Mahmud Tim Kargbo: Sierra Leone Telegraph: 4 March 2020:
The swift departure of Penny Goldberg from the chief economist role at the World Bank is a good example of what can happen when the world of public officialdom and that of academia combine – or in this case, clash.
Initially, the relationship is mutually beneficial — the institution’s reputation is raised through its union with a top-drawer talent, while the academic has a chance to shape policy. More often than not, however, the honeymoon is followed by a eye catching falling out, when the academic refuses to tow the party line and says the work of the institution is flawed.
Now it’s very clear, poverty in the developing world is intractable because the World Bank trains its employees on how to partner with local elites to siphon monies meant to tackle poverty.
Maybe these are worrying signs for Sierra Leone, having a former World Bank employee managing the country’s economic affairs as Finance Minister.
Many have no doubts, watching the country’s GDP dropping down to four percent, despite claims by the Bio-led government of having blocked all leakages in the economy.
The specifics of the chief economist’s departure are not known, with Goldberg herself saying nothing ahead of her return to Yale this March. However, the story links the departure with research — reviewed by her department, but allegedly blocked from publication by those higher-up. The research is into aid granted by the Bank, falling into the wrong hands. (Read article below).
After aid to a country spikes, money departs for offshore haven. And after a sensitive paper is spiked, Penny departs for New Haven.
The work is the fruit of three economists, including Jørgen Juel Andersen of BI Norwegian Business School and Niels Johannesen of the University of Copenhagen and CEBI —who have in recent years looked at where monies meant for the poor in the developing nations go (surprise: usually into bank accounts in financial havens). The other contributor is the World Bank’s Bob Rijkers.
The research paper indicates that monies in the form of aid flows into the pockets of elites in the recipient country, and not to those that it is meant to help. Ironically, this finding is reached through the use of the World Bank’s project database.
The research uses quarterly information on aid disbursements from the World Bank, covering the 22 most aid-dependent countries including Sierra Leone, in combination with Bank for International Settlements banking statistics, which cover the flows between the country receiving the aid and havens such as Switzerland, Luxembourg, the Cayman Islands and Singapore, where secrecy and asset protection are paramount.
For comparison, the research also looks at flows between the recipient country and Germany, France and Sweden — places not as vaunted for their banking secrecy. Scenarios that one would expect to lead to higher inflows and outflows, such as wars or financial crises, are excluded.
In a quarter where a country receives aid equivalent to 1 per cent of GDP, its deposits in havens increase by more than 3 per cent relative to a country receiving no aid; there is no increase in deposits held in non-havens. This, on average, means 7.5 per cent of aid is “leaked”.
There is compelling evidence too to support the idea that the higher the aid contribution and the more reliant a country is on aid, the more of that aid is siphoned off by elites, with the leakage figure for the most aid dependent nations rising to 15 per cent.
The economists acknowledge that the research has its limitations. For instance, it is impossible for them to tell who is moving the funds out of the country, with the BIS statistics only counting the total flows per quarter between countries.
Yet, their argument that the results offer “salient and plausible” evidence that elites in several of the world’s poorest countries are siphoning off aid is a compelling one.
Current research from data leaks and tax amnesty documents show that accounts in havens are overwhelmingly held by the very rich. The fact that most of the outflows occur at more or less exactly the same time as the inflows, strengthens their case too.
And, if it is businesses shifting the funds they gain from aid projects, then why are we not seeing a rise in deposits held in non-havens?
So what’s the case for the World Bank withholding publication of the research?
Well, it is clearly highly embarrassing that an organisation which aims to do good in developing countries may be exacerbating the already wide chasm between the haves and have-nots.
What the research also reveals is the World Bank’s futility: there is no way around the problem. In most countries, their presence is small, and the chances of the local staff being able to police corruption limited.
While there is always the risk of embarrassment, in the long run it’s better for the reputation of public institutions to foster differences of views than to allow their work to become stymied by groupthink.
If top economists fear that their work will be toned down and remain in academia, they will lose out too. Would the World Bank have been so willing to part with its data, if the academics had not been working in collaboration with someone within the bank?
Unless public institutions allow for research independence within their organisations, more bad policies will remain in place, unquestioned by those who fear their career is under threat from reprisal. And that is in the interests of no one, especially the world’s poorest.