The World Bank’s chief economist Paul Romer has just quit, amid intense controversy about how the Bank pursues its development mission.
According to reports, Mr Romer left following a disagreement about with the way in the Bank calculated its annual Ease of Doing Business Index, which ranks countries according to how easy it is to start a new business. Although the rankings are highly influential in political circles, serous questions have been raised about their accuracy in predicting a country’s real-world economic success.
As Bloomberg reports:
“In 2016, economics student and blogger Evan Soltas measured whether large increases in a country’s position in the rankings were followed by growth. He found no measurable effect, even in the long term, and that taking the World Bank’s advice on structural issues seems to do very little if anything for economic growth.”
In other words, the World Bank has been relying more on guesswork than hard evidence about what actually drives economic growth. And the row the Ease of Doing Business Index is only the latest controversy to hit the Bank.
Its biggest shareholder, the US, has become increasingly vexed that the World Bank continues to lend money to China – a country so rich it has its own development bank – while continuing to deny finance to poorer countries that want to use fossil fuels to develop.
This has led some to argue that the World Bank is in fact become an anti-development bank, more interested in pushing environmental ideology than in helping to address the root causes of poverty. Experts have even suggested that the Bank should wind down its current lending mission and become a development think tank instead.
If the World Bank wants to regain its credibility it should listen to developing countries and lift its restrictions on one thing that we know for sure delivers economic growth: affordable, reliable baseload electricity.