Photo: SHAWN THEW/European Pressphoto Agency
How Paul Romer Is Already Stirring the Pot as the World Bank’s New Chief Economist
Just weeks into the job, he talks with The Wall Street Journal about starting a new university, setting up commercial banks and establishing a global identification system to help tackle financial inclusion for the poorest
By Ian Talley
Just weeks in to his new job as the World Bank’s new chief economist, Paul Romer is already looking to shake up the aging development institution.
The controversy-courting New York University professor and tech-firm founder is known as a chief proponent of the ideas-driven endogenous-growth theory.
He is putting his economic philosophy into practice, rethinking how the World Bank can deliver President Jim Yong Kim’s vision of eradicating poverty by 2030.
He’s already talking about starting a new university, setting up commercial banks and establishing a global identification system that could help tackle the problem of financial inclusion for the poorest in one fell swoop.
As Mr. Romer settles into his tenure, two principles are guiding his mandate. First, helping the bank cultivate greater clarity.
“Clear writing really is all about clarifying how we think about things,” he said in an interview with The Wall Street Journal. “That’s a nonnegotiable.”
He points to recent study of the World Bank’s changing linguistics over the past seven decades.
“A major metamorphosis has taken place,” write Franco Moretti and Dominique Pestre in their “BankSpeak” analysis. Over the decades, the bank’s reports became “much more codified, self-referential and detached from everyday language.”
Such abstraction muddies the ability of economics to aid society, Mr. Romer believes, fostering inanity. That’s why extracting abstraction has been a key theme for Mr. Romer.
Whether criticizing the use of mathematics to persuade or mislead rather than to clarify, or the entire profession, the bank’s new chief economist has few qualms about stirring the pot. “For more than three decades, macroeconomics has gone backwards,” he wrote in a September paper.
In fact, he sees controversy as an indication of health: “I take it as a good sign that the bank is the type of organization that is generating complaints,” he wrote in an August blog post of Mr. Kim’s contentious overhaul of the institution.
Mr. Romer’s other guiding principle is that the bank’s research should have practical application.
“What economic journals reward right now is a paper that shows, ‘Look how clever I am,’” he said. “We have to think about how do we reward people here and how do we motivate them to pay attention to more practical problems.”
Earlier in the 20th century, while Europeans were cranking out Nobel laureates, U.S. scientists were scaling up chemical engineering, helping to catapult America into an industrial powerhouse. That was partly because the U.S. helped to cultivate that functional science at universities like Texas A&M—as in, agriculture and mechanical—and the Massachusetts Institute of Technology.
“One thing I’d like to do, if we can, is provide a little bit of leadership about how university systems in the developing world can be more effective,” Mr. Romer said. “Roughly speaking, I think they should copy the pre-World War II system.”
Developing a World Bank university that could be replicated in emerging and low-income countries could be a catalyst for development, an outworking of the endogenous growth theory.
Two other ideas being floated by the chief economist also fit into the Mr. Kim’s focus on large-scale projects that have the potential to affect a swath of the world’s poorest.
First is a resurrection of a concept Mr. Romer offered during the 2009 crisis as a way of righting the financial system without bailing out failing banks: Creating shell banks the government can pour cash into during times of extreme turmoil.
Then, the U.S. Treasury decided against the plan in part because of the hurdles of quickly establishing such a bank.
Setting banks up in countries around the globe now would have them ready, Mr. Romer said.
“If we get another financial crisis, which I think we probably will, a government like the U.K. or the U.S. would at least have the option to say, ‘We’ll just dump a bunch of equity into these existing shells.’”
Mr. Romer also sees potential for adapting India’s Aadhaar biometric identification number globally as a way to help bring the estimated two billion people around the world into the financial system. He likens the idea to the internet protocol system that paved the way for the global data-sharing revolution.
For many of the world’s poorest, getting a bank account is a huge hurdle because of the lack of documentation.
“It’s an amazing way to empower citizens,” Mr. Romer said.
He envisions the World Bank adopting its own template that could be applied in countries across the globe. Besides including those who are currently excluded from the financial system, it could also help bring people into the formal sector, protect labor rights, and improve tax and pension systems.
Mr. Romer said he doesn’t know the odds of moving ahead with any of these projects: “Maybe one in 20 or something.”
“But if one of those things got done, that would be exciting for me as a scholar.”