Dani Rodrik's weblog

There is something very wrong with this picture

This graph is from a new paper by Frank Levy and Tom Kochan, showing trends in labor productivity and compensation since 1980:

Labor productivity increased by 78 percent between 1980 and 2009, but the median compensation (including fringe benefits) of 35-44 year-old males with high school (and no college) education declined by 10 percent in real terms.

Women have done in general better, but two-thirds of women still have seen their pay lag behind productivity.

Levy and Kochan call for a Social Compact to reverse these trends, and outline some of the steps necessary to get there. The paper is very well worth reading.

Was the Global Food Crisis Really a Crisis?

By Derek Headey, guest blogger

 

Have higher food prices hurt the poor, or helped them? So far everything we "know" about this topic comes from simulation studies, all of which estimate that poverty or hunger went up by somewhere between 63-160 million people as a result of higher food prices (see here and here and here for previous blogs by Dani on this topic). In a new IFPRI discussion paper I show that these simulations suffer from serious flaws, and that their results are largely contradicted by self-reported food insecurity trends from the Gallup World Poll. The poverty simulations are often quite nice studies, but they are partial equilibrium studies with no wage adjustments, no changes in other commodity prices (like fuel, cotton, coffee, minerals), and no changes in incomes (which were growing all around the developing world from 2000-2008). Hunger simulations have more fundamental problems. Basically they count calorie availability, but the problem with a food or a financial crisis is that it is an access shock, not a production shock. Hence the FAO had to rely on a USDA model (which included reduced "calorie imports") to provide estimates of changes in hunger during the crisis. Yet in my paper I show that USDA's estimates of calorie availability (from early 2008) seem to be contradicted by USDA's own historical data on cereal availability.

Given the limitations of simulation studies, it is surely worth asking what alternative methods have to say. In my paper I make use of the Gallup World Poll surveys conducted in a large number of developing countries both prior to (2005/06) and during the food crisis (2007/08). Gallup (2011) asks a highly useful question on food insecurity: Have you or your family had any trouble affording sufficient food in the last 12 months? Inevitably, there are obvious caveats to any self-reported indicator, as well as some not-so-obvious caveats such as an overly large decline in self-reported food insecurity in billion-plus China. But in the paper I show that changes in this variable have the attractive property of being robustly explained by both food inflation and economic growth. Moreover, even if I make very conservative assumptions about food security trends in China and India, or if I predict changes with an econometric model (which irons out any outliers), then I still find that self-reported food insecurity went down by 63-87 million people, if not more (see the table). In short, I find the exact opposite of the World Bank and USDA/FAO simulations, apparently because economic growth more-than-compensated for any adverse effects of higher food prices. So . . . new data, new doubts. Is it time for international agencies to seriously rethink their approach to measuring food insecurity?

Table 1—Some alternative estimates of global trends in self-reported food insecurity

Estimation scenarios	Estimated change in global food insecurity, 2005/06 to 2007/08
Raw results, 70 countries	-408 million
Raw results, 70 countries, plus assumptions for 16 omissions	-326 million
Raw results, 68 countries, after excluding China and India	+9 million
Raw results, 69 countries, after excluding China	-132 million
Raw results, China and India trends adjusted by error margins	-250 million
Raw results, China and India reductions=3 percentage points	-63 million
Predicted change with econometric model, 88 countries	-87 million

Source: Headey (2011) estimates from Gallup World Poll data.

Why Kemal Dervis should be the next IMF Managing Director

There is a wonderful scene in Sebastian Mallaby's book that covers Jim Wolfensohn's tenure at the World Bank. Wolfensohn is arriving by cargo plane in Sarajevo in 1996, with his point man for Bosnia, Kemal Dervis. Dervis, who has worked hard to put together a reconstruction program for the war-torn nation, has earned the gratitude of the assembled Bosnian dignitaries. When Wolfensohn and Dervis step off their plane, it is Dervis to whom they all rush to greet and embrace – leaving Wolfensohn standing on his own and visibly uncomfortable. Wolfensohn retaliates by showing who the boss is: he turns to Dervis and asks him to fetch his luggage out of the plane.

Dervis has had extensive experience dealing with economic/financial crises (and with inflated egos). As difficult as the Bosnian mission was, his crowning achievement probably is the stabilization of the Turkish economy following the crash of the Lira in February 2001. He showed singular courage and skill in taking this extraordinarily difficult challenge on and carrying it out to completion. (Dervis bungled his subsequent attempt to enter Turkish politics, but given what passes for politics in Turkey, that should probably be counted in his favor rather than against him…) Having served as administrator of the UNDP, his credentials on the development/poverty reduction front are very strong as well.

Dervis comes from an emerging economy that is part of Europe (if not part of the European Union). Aside from very strong connections with leaders elsewhere, he has excellent personal relationships in Europe, including with the Greek prime minister and minister of finance. He is a charismatic leader who knows how to check his ego (as the vignette above shows). He is a terrific mediator and problem-solver.

Consider the (almost) impossible combination of demands that must be met during the job search. The Germans insist the new managing director should be from Europe. Europe's weak periphery wants someone who will be sympathetic to their cause and hit the ground running. Emerging market and developing economies ask for a leader that departs from the usual mold and will reflect their outlook and preferences for a change. And the world needs simply the best man or woman for the job.

Improbably, there is someone who meets all these criteria, and his name is Kemal Dervis.

Why do (some, mostly international) economists dislike democracy so much?

My newest Project Syndicate column was stimulated, if that is the right word, by a comment made by a discussant at a recent book launch for The Globalization Paradox. "Rodrik wants to make the world safe for politicians," complained the discussant, and this set me off thinking. Here is the result.

By the way, I think the answer to the question in my title is that they wish the world were run by Platonic guardians – namely economists like themselves…

The Peterson Institute video

I was at the Peterson Institute recently, hosted by Fred Bergsten at a book-launching event for The Globalization Paradox. The video of my presentation is here, and here is the Powerpoint that goes with it.