Why predictions fail

If *only* we had included institutions in our prediction model

Over at the Why Nations Fail blog, Daron Acemoglu and James Robinson’s discuss a set of growth predictions made by Paul Rosenstein-Rodan, the father of  the Big Push model, illustrating just how wrong they were:

Acemoglu and Robinson argue that the these predictions were off primarily because the Big Push model ignored politics and institutions:

Of course, things didn’t quite work out that way. In fact, many of the economies about which Rosenstein-Rodan was bullish are not much richer today than they were in 1961. Liberia and Haiti’s economies contracted since then. Angola, Kenya, Nigeria and Uganda haven’t done so well either. We of course know that Afghanistan, India and Pakistan grew more slowly than South Korea, Taiwan, Thailand and Singapore. Argentina and Haiti were no match for Costa Rica, the Dominican Republic and Panama.

The main reason why Rosenstein-Rodan got it so wrong is because he completely ignored the role of institutions and politics.

It’s hard to disagree that Rosenstein-Rodan should have taken these into account – but are they the primary drivers? What about geography, natural resources, export commodity prices, health and the myriad other factors which might drive a country’s growth rate? Without a little more effort, the models lack of effectiveness doesn’t tell us anything about why it is ineffective. I understand that Acemoglu and Robinson consider institutions to be the chief determinant of everything since the beginning of time, but arguing that the Rosenstein-Rodan prediction is wrong because it ignored institutions is a little like arguing that a car missing all four wheels won’t drive because – damn it – it’s also missing four tires.

Slightly more disconcerting: A&J are only displaying a subset of predictions from Rodan’s original paper. Why? My guess is that eye-balling the full dataset doesn’t reveal as much. This calls our for a slightly more rigorous approach than pointing to a few bad predictions. Even better, does someone have the time to crunch the numbers and see if Rodan’s predictions are less useful than predictions being made today?

Thinking carefully about mimicry

If donors are the ones creating the incentives for effective institutions, who knows if they will stick?

In a really interesting post, MJ over at Bottom Up Thinking discusses the connections between evolution and institutional development in aid-dependent countries, comparing the tendency for recipient governments to adopt the semblance of good institutions and practices with the concept of Batesian mimicry. Just as natural selection will favour insects that look like other, more dangerous insects, the external incentives that aid recipients face will push them to look far more effective than they actually are.

Lant Pritchett first posited this connection with evolution in a recent CGD podcast and an accompanying working paper with Michael Woolcock and Matt Andrews defined the practice as `isomorphic mimicry’: “the adoption of the forms of other functional states and organizations which camouflages a persistent lack of function.” Anyone who has walked into a government office with a sign proclaiming “this is a corruption-free zone” will understand this concept immediately.

I would argue that such behaviour is generated mostly by external incentives: in aid-dependent countries, donors carry some of the biggest sticks and carrots, and so create an enormous amount of pressure for governments to look effective. This is partially a result of a historical tendency to focus on monitoring inputs and best practices rather than paying attention to outputs.

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A Very Exciting Post about Grey-Suited Bureaucracy

Reorganizing the Civil Service is like drawing a knife through a bowl of marbles

Reorganizing the Civil Service is like drawing a knife through a bowl of marbles

Government is not a team. It is a loose confederation of warring tribes.

Sir Humphrey Appleby

The critics of the global aid architecture tend to focus a great deal of our ammunition on donors, and this fulfils a useful function. Donors do many things wrong collectively and individually; on the grand scale of their ambitions and in the minute details of specific programmes. They also have far more power than the average developing country Government and so are under less pressure to reform their practices. Of course, small and large NGOs are fodder for criticism concerning their venality and uselessness or their bizarre programmes in others while Governments come under a great deal of fire for their more exuberant violations of the social contract to which they are supposedly held.

In general criticism of Government tends to be of its role as a political entity. Equally worthy of thought is the functioning of Government as a bureaucratic structure. I’ve worked in civil services in a few countries now for varying stretches of time, and have deep reservations as to whether their structure in low-income countries is best suited to get the most out of any development expenditure, let alone aid.

I should make it clear that I believe that strong Government is central to the possibility of organised development (i.e. any process of economic transition that is managed to occur rapidly). This isn’t a universally accepted view, but my own inclination to look at historical development processes suggests that Governments are often central to development, whether through the affirmation and enforcement of property rights (as De Soto argues) or through active industrial policy (Chang). Their attempts do not always work, but the potential is there, provided they identify and execute their most appropriate role. The analysis that follows is a questioning of whether or not current structures help or hinder this.

Let’s leave aside for a moment the question of whether a particular Government is as an entity developmental or not. We’ll imagine a well-functioning democracy with a stable political base, capable of making difficult decisions but not so stable as to be a de facto autocracy. In a low-income African country, how would you structure this Government’s bureaucracy? Think about it for a moment, while I sketch what most developing country Finance Ministries actually look like, focusing on the policy side.

The Ministry is overseen as a political creature by the Minister of Finance; its technocratic brain is a Secretary to the Treasury. The political and technocratic masters of the Finance ministry oversee a bureaucracy that normally comprises of these elements: a budget department; an accountant general’s office, which manages the process of Government spending; a department for external finance; a tax and revenues department, which deals with the policy of taxation while collection is undertaken by a separate agency. Most countries will have some kind of macro-economic monitoring department. All will also have a national planning and strategy section. These are the departments that create Poverty Reduction Strategy Papers (PRSPs) and their successor documents. In some cases these will be a department in the Ministry of Finance and Economic Planning; in others it will be a separate Ministry of Economic Planning.

Instinctively, most of this seems to make sense. After all, it’s how most developed country Treasuries will be organised, though substituting the External Finance department with a foreign assistance department of some description, and with the addition of some further policy arms and perhaps a slightly finer sub-division of responsibilities. Yet, those of us who have spent significant stretches of time inside these developing bureaucracies quickly realise that this structure does not work.

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The primary aim of our development policies… is to stop people messing with my car.

On Friday, a driver turned into the road in front of my car (a petite Suzuki Escudo, car fans) with a long thick plank of wood hanging off the back of his pick-up. The plank swung into the side of my car and left a dent big enough to prevent the passenger door from opening fully.

It’s just a car. No big deal (I’m not crying. It’s raining on my face). But what got me thinking is that the standard response to road accidents here is some variation of the DiCaprio justification. Is this just patronising? Why should there be any poverty or under-development related reason why people should drive like maniacs and road accidents should be so frequent? Poverty doesn’t mean that people can’t learn about road safety, particularly those who can afford cars!

My guess is that there are probably a few reasons why road safety in Africa is so poor:

  • Poor roads. These can cause accidents because the money to maintain them simply isn’t allocated; however, this should not impact on the frequency of people-denting-my-car-with-wooden-planks incidents. It should induce more careful driving.
  • Poor institutions. Weak road traffic institutions allow maniacs who drive with planks in their car to have licenses, often for the cost of ‘chai’.
  • Poor pay / Corruption. Those police officers hired to prevent people from driving around with planks hanging off the back of their pick-ups are often underpaid and can be induced into allowing such unacceptable behaviour … for the price of ‘chai’.

Are there other reasons I’m missing? The reason this bothers me is if these are genuinely the only reasons why road safety is so bad here, and the standard of driving so low, then we’re admitting that people are basically lazy and dangerous, not taking sufficient care about the property and lives of others, unless someone with a big stick threatens to beat us with it if we do wrong, and can make that a credible threat. Is there no evolution of social norms to reduce the cost of bad driving?

Of course, this is not an Africa-specific problem. I learnt more swear words in twenty minutes driving with my uncle in Sri Lanka than I did in years of mis-spent youth; again, maniacal drivers and crap roads = high incidence of road accidents.

As a totally unbiased and not-at-all-angry-at-pick-up-drivers-with-planks-hanging-off-the-back-of-their-cars observer, I suggest this is an area where much greater analysis and policy work is needed. We need to follow this politician’s lead.

Update: In light of the comment on the post, I just wanted to make it absolutely clear that the comments on driving in Africa (and indeed other places with bad institutions for maintaining driving standards like Sri Lanka) relates to all drivers in the place, not just Africans! As Joe points out many expats who go to live in Africa accept and participate in bad driving practices that most wouldn’t do at home – hence my speculation that a big element of road safety is institutions and enforcements because most people who move to or live in countries where these are poor seem to drive recklessly.