World Bank Changes, Understanding Unemployment

Glenn Loury, professor of social sciences and economics at Brown University, and Farai Chideya break down the week's economic headlines. This week, a look at the World Bank leadership change will mean for African and developing nations, as well as the long-term trends underlying the U.S. Department of Labor's most recent unemployment numbers.

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FARAI CHIDEYA, host:

And our final headline is economic. The head of the World Bank, Paul Wolfowitz, is leaving at the end of next month. He gave his girlfriend a pay raise and the bank staff called for him to leave. Now the rumor mill is buzzing over who will succeed him.

The U.S. usually gets to choose the president of this powerful group. One possible forthcoming choice, British Prime Minister Tony Blair, who's stepping down from his post. Now, fortunately Glenn Loury is not in the running because we need his help making sense of this and our other economic news. Glenn is a professor of social sciences and economics at Brown's University.

Hey, Glenn, welcome back.

Professor GLENN LOURY (Brown University): Hello, Farai. How are you?

CHIDEYA: I'm doing great. So the BBC says Blair has been mentioned as a possible replacement for Wolfowitz. He and President Bush have a very close relationship. Before we get into the nitty-gritty, just briefly explain what the World Bank does.

Prof. LOURY: Well, the World Bank is a lending organization that provides funds for projects in developing countries that are meant to fight poverty or to facilitate economic development in those places. It steps into a gap to make funds available that might not otherwise be within the reach of these countries if there were only to go to the private lending market. It's funded by contributions from member countries around the world, the United States and European countries being prominent amongst those providing funds for the bank.

CHIDEYA: So what are the biggest criticisms of the World Bank? Because sometimes, for example, as I travel around to different conferences, people will make very critical remarks about how it deals with the developing world.

Prof. LOURY: Well, I guess the main line of criticism has to do with the banks being bureaucratic, slow moving and kind of stuck in its ways about what kinds of projects it wants to fund and how it wants to do it. Some people have complained that some banks projects really have been, you know, not as efficient or not as productive as they ought to have been and that the bank bureaucracy has its own ideological agenda and so on. There are criticisms of that kind.

CHIDEYA: So why does the U.S. government essentially get to choose to the next head?

Prof. LOURY: It's an informal, unwritten understanding amongst the member nations of the World Bank that the United States being the largest single contributor of funds to the bank would have the latitude to appoint the president of the World Bank and that Europe would basically have the latitude of selecting someone who would head the International Monetary Fund, which is a sister organization, both of them created in the aftermath of the Second World War to help to smooth out trade and financial issues in the world economy. So the Europeans appoint the head of the IMF, the U.S. appoints the head of the World Bank. That's been a kind of understanding, a tacit agreement between these countries since the late 1940s.

CHIDEYA: So why should someone who lives in, say, Inglewood, California or Baltimore, Maryland, lives in a black neighborhood, in a predominantly black neighborhood, care about what goes on with this big organization?

Prof. LOURY: Well, if you care about what goes on in the lives of the billions of people in the world who are at or near the edge of poverty, of starvation, about - if you care about Africa, you care about economic development in the so-called Third World, then you would want to care about the World Bank because this is an important institution amongst others in affecting the process of economic development. There's every reason I should think why African-American residents of Los Angeles or Chicago or Philadelphia ought to care about what's going on in the world. We are in addition to being citizens of the United States with our own concerns, we are also relatively privileged, I might add, citizens of the world, and poverty at the global level is a very important, very compelling moral and political problems affecting all of us.

CHIDEYA: And do you think Tony Blair would take the job if he were offered it?

Prof. LOURY: Well, you know, not only am I not on the short list for being president of the World Bank, I'm not a confidante of Tony Blair, so I don't really know whether he would take the job. Anything I say here will just be based on my, you know, reading the newspaper like everybody else.

CHIDEYA: All right. Well, we'll skip the crystal ball because we have so many other topics.

Prof. LOURY: Okay.

CHIDEYA: I want to move on to Rupert Murdoch. He's getting impatient waiting for this answer to a $5-billion bid to buy Dow Jones and the Wall Street Journal, which is part of Dow Jones. Now, what we're really trying to get at here in bringing his name up is that there's been a lot of media consolidation and some advocates say that that's really hurting the news business. Do you think that Dow Jones and the Wall Street Journal would gain something from this transaction?

Prof. LOURY: Yeah. They gain the - whatever the excess is of this $5 billion offer over the current market value of their shares, which I gather is a pretty sum. I don't know the number exactly off hand, but my understanding is Murdoch has offered something like 50 percent over the outstanding market value of shares, so they'd gained that. On the other hand, I also gather that the Bancroft family, which is the single largest private shareholder in the Wall Street Journal and the Dow Jones company, is reluctant to see its crown jewel possession, the Wall Street Journal, fall into the hands of, well, the same guy who owns the Fox News Channel. They somehow don't think that's such a good idea, and I get that.

CHIDEYA: You know, at the same time, we have had different conversations about the media and ownership here. There is an interesting new conversation going on about black cable channels. Some people complain about the content, but there's also a question of whether channels like TV ONE and The Africa channel, the newer channels as opposed to BET, are going to be bought by cable customers. Because some channels basically come on basic, some channels are premium ones like HBO, and the other ones you have to buy kind of like on a pick-and-choose basis. What do you think about the whole question of are people going to invest by signing up for subscriptions to black cable channels?

Prof. LOURY: Yeah, this is a very interesting question. I mean, my economics instinct is to say let the market reign, you know, more choice is better. Ala carte so that TV customers get to choose channel by channel which ones they want, the typical economist argument goes, has got to be better than the bundling where you mix all the channels together and a person has to make a take-it-or-leave-it decision about the whole bunch. But in this case, I think that that may not be right.

And the reason is that when the channels are bundled so that the cable subscriber has to purchase the lot of them, that gives them the option of discovering something that they might not have known before, which is that by surfing around and happening upon a marginal, new, upcoming channel they might find that they like it and they might start watching it. Whereas if they had been asked to choose at the offset, knowing nothing about it, they might say no.

So from the point of view of getting black-oriented programming in front of the largest number of potential customers, bundling is really quite a good idea. From the point of view of saving a given consumer the most amount of money by allowing him or her to pick and choose their channels, bundling seems like a burdensome constraint. But what I'm saying is, if you're forced to have the option of something, you may change your mind, you may find out that you like it, you may give it a try. So I see what the issues are on either side of the debate there.

CHIDEYA: You know, we are just about out of time, and you sent us some information on a new book called "Punishment and Inequality in America." Just very briefly, about a minute, how does the prison system relate to the economic and job system?

Prof. LOURY: Well, I'm obviously glad you asked that question, and let me answer it in 60 seconds. Bruce Western, I should say, the sociologist at the University of Princeton - Princeton University - is the author of the book. And what he says there, among many things, is that because there are two and half million, two and a quarter million, 2.25 million people in prison on a given day and half of them are black, that's a big chunk of the black workforce that's not counted in the official unemployment statistics.

So that while it looks like the unemployment rate of African-American men is not so much higher than that of white men, and it looks like a lot of progress has been made since the early 1990s in closing the racial gap in unemployment, when you take into account the men who are in prison, if you count them as a part of the labor force and acknowledge that they're not employed, you will see that the black-white unemployment gap is even worse than you might have thought - more than two to one - and that the trend has been much less progressive, much less benign than one might think. By excluding these men from this official statistics about unemployment, we get a much rosier picture of the situation of blacks in the American labor market than is in fact the case.

CHIDEYA: All right, well, we're going to have to leave it there. Glenn, a pleasure as always.

Prof. LOURY: Thank you very much, Farai.

CHIDEYA: And Glenn Loury is a professor of social sciences and economics at Brown University. He joined us from the studios of WRNI in Providence, Rhode Island.

And coming right up, what your kids may or may not know in our Sex and Sexuality series, and author Dominick Carter helps us learn how to protect kids' bodies and souls.

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