World Bank’s recently appointed Chief economist Paul Romer in this post talks about why a Doctor of Medicine (MD) is a good fit to lead the world bank. After all his new boss his Jim Yong Kim who heads the World Bank with the original Dr attached to his name. So Dr Romer (who is a doctorate in economics) has no choice but to defend his Doctor in Medicine boss! Boss is always right no matter who he/she is the cardinal rule in any organisation.
Jokes aside, Romer says an outsider appointment is more efficient at cutting the flab:
I lived with a surgeon for 25 years. From the decisions Ginny made, I learned that doctors are better than economists at balancing the costs and benefits of delay.
Economists teach that time is money, but we never specify the exchange rate. If delay costs $x per day per person, the total cost scales with the number of people. In my lifetime, the most important lesson economists have learned is that in countries of all sizes–small ones like Singapore, medium-sized ones like South Korea, large ones like China and India–better policy can lift people out of poverty more quickly than we dared hope. Because a billion people still live in extreme poverty, each day of delay in taking full advantage of this lesson imposes a cost that is staggering.
….When I heard in 2012 that the final choice for the president of the World Bank was between an outsider M.D. and two insider economists, I sided with the economists. What I did not see then, but do see now, is that the Bank had the same problem as the pharmaceutical company that Ginny joined. An early success generated lots of revenue. For years, it followed a strategy of “letting 100 flowers bloom” by spending more on research when new projects surfaced. Before Ginny arrived, it had reached the limit on research spending but had not yet developed the capacity to shut down projects that turned out to have only modest prospects.
Because she had experience with clinical medicine and could look with fresh eyes, Ginny was better than the insiders at acting without delay, pulling the plug on even good projects, and freeing up resources for new ones with the potential to be great.
I now see that back in 2012, the Obama Administration made an inspired choice when it nominated the outsider M.D., Jim Yong Kim, to be the president of the Bank. This summer, I decided to join the Bank because I saw the cuts and restructuring of Jim’s first term and expected that he would be asked to stay on and complete the transformation of the Bank into the type of impatient organization that forces decisions, refuses to settle for modest success, and shuts things down without concern for the feelings of insiders. This will give it the chance to keep starting projects that are as unreasonably ambitious as the ones that turned out so well in Singapore, South Korea, China, and India. Some of the new ones, perhaps many, will disappoint and will in turn be stopped.
Well, this is a typical story from restructuring of any organisation. You bring an outsider who sees things differently. He/she cuts the so called flab and makes the organisation a lean and mean machine. So not sure how being a MD helps here. Any other profession would do as well, not taking any credit from the current chief at WB.
More interestingly, the post took me to history of Indian banking. Actually a district in India called South Canara (Mangalore/Udupi) which is now divided into two districts – Dakshina Kannada and Udupi. This region has quite a banking history giving birth to 22 banks out if which 4 became nationalised banks (equal to Bombay and Delhi and more than Calcutta and Madras) and one is a old private sector bank. It is called as cradle of banking in India, a part of history most of us are neither aware nor care.
It is really interesting to note how the region’s banks were actually promoted by guess what – yes medical doctors. TOne of them Dr TMA Pai fashioned Syndicate Bank (and Manipal) in what is an unhears story of tremendous significance. The doctors not just acted as promoters but even ran banks later quite successfully.
This made RBI chief Dr Benegal Rama Rau (who also hailed from the region) comment some thing on these lines (not exact) – I wonder what made doctors of the region succeed in running banks, an area where even professional bankers are failing…
In his post, Dr Romer points to the quick decision making capability of a doctor to address the patient as the key advantage:
Economists disagree elegantly but endlessly because we use uncertainty as an excuse not to commit. Doctors learn to commit because they meet the people they serve and see firsthand how costly delay can be. The longer a seizure lasts, the harder it is to stop. There are several drugs that can help bring one to an end. When a patient is seizing, delay is so costly that doctors tend to administer a default without taking the time to collect all the information they would need to decide which would be best.
Obviously he is connecting this quick decision making to economic policy where we need similar treatment as well. Though not sure about this as economy-patient linkage is weak at best. Unlike a treatment to a patient where he/she alone reacts to the treatment, economic policy has many unintended consequences as well. You fix something and mess up something else.
Coming back to South Canara example, we actually have other aspects of being a doctor that work in banking as well. Though, this may not apply to World Bank given its huge portfolio across countries.
A doctor knows his patients of the local region really well. He/she knows what exactly ails the patient and what medicine needs to be administered given past history, allergy and so on. These same skills he/she could move to banking as well. Instead of the medicine medicine, you give the borrower financial medicine to either grow in business/trade or recover from a shock. A doctor-banker is likely to see his customers differently from a banker-banker. Latter could just be saying – how much I can make from the borrower and former could be saying – how can I contribute to the well-being of the borrower.
Most historical accounts actually look at evolution of banker from a merchant-banker who traded goods and lent the surplus to others. Over a period of time, both activities became specialised activities and relationship was divorced. In South Canara places we also had a category called doctor-bankers where doctors contributed to growth and development of banking in the region. Fascinating bit of history actually.
This most likely only marginally applies to World Bank chief as he just has too many patients across too many countries..