AMITY SHLAES ON WOLFOWITZ AND BOLTON

Lynne Kiesling

Today Tech Central Station has an article from Amity Shlaes, an author whose writing I enjoy, on the selection of Paul Wolfowitz and John Bolton for the World Bank and UN, respectively. Her comments are consistent with my observations, although she does not point out that one thing that’s at stake is the use of new institutional economics research at the World Bank. Over the past decade World Bank economists have increasingly used NIE analysis to understand how institutions like property rights, legal rules, financial regulations, culture, and the indigenous governance institutions on common-pool transactions like irrigation and grazing, have affected economic growth in different societies. Shlaes observes:

Yet all too often over the decades it has willfully neglected the variables of both democracy and micro-economics in the growth equation. It has become obsessed with the environment. And it has battled too little for the entrepreneur and too much against poverty. The latter has often been a vain battle, especially when thuggish governments confidently sabotage — or profiteer from — Bank initiatives.

She got it partly right; willful neglect of democracy and microeconomics is only part of the story. Neglect of the role of (formal and informal) institutions like property rights, governance structures, social norms, and culture can matter a great deal, and are increasingly being incorporated into World Bank analyses. If Wolfowitz can articulate a vision that relies strongly on NIE, and can exercise leadership in a potentially contentious situation, then I think it will be constructive. If his focus and vision are more political and less economic, then I am skeptical.