Applying Economics to Economists

EXECUTIVE SUMMARY: Economists generally believe that it is important for workers to be held accountable for the quality of their work in order to maintain high levels of economic efficiency. In particular, International Financial Institutions (IFIs) such as the International Monetary Fund and the World Bank have been strong advocates of weakening regulations that limit the ability of companies to dismiss workers. While there is clearly some validity to this view, it is not clear that it has been applied to the economists at these institutions.

This paper outlines a proposal for increasing the efficiency and effectiveness of these institutions by institutionalizing mechanisms of accountability. There are four basic principles to the proposal:

1. Well-specified goals – the expected outcome of a specific policy should be clearly stated before borrowing countries begin to implement it.

2. Frequent evaluations – the IFIs should at regular intervals indicate whether the country is on course to meet the stated targets. If it appears to be failing to meet the targets, then it should be clearly indicated whether the failure is due to the country not following through with the specifics of the program, whether unforeseen events had occurred, or whether the program was poorly designed for the circumstances.

3. Identify the responsible economists and their supervisors – policies should be clearly associated with specific economists, as well as the people who oversee them. If policy recommendations turn out poorly, because they were badly designed, it should be possible to hold the authors accountable.

4. All the reports should be fully public. The IFIs should also take steps to ensure that they are widely available in the affected countries. This is essential to ensuring that the public in these countries is fully informed on the factors determining key policy decisions and the reasons for their success or failure.

If the IFIs follow these principles in monitoring their programs, it should allow for greater internal accountability, as well as providing client countries with a better basis to assess recommended programs. For example, if a program is proposed by an economist with a poor track record, countries should be aware of this fact before they adopt the program. Steps towards increased accountability should lead to the more efficient operation at the IFIs and better policy.

CREDIT INFO: Weisbrot, Mark and Dean Baker, "Applying Economics to Economists: Good Governance at the International Financial Institutions," CEPR Briefing Paper, 20 July 2004.