Is There An Economist In The House?

Economists have made the news this week. From Eugene Fama’s important work at the University of Chicago finally being rewarded with a Nobel Prize to the rise of Janet Yellen to become the head of the Federal Reserve, you might be under the impression that economics has become a conspicuous profession soaking up its inches of print in the world's major papers. And, if you didn’t look beyond book deals offered to Steven Levitt (also at the University of Chicago) or the amazing mainstream career of Ben Stein (who is a lawyer, actor, and game show host in addition to being an economist), you might even think becoming an economist is a route to celebrity. And economics seems to have stumbled into the mainstream while keeping its other foot in the world of finance and banking where its practice and empirical findings are rooted.

But two institutions you might expect would be run by economists are instead both run by non-economists: the IMF and the World Bank. Is this strange? Is it warranted? Is it fair to compare the two institutions side-by-side? The recent literature criticises what the difference is between academic training and professional functionality, from literatures in economics to finance to economics to the hard science disciplines. There is a secondary literature that follows in decision sciences and governance and related social science disciplines but often struggles to link technical training to managerial expertise. So… let’s return to the first question. Is it strange for the head of the World Bank to not be a formally-trained economist?

It is not strange. Jim Yong Kim is hardly an anomaly as the head of the World Bank in his career as a non-economist (aside from being a physician, which is a first). Robert Zoellick read history as an undergraduate and went on to study law. Paul Wolfowitz, despite working on much of his Ph.D. less than 100 yards from one of the world’s finest economics departments, did not have a strong academic background in economics. His predecessor, James Wolfensohn, had a difficult time in school and did not study the structural macroeconomic questions that one might expect – the majority of his coursework at Harvard was focused on general management and corporate finance. The men before this were, too, not formally trained in economics. Lewis Preston held an undergraduate degree in history and Barber Conable had studied law.

Is it strange that Christine Lagarde is not an economist? Yes. However, it is politically-likely the issue would have never arisen but for her predecessor's (Dominique Strauss-Kahn) having such substantial training in the field of economics and an ongoing interest in institutional economics, including being conversant with academic audiences on several occasions. Aside from Rodrigo Rato (who held a masters degree with concentrations in economics and statistics from the University of California Berkeley), recent Managing Directors of the IMF have had advanced or terminal degrees in economics. One must look all the way back to Jacques de Larosière de Champfeu, a man born four days after the stock market crash of 1929, to find someone without this background. Essentially, the IMF has not had someone like Lagarde at its helm since the start of the Cold War.

So, is that a good thing? Do we want a medical doctor running the World Bank and a lawyer running the International Monetary Fund? Has the role of these organisations changed over the years in ways that require a different chief executive figure? Or is the job of running such an organisation a job in itself, separate from the prior experiences and career of the candidate?

I do think it’s awfully hard to argue that a person’s prior credentials have no bearing on his or her qualifications for a given position. We do not look at heads of state, CEOs, or baristas in this light. Why would we examine candidates to lead the World Bank and IMF in an absolute vacuum? However, it’s also awfully hard not to recognise that what is desirable in a person in these positions is less a technical understanding of macroeconomics and more general abilities in problem-solving, communication, general management, and teamwork. I also believe Lagarde and Kim contribute interesting types of expertise that more than offset their lack of formal training in macroeconomics or institutional finance.

Kim has interpreted the World Bank’s ambitious goal to end extreme poverty by 2030 to mean, in essence, the end of extreme suffering from economic need. This goal is particularly well-suited to his history of practice as a physician and his work at Partners in Health, a group profiled in my new book and a key innovator in an area now central to the World Bank’s agenda: reducing the cost of high-quality services delivered to the poor. If the World Bank’s role shifts from backstop project financing to ongoing business operations (which many would argue it already has), Kim may be a far better fit than an institutional economist or financial industry expert.

Lagarde, as leader of the Chicago law firm Baker & McKenzie, received possibly the best management training possible for an organisation that, like the IMF, is extremely diverse (Baker has attorneys from 60 countries) and engaged in high-stakes negotiations (Baker handles primarily corporate law and corporate litigation with the vast majority of disputes ending in negotiated outcomes rather than verdicts). The firm’s history of interesting pro bono work, including on behalf of a parent’s right to advocate for his or her child’s access to free public education, is in line with the IMF’s philosophy, goals, and broader mission.

It is not, I might add, an accident that the IMF (historically always run by a European candidate) and World Bank (historically always chosen by the American president and either a natural-born or, in Kim’s case, a naturalised U.S. citizen) are split in their approaches in this modern context. No doubt the challenges we face from a European perspective are primarily bureaucratic: the crumbling of Europe, the regulation of development abroad, the rising isolationism and nationalism fuelled by political rhetoric, the challenges of immigration and tariff reform, and so on. The challenges we face from an American perspective are much more matters of discrete problem-solving than political nuance: the spread of disease, access to education, and so on – though these things may not be vulnerable to (or soluble by) American innovation, these are the things America excels at (those with any doubt should examine the revenues of U.S.-based pharmaceutical firms over the past twenty years or the portion of successful online education platforms that originated in America in the past decade, the former being astronomical in its growth and the latter being almost complete in its market share).

There is reason for skepticism about any candidate for positions such as these, and there is no doubt about the gravity of some of the decisions a person in either position may be asked to contemplate. However, scrutinising the economic educations of candidates now may be less relevant than ever as general management and philosophical direction may be what is needed – more than chalkboard economics skills – to steward these organisations into new roles and new eras.