have faster GDP growth,
less poverty, a stronger national currency, and more
international trade if GOB had borrowed $0 from abroad and allowed
her private enterprises to borrow perhaps $50 billion
from abroad to finance more private investment.
The World Bank
and IMF lend only to governments and always want to lend more. Their development
advice
presumes/requires more and more public sector foreign borrowing. This
crowds out private enterprise and kills growth in
domestic tax collections, thus increasing government dependency on
foreign borrowing and the IMF and World Bank. The
problem with globalization is not trade liberalization (which as Dani
Rodrik suggests, may not be necessary) but massive
foreign borrowing by public sectors, aided and abetted by the IMF and
World Bank.
Warm regards,
Bob Myers
Joe Stiglitz: Sex Symbol (7/19/02)
Dear Friends and Colleagues,
Let's face it, the dismal science needs sex and Joe Stiglitz is providing it with his book on Globalization. Joe's eminence within the profession is due to his early, rigorous and innovative but turgid writing on how altruism and asymmetric information can affect free markets. This led to a Nobel Prize, so inflating Joe's ego that he's now mooning his fellow economists with his book. John Cassidy has a well written review in the New Yorker of 7/15/02 (see: http://www.newyorker.com/critics/books/?020715crbo_books1 ). Cassidy's review suggests to me that Joe's rant against the IMF is liberating some very base, anti-market, anti-capitalism, anti-private enterprise instincts. The flavor of Cassidy's review, and of others I've read, is that since the IMF doesn't work, private enterprise can't succeed either. Cassidy says, "The common theme running through Stiglitz's academic work is that markets often don't work in the simplistic way that is taught in Econ 101." And later he says, "…global capitalism has outgrown its institutional framework." Based on these phrases with incredibly opaque meanings, Cassidy supports "…restructuring the international institutions, so that they are more democratic and effective." Wow, what an earth-shattering recommendation! Let's do it and fix things once and for all!
Joe's book makes only one
point in 282 pages: the IMF is broken. This does not mean that the global
economy is broken, and that private enterprise is failing. Having learned
that sex sells, it's time for Joe to use his expertise suggesting how to
make globalization, privatization, etc. work better, not stimulating their
replacement with more democratically conceived government and IMF initiatives.
Warm regards,
Bob Myers
July 9, 2002-Stiglitz Versus the IMF's Rogoff: An Old Fashioned Hair-Pulling Cat Fight
Dear Friends and Colleagues,
I remember watching a WW II black and white movie in the late 1940s in
which US soldiers in Italy were watching a couple of prostitutes engaged
in a hair-pulling cat fight over who got a serviceman's business. A peach
fuzz-faced private asked two grizzled vets why they weren't stopping the
fight. "They're just women. They won't hurt anything and they'll share
the money afterwards." I feel the same way about the very public fight
between Joe Stiglitz and the World Bank and Ken Rogoff and the IMF. Joe's
Nobel Prize has gone to his head and caused him to spout utter balderdash
in his book on Globalization, particularly in differentiating between the
World Bank and IMF and their staffs. Both staffs are talented and delightful
outside, and arrogant and ineffective inside their institutions. The World
Bank and IMF are failing their clients and primarily concerned with their
institutional aggrandizement. Ken Rogoff is flailing back with his own
ad hominem
attacks (see www.imf.org/external/np/vc/2002/070202.htm), with IMF
managerial approval. Everyone appears desperate to draw attention from
Argentina, a colossal World Bank/IMF failure.
Milton Friedman, a
Nobel laureate with brains, courage and class, made his reputation by establishing
that the US Federal Reserve should NOT use all the power given it by politicians.
In spite of personal attacks, he persistently demonstrated that excessive,
ill-timed interventions, no matter how altruistically motivated, increase
rather than reduce human misery. It is time for economists in the Bank
and Fund to find the courage to force their management to appreciate the
harm that excessive, ill-timed intervention and lending cause their clients.
Ken Rogoff, a talented economist, can make a much greater contribution
by helping identify when and where the Bank and IMF should NOT intervene
and how they can intervene more subtly and effectively, rather than by
attacking Joe's inflated ego. It is time for both institutions to concern
themselves less with institutional aggrandizement and more with improving
the lot of their clients.
Warm regards, Bob
Myers
June 26, 2002--A Significant Aid Victory
Dear Friends and Colleagues,
Allan Meltzer, about 75 years
old, is still a very good, committed and active economist. He has just
had another success, relating to a G-7 agreement to convert about 20% of
future subsidized World Bank (IDA) lending into grants. This makes him
a hero, at least to me and to the millions of poor people who will benefit
from his tenacity. John Taylor, an academic economist now with the US Treasury,
also deserves praise for sticking to his principles in spite of charges
and counter charges like "stupid" and "crazy." The World Bank, the
British and much of the press, have made light of the significance of the
grants-instead-of-loans idea even though the fight, pro and con, has been
intense. In announcing the loans-to-grants agreement, Paul Blustein (The
Washington Post--6/14/02, p. E3) said, "…it matters little…[because] …
IDA loans are already provided on such generous terms that they resemble
giveaways." This is monstrously disingenuous.
Suppose that in 1992 Tanzania
borrowed a large interest-free IDA Education Credit and received a $1 million
disbursement in the first year. At the 1992 TSH/$ exchange rate (300:1),
this disbursement would have financed TSH 300 million of education expenditures.
However now, at the end of the grace period, a TSH one billion payment
(and equivalent
reduction in local expenditures) would be required to repay the 1992
disbursement, given the present devalued exchange rate. How many sane people
would argue that requiring a TSH 1 billion repayment for a loan of TSH
300 million is a "giveaway"? Especially compared to a grant, where
the required repayment and reduction in local expenditures would
be zero.
Warm Regards, Bob Myers
---END---
June 9, 2002--Is Norwegian Aid for Health Bad for Uganda?
Dear Friends and Colleagues,
I'm back from two
wonderful weeks in France and a fun, exhilarating week in the US Mid-west
where I attended my 40th college reunion in Grinnell, Iowa. I returned
to a lot of email, including one from friends at 50 Years Is Enough regarding
the topic below. Warm regards, Bob Myers
A
friend at the IMF, a good and empathetic economist has been given the task
of telling the Government of Uganda (GOU) to reject donor monetary grants
for health facilities to fight disease and aids. Paul O'Neill, the most
savvy and genuine aid person in the Bush administration, has called this
"baloney." Jeff Sachs has called it "preposterous." An argument is raging,
as reported by Alan Beattie in the May 28, 2002, Financial Times and Michael
Phillips in the May 29, 2000, Wall Street Journal. My friend at the IMF
is correct in a limited macroeconomic sense: Uganda is experiencing a "Dutch
disease" problem because large amounts of monetary aid are destroying productive
incentives and encouraging sloth and stealing. ("Dutch disease" refers
to the problems that the surge of North Sea oil revenue caused in Holland
in the 1970s. Youths there remained unemployed, smoking dope while living
on the oil largesse.) But the IMF is woefully incorrect in
demanding that Uganda not use grants for health while GOU continues
to borrow overseas for general budgetary support, e.g., from the IMF and
World Bank. The flap started when GOU accepted but didn't spend a $3 million
Norwegian health grant, instead using it, at the IMF's behest, to increase
international reserves. Norway is peeved. In fact, this "Dutch disease"
issue is widespread amongst developing countries (Nigeria is a prime example
and Russia is not far behind). Many developing government budgets in addition
to Uganda are dependent on rent and foreign aid for financing 50% or more
of their annual expenditures. This is aid dependency, not "sustainability."
The IMF and World Bank are dead wrong, but Paul O'Neill and Jeff Sachs
are not quite correct. The problem in Uganda as elsewhere is that aid and
excessive World Bank/IMF lending is supporting overblown,
overbearing governments. In fact, it is aid-bloated governments, not
the Dutch disease, which is destroying productive incentives. Norway should
have offered the aid to any Ugandan health providers EXCEPT the Government.
If there is no additional absorptive capacity outside GOU then the aid
should be offered to create more non-government capacity in
Uganda. This approach gets the aid to the people, rather than to the
Government, and allows them to garner private earnings through efficient
provision of health services. This expands Uganda's tax base. Norway might
also have considered granting the aid to non-government health service
providers in nearby countries (so Ugandans can travel to them), but it
is unlikely that the IMF and World Bank certify these countries' policy
frameworks as aid-worthy. Norway believes in these policy
certifications, although it shouldn't. They are baseless and fickle
(Ghanaians, earlier aid darlings, have learned that what the IMF &
World Bank give, they also take away). These policy certifications enhance
the power and image of the World Bank and IMF, but are otherwise irrelevant,
especially for aid that is targeted to non-government entities, assuming
governments do not have the aid resources to finance interventions.
---END---
May 8, 2002--The IMF & Argentina: When less is more.
Dear Friends and Colleagues,
Below is a short letter
that I sent to the Washington Post. It's basic premise is that Governments
run amuck, with IMF/World Bank help and approval, and contract much more
foreign debt than their citizens would ever dream of borrowing collectively.
Warm regards, Bob Myers
Dear Sir:
Anthony Faiola's article ("Growing Crisis Leaves Argentina Feeling Helpless,"
The Post, p. A1, 5/3/02) suggests that Argentina, it's citizens and their
economic problems are unique, defying normal solutions. Not true. Turkey,
Russia and Indonesia, among others, are hovering on the same external indebtedness
precipice. Their citizens, like Argentines want to live beyond their means.
They feel entitled to the benefits from government foreign borrowing, but
refuse responsibility for repayment of the loans. This same mentality causes
excessive lending by private international creditors. They know that
governments will borrow far more from abroad than their citizens would
borrow collectively. But these creditors also know that the IMF, World
Bank, etc. will ratify or "guarantee" this excessive lending on the bogus
grounds that it helps the poor. When the chickens come home to roost, it
is the poor who suffer terribly. Jeffrey Sachs and others seem bereft of
new ideas because they want us to believe that the social problems caused
by excessive public-sector foreign debt can be solved by
yet more international lending to governments. Not true: no way.
Sincerely, Robert Myers
---END---