Waylaid Dialectic

March 28, 2012


Filed under: Aid,Development Theory,Economic Development — terence @ 6:44 am

Two things to do with petrol.

1. Kevin Watkins has a great post up at the Guardian on a major, neglected development/health issue: the damage done by traffic.

2. Over at CGD, in a post posing some questions to the three World Bank presidency contenders, Nancy Birdsall enthuses thus about Ngozi Okonjo-Iweala:

She has practiced good economics in the hard soil of tough politics in Nigeria, fighting high-level corruption at personal risk, recently working to eliminate gasoline subsidies that benefit the car-owning rich while sapping the public budget of resources to serve the poor.

I live and work on the other side of the world so maybe I’m mistaken but, aren’t these the same subsidies whose elimination sparked wide scale rioting and protest across Nigeria?

If so, then the first question I would want to ask for this Ms Okonjo-Iweala would be something like:

Are you committed to economic purism? Or are you willing to accept the political economy and institutional constraints mean that almost all developing countries (not to mention much of the developed world) are examples of ‘second-best’ policy spaces, where sometimes interventions that offend the intuitions of economists are often nevertheless the best we can do?

This would be my burning question because, contra Birdsall, it wasn’t just the rich protesting the end of the subsidies – the poor were up in arms to. This was the case because the subsidy withdrawal impacted on everyone, not just car drivers. Everywhere on Earth we pay the price of transport in our lives, be it through bus fares, or transported goods. Transport costs affect everyone. The poor may not own cars but they are often the least able to afford the price hikes they experience nonetheless.

Which isn’t to say that the subsidy is ideal. There are probably many other interventions through which the same amount of money could better enhance the welfare of the poor (better funding for health clinics; a simply UCT etc.)

However, are any of these alternatives actually on the table in Nigeria? And, even if they are, is the government capable of introducing them, and running them in a way that doesn’t leak like a rusty old petrol can?

I could be wrong of course, it’s not a part of the world I’m familiar with. Maybe the brave Finance Minister talked down the protesters, implemented an excellent cash transfer scheme, and the poor are now much better off. This might have happened but I would be surprised if it has.

I think there’s a lot to be said for the insights that come from analysis inspired by simple economic theory. But it has its limits. And the last time economic purism ran riot in the Bretton Woods institutions it was disastrous for the poor. And I’m not really sure I want a leader of the World Bank who is economically tidy, but also prone to causing the odd riot.

Pragmatism over purity.

That would be a good motto for the World Bank, I think.

Blog at WordPress.com.