ACADEMIA Letters THE WORLD BANK, COVID-19 AND GLOBAL PRODUCTIVITY – REFERENCE PARADIGMS (Critical Assessment) Daniel Linotte, St. Antony’s College, Oxford Introduction Referring to the on-going COVID-19 crisis, mid-2020, the World Bank posted on its website the first edition of a new report: Global Productivity – Trends, Drivers, and Policies. It is an interesting document, with Alistair Dieppe as editor and lead economist (Dieppe, 2020). The report is presented as a milestone document, covering most countries, from all continents, with different levels of development. In this short note, we briefly comment issues that could matter for future research, beyond the stimulating World Bank contribution. In line with previous works, the issues we discuss could also help better identify the contour of the implicit and/or explicit political economy paradigm(s) – seen as a set of values, reading lenses, theories, methods and tools –, endorsed and/or used by the those who prepared the study. 1. GDP and well-being GDP is the key-indicator that is being used extensively in the World Bank document. It should normally exclude the informal sector – which relates to activities that are most important for large segments of the population in many developing countries; it often represents a source of Academia Letters, February 2022 ©2022 by the author — Open Access — Distributed under CC BY 4.0 Corresponding Author: Daniel Linotte, daniel.linotte@gmail.com Citation: Linotte, D. (2022). THE WORLD BANK, COVID-19 AND GLOBAL PRODUCTIVITY – REFERENCE PARADIGMS (Critical Assessment). Academia Letters, Article 4835. https://doi.org/10.20935/AL4835. 1 low incomes for day-to-day survival –, and include the full range of products that characterize the formal sector of an economy, as recorded by national accounts. The definition of GDP implies that the outputs of defense-related industries, security services, private banking and the large profits made by specific companies operating in markets with limited competition, are fully taken into account. Following the views of the proponents of Ethical Economics, including Nobel Prize Winner Amartya Sen, it would make sense to question the inclusion of such sectors when discussing economic growth, development and welfare issues (Fox, 2012; Wells, n.d.). Thus, large inequalities and widespread poverty may lead to crime and increase the use of protection and security services by the elites, companies and various institutions. Defense industries produce outputs that can terminate millions of lives and contribute to a nuclear holocaust. Private banking flourishes a lot with capital flights resulting from corruption in some of the poorest countries. Pharma companies may impose high prices on specific drugs because of the lack of competition and incompressible health needs. In addition, the negative impacts (externalities) of pollution – because of production, storage, distribution and consumption activities – on the environment are not properly taken account when calculating GDP. For instance, a major pollution can contribute to GDP growth just because it requires costly cleanings and intensive health cares to heal contaminated people. Despite valuable explanations about conceptual and measurement issues, the World Bank document does not contain critical information about the content of GDP and the ethical questions it may raise. 2. The Kaldor-Verdoorn’s Law In the World Bank 2020 publication, global productivity as such is hardly defined – the document refers to both total factor productivity (TFP) and the (average) productivity of labor. And, as mentioned in Box 1.1 (p. 18), throughout the book, productivity is defined as output (GDP) per input of a unit of labor. When discussing the dynamic of economic growth and labor productivity, N. Kaldor, J.S.L. McCombie, R. Rowthorn, A. Thirlwall and P.J. Verdoorn are seen as major contributors. In particular, the so-called Law of (Kaldor-)Verdoorn – first published in 1949 in L’Industria – led to a considerable number of studies, linking labor productivity growth and the dynamic of manufacturing production in different countries and regions. For instance, McCombie and his colleagues, from Cambridge University, published several contributions on the Verdoorn’s Law – some of these works can be seen as global, covering together developed and developAcademia Letters, February 2022 ©2022 by the author — Open Access — Distributed under CC BY 4.0 Corresponding Author: Daniel Linotte, daniel.linotte@gmail.com Citation: Linotte, D. (2022). THE WORLD BANK, COVID-19 AND GLOBAL PRODUCTIVITY – REFERENCE PARADIGMS (Critical Assessment). Academia Letters, Article 4835. https://doi.org/10.20935/AL4835. 2 ing countries with panel-like data. In 2006, the UN also published an interesting survey on diverging growth and development, referring explicitly to transition and developing countries, and the Verdoorn’s Law. Taking into account factors that reflect human capital and technology, and levels of development, the Verdoorn’s Law coefficients can help identify the industrial sectors that are characterized by economies of scales and increasing returns, which has policy implications (McCombie and al. (Ed.), 2002; Magacho and McCombie, 2018). With the exception of Nobel Prize Kaldor (whose name appears once in the references see Boppart, 2014), the other leading scholars, despite the relevance of their contributions, are not mentioned at all in the World Bank extensive report. 3. Productivity and wages The World Bank report starts with two citations, from Maurice Obstfeld and Paul Krugman. The second one is most interesting. According to Krugman, productivity isn’t everything, but in the long run it is almost everything. In fact, when considering the last two or three decades, labor productivity and wages became more and more disconnected. In the OECD region, the gap has been growing for at least two decades, especially for median compensations (OECD, 2018). In the US, the disconnection started in the late 1970s (Fix, 2020) – between 1979 and 2018, productivity increased by 70%, which is 4.66 times higher than the compensations change (15%). The reported tendencies imply that productivity gains do not necessarily mean better lives for the workers in the long run. In addition, given the enlarging gap, such gains could simply contribute to growing inequalities in many places. The World Bank document refers to wages. However, there is no mention at all of the growing gaps or disconnection between them and labor productivity in major economies, on the contrary. 4. Climate change The impact of COVID-19 on climate change is noticeable. In 2020, it did correspond to a sharp reduction of CO2 emissions and better air conditions in most cities. These effects of COVID-19 on the environment have been observed and commented by scholars, governments and international organizations, including UN ones (especially UNDP) – it is even mentioned as a mass experiment for the climate by the BBC (Kasriel, 2020). It Academia Letters, February 2022 ©2022 by the author — Open Access — Distributed under CC BY 4.0 Corresponding Author: Daniel Linotte, daniel.linotte@gmail.com Citation: Linotte, D. (2022). THE WORLD BANK, COVID-19 AND GLOBAL PRODUCTIVITY – REFERENCE PARADIGMS (Critical Assessment). Academia Letters, Article 4835. https://doi.org/10.20935/AL4835. 3 could perhaps lead to a so-called green recovery or transition, assuming adequate measures and strong incentives are adopted. There are references to the environment in the World Bank publication. However, climate change and CO2 emissions are virtually left out. Final remarks In Adjustment with a Human Face, first published as a booklet by UNICEF in 1985, the authors denounced the high costs – in particular infant mortality – of structural adjustment programs (SAP’s) negotiated by indebted developing countries with the IMF and the World Bank (Cornia, Steward and Jolly, 1987). In 1993, the World Bank published a major report on The East Asian Miracle: Economic Growth and Public Policy. It led to a systematic review in terms of political economy by Robert Wade (1996). He underlines the influence of the largest funders and the tensions it created between the World Bank – insisting on free markets and privatization, which reflected dominant views in the US administration – and Japan, advocating a market-guiding role for the state. According to Wade, the World Bank views remained relatively unscathed and even insisted on preventing state intervention in the economy when presenting the book. These remarks indicate that the missing dimensions in the 2020 World Bank report could possibly reflect critical choices, leading to a specific selection of issues and tools, comparable to what Wade mentioned in his critical review of The East Asian Miracle. According to Wittgenstein, “If there is no way of telling when a proposition is true, then the proposition has no sense whatever; for the sense of a proposition is its method of verification. In fact, whoever utters a proposition must know under what conditions he will call the proposition true or false; if he cannot tell this, then he does not know what he has said” (from ‘A Logical Analysis of the Concept of Probability’, Erkenntnis 1, 1930-1). In our case, despite the absence of proper means for direct verification, we are inclined to believe that the propositions we make are reasonably true. To be more specific, from a World Bank perspective and referring to the presented pre-publication: • Ethical Economics is not really perceived as a major (accounting-related) issue, • gaps between wages and productivity do not seem to matter, and • addressing climate change is apparently not seen as a priority, despite the impact of COVID-19 on CO2 emissions and the greening opportunities it may create. Academia Letters, February 2022 ©2022 by the author — Open Access — Distributed under CC BY 4.0 Corresponding Author: Daniel Linotte, daniel.linotte@gmail.com Citation: Linotte, D. (2022). THE WORLD BANK, COVID-19 AND GLOBAL PRODUCTIVITY – REFERENCE PARADIGMS (Critical Assessment). Academia Letters, Article 4835. https://doi.org/10.20935/AL4835. 4 The relative absence of reference to the Verdoorn’s Law and related Cambridge scholars is difficult to explain, unless some of the authors mentioned are seen as being too unorthodox. Moreover, considering the work of the key-authors we mentioned, the World Bank 2020 document does not seem to be a real milestone contribution - there is room for debate indeed. Improving the analysis to better incorporate social aspects is possible. For instance, when discussing GDP and well-being, World Bank experts and consultants could systematically refer to adapted versions of the Human Development Index - HDI, as proposed by UNDP. Moreover, considering productivity, institutional economics matters, including the study of arrangements that may involve and motivate workers. It is worth mentioning that in some cases, the World Bank supported critical views about its own work. This is most obvious with the use of cost-benefit analysis (CBA) to assess the internal rate of returns of World Bank projects, which led to wrong decisions because these returns were often overestimated (Little and Mirrlees, 1990). All in all, the World Bank document on Global Productivity should be expected to stimulate further comments and discussions, and lead to other contributions with different perspectives. Also, reforming the functioning of the World Bank should not be excluded to reflect the importance of new major players (China, India, Brazil, others) and enhanced values - with a strong focus on governance (corruption), extreme poverty and climate/environmental issues. Furthermore, considering COVID-19, a balanced perspective cannot ignore risks dimensions (Tunio and al., 2021). Academia Letters, February 2022 ©2022 by the author — Open Access — Distributed under CC BY 4.0 Corresponding Author: Daniel Linotte, daniel.linotte@gmail.com Citation: Linotte, D. (2022). THE WORLD BANK, COVID-19 AND GLOBAL PRODUCTIVITY – REFERENCE PARADIGMS (Critical Assessment). Academia Letters, Article 4835. https://doi.org/10.20935/AL4835. 5 References Boppart, T. 2014. “Structural Change and the Kaldor Facts in a Growth Model with Relative Price Effects and Non-Gorman Preferences.” Econometrica 82 (6): 2167–96. Giovanni Andrea Cornia, Frances Stewart and Richard Jolly (1987), Adjustment with a Human Face, Oxford University Press (two volumes). Alistair Dieppe and al. (2020). Global Productivity: Trends, Drivers, and Policies. Washington, DC: World Bank. http://www.worldbank.org/globalproductivity. Final version citation: “Dieppe, Alistair. 2021. Global Productivity: Trends, Drivers, and Policies. Washington, DC: World Bank. © World Bank. License: CC BY 3.0 IGO.” Blair Fix (Nov. 9, 2020), Debunking the ‘Productivity-Pay Gap’, Capital as Power – Toward a New Cosmology of Capitalism. https://capitalaspower.com/2020/11/debunkingthe-productivity-pay-gap/ (accessed: 15 November 2021). Justin Fox (2012), The Economics of Well-Being, from the January–February 2012 Issue of the Harvard Business Review. https://hbr.org/2012/01/the-economics-of-well-being (Accessed: June 2020). Emily Kasriel (2020), A ‘mass experiment’ for the climate, BBC – FUTURE PLANET | CLIMATE CHANGE, 25th June 2020. https://www.bbc.com/future/article/20200624has-covid-19-brought-us-closer-to-stopping-climate-change (Accessed: July 2020). Little, Ian M.D. and Mirrlees, James A.. 1990. “Project Appraisal and Planning Twenty Years On.” In Proceedings of the World Bank Annual Conference on Development Economics 1990. Washington, DC: World Bank. J.S.L. McCombie, M. Pugno and B. Soro Ed. (2002), Productivity Growth and Economic Performance: Essays in Verdoorn’s Law, New York: Palgrave Macmillan. Guilherme R Magacho, John S L McCombie (2018), A sectoral explanation of per capita income convergence and divergence: estimating Verdoorn’s law for countries at different stages of development, Cambridge Journal of Economics, Volume 42, Issue 4, July 2018, Pages 917–934. https://doi.org/10.1093/cje/bex064. OECD (2018), Chapter 2, DECOUPLING OF WAGES FROM PRODUCTIVITY: WHAT IMPLICATIONS FOR PUBLIC POLICIES? OECD Economic Outlook, Volume 2018 Issue 2, pp. 51-65. Academia Letters, February 2022 ©2022 by the author — Open Access — Distributed under CC BY 4.0 Corresponding Author: Daniel Linotte, daniel.linotte@gmail.com Citation: Linotte, D. (2022). THE WORLD BANK, COVID-19 AND GLOBAL PRODUCTIVITY – REFERENCE PARADIGMS (Critical Assessment). Academia Letters, Article 4835. https://doi.org/10.20935/AL4835. 6 Tunio, M. N., Shaikh, E., & Lighari, S. (2021). Multifaceted perils of the Covid-19 and implications: A Review. Studies of Applied Economics, 39(2). United Nations (2006), World Economic and Social Survey 2006 – Diverging Growth and Development. Verdoorn, P. J. (1949), Fattori che regolano lo sviluppo della produttivita‘ del lavoro, L’Industria, 1:3-10. English translation by A. P. Thirlwall, in: J.S.L. McCombie, M. Pugno and B. Soro (2002). Robert Wade (1996), JAPAN, THE WORLD BANK, AND THE ART OF PARADIGM MAINTENANCE: THE EAST ASIAN MIRACLE IN POLITICAL PERSPECTIVE, New Left Review. https://newleftreview.org/issues/i217/articles/robert-wade-japan-the-worldbank-and-the-art-of-paradigm-maintenance-the-east-asian-miracle-in-political-perspective Thomas Wells (n.d.), Sen’s Capability Approach, Internet Encyclopedia of Philosophy. (Accessed: June 2020). Academia Letters, February 2022 ©2022 by the author — Open Access — Distributed under CC BY 4.0 Corresponding Author: Daniel Linotte, daniel.linotte@gmail.com Citation: Linotte, D. (2022). THE WORLD BANK, COVID-19 AND GLOBAL PRODUCTIVITY – REFERENCE PARADIGMS (Critical Assessment). 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