How bad could it get? America’s ugly election

Private equity’s dodgy data remain a huge headache 

Still, the recent suspension happened

not because of methodological concerns,

but because of questions about data integ-

rity. Nine World Bank whistle-blowers

have alerted management to alleged “irreg-

ularities” in the indices published in 2017

and 2019, including for Azerbaijan, China,

Saudi Arabia and the United Arab Emirates. 

It is not hard to see why countries might

want the figures to be fiddled. Falling down

the rankings is politically embarrassing.

The World Bank, meanwhile, may have an

incentive to keep relations with important

members sweet. In 2017 its leaders grew

concerned that China’s 

db

ranking would

fall, which led the bank to double check the

results, an ex-insider says. After fixing a

coding error and tweaking a judgment call,

its ranking did not drop.

A further source of uneasiness comes

from countries paying the World Bank for

advice on how to rise up the 

db

rankings.

China, Saudi Arabia and the United Arab

Emirates all pay for such Reimbursable Ad-

visory Services (

ras

), which in the past

were delivered by some 

db

staffers them-

selves. (The use of 

db

officials in this way

was stopped in 2019.) 

Some performance improvements defy

logic. An email seen by 

The Economist

sug-

gests that Azerbaijan’s rise to attain the top

score globally for legal rights when obtain-

ing credit last year was particularly contro-

versial. Its overall score declined.

The World Bank is doing a thorough au-

dit of its processes, including those relat-

ing to the 

ras

. Whatever the investigation

uncovers, the saga highlights the tension

between the institution’s different roles.

The Bank likes to think that its diplomatic

and research functions are complemen-

tary. If only things were so simple.

7

---

66

Finance & economics

The Economist

September 5th 2020

A

s an exercise

in political branding, Abenomics has been an

unusual success. When Abe Shinzo returned to power as Ja-

pan’s prime minister in December 2012, he said he would revive

the economy by loosing off three “arrows”. The first, expansive

monetary policy, would banish deflation. The second, flexible fis-

cal policy, would restrain public debt without jeopardising the re-

covery. The third arrow, structural reform, would revive productiv-

ity and lift growth. The image stuck, even after the government

tired of it.

Mr Abe’s archery excited keen interest elsewhere. Many other

mature economies, after all, look a little Japan-ish. They combine

greying populations, faltering growth, high public debt and stub-

bornly low inflation, despite miserly interest rates. “Yes, we are

probably all Japanese now,” concluded Jacob Funk Kirkegaard of

the Peterson Institute for International Economics, an American

think-tank, last year, even before the covid-19 pandemic added to

the debt, disinflation and despair. As Mr Abe departs after almost

eight years in charge, what lessons can others draw? 

The first lesson is that central banks are not as powerful as

hoped. Before Abenomics, many economists felt Japan’s persis-

tent deflationary tendencies stemmed from a reversible mistake

by the Bank of Japan (

b

o

j

). It had combined fatalism with timidity,

blaming deflation on forces outside its control, and easing mone-

tary policy half-heartedly. In 1999 Ben Bernanke, later a Fed chair-

man, called on the 

b

o

j

to show the kind of “Rooseveltian resolve”

that America’s 32nd president showed in fighting the Depression.

Sure enough, in April 2013, the 

b

o

j

made a display of new deter-

mination, promising to buy enough assets, including government

bonds and equities, to raise inflation to 2% within about two years.

In 2016 it introduced negative interest rates, a cap on ten-year bond

yields and a promise to let inflation overshoot its target (which the

Federal Reserve emulated last month). These efforts stopped per-

sistent deflation, a feat that is often forgotten. But they could not

lift inflation close to the central bank’s target (see left-hand chart).

One reason may be peculiar to Japan: its regular workers are

economically monogamous, enjoying long-term employment re-

lationships with a single firm. They are almost impossible to fire

but also difficult to poach. Thus, although Abenomics lowered un-

employment to just 2.2% by the end of last year, regular workers

did not benefit from a bidding war for their talents. Firms instead

spent more on part-time workers. Yet because these recruits col-

lect a relatively small share of the country’s wages, their improved

pay put little upward pressure on prices.

Another threat to the power of central banks could recur else-

where. Japan’s public became so accustomed to unchanging

prices, it assumed the future would mirror the past. That assump-

tion, which shaped pay negotiations between unions and employ-

ers, then became self-fulfilling. This was a difficult legacy for Abe-

nomics to overcome. Proponents of monetary activism were right

to criticise the 

b

o

j

for not fighting this mindset earlier. They were

wrong to think those past mistakes were easily reversible once

Abenomics began. “I was too optimistic and too certain about the

ease with which a determined central bank could conquer defla-

tion,” admitted Mr Bernanke in 2017.