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Welcome to Ideas Untrapped podcast. In this episode, I talk with economist Robin Hanson. This episode is about an everyday exploration of some of Robin's biggest ideas. We discussed the hidden motives behind our everyday behaviours and how they shape institutions like education, healthcare, and government. We explore his ideas on signalling, innovation incentives, and alternative governance models like futarchy. Robin also discussed his latest idea of Culture Drift: how humanity's superpower of cultural evolution can tend towards a maladaptive direction. Robin thinks this explains worrying trends like persistent low fertility at a time of material abundance, and he also explains why we are reluctant to confront this problem despite our common practice of cultural entrepreneurship.

Robin Hanson is a professor of economics at George Mason University. He has written two fantastic books, Age of Em and The Elephant in the Brain (co-authored with Kevin Simler).

You can find all of the ideas discussed in Robin's books (linked above) and on his popular and immensely brilliant blog Overcoming Bias.

TRANSCRIPT

Tobi: Welcome Robin, to the show. It's an honour to talk to you, and I look forward to our conversation.

Robin: Let's get started.

Tobi: Okay. So I'd like to start with your book, with Kevin Simler, The Elephant in the Brain. You argue that much of our supposedly noble behaviour from charity to healthcare to politics is actually driven by hidden self-serving motives like signalling and status seeking. If so much of human activity is essentially about showing off or gaining social points, what does that imply for how we should design or reform institutions?

Robin: Well, the key idea of the book is that in many areas of life, our motives aren't what we like to say. And this fact is well known to psychologists, but not so well known to the people who do policy in each of these areas, like say education or medicine or politics. The people who do policy in those areas tend to take people at their word for their motives and they analyse those areas in terms of stated motives, and our claim is that you are misunderstanding these areas if you take people at their word and you'll get a better sense of what's going on there and therefore what you can do if you would consider that people might not be honest about their motives.

Tobi: Yeah, I mean, for example, schools, hospitals, and other public or perhaps even private institutions that we interact with openly acknowledge or accommodate our signalling drives rather than pretend that we're always pursuing high-minded ideals. What are the hard parts to reconcile about these facts of the human nature?

Robin: Uh, well, for example, people in the United States are most surprised by our medicine chapter, where we say that in fact on average people who get more medicine aren't any healthier and therefore they're spending way too much on medicine for the purpose of getting healthier. That's very surprising to people and it, of course, suggests that we don't need to spend as much as we do. Instead of subsidising it, maybe we should even tax it. But it also helps understand why we are doing as much as we're doing because we're using it as a way to show we care about each other rather than a way to get healthier. And so if you want to spend less on medicine, you'll have to ask, how can we find other ways to show that we care about each other instead of overspending on medicine?

Tobi: On a personal level, has recognising these uncomfortable hidden motives changed how you live your own life or conduct research? Do you ever catch yourself in acts of self-deception or signalling and you then consciously adjust your behaviour?

Robin: I think many people are tempted to try to look inside themselves to figure out what their hidden motives might be, and I don't think that's going to work very well. So my approach is just to look at how people on average are, and ask what motives best explain typical human behaviour and then just assume I'm like everybody else. So, I have come to terms with accepting that my behaviour is driven by motives that are probably not too different from the motives that drive most people, most of the time. So if other people are going to the doctor to show they care. I probably do too. If other people are going to school to show off how conscientious and intelligent they are, then that may be what I'm doing as well. And I'm just going to accept that I'm just not going to be that different from other people.

Tobi: Over the past, I would say six years or so, particularly with the rise of what is generally termed as woke, the phrase virtue signalling became quite popular. And this is something that you have been writing about before it gained that currency. You've noted that humans, when times are good, devote more energy to visibly displaying values either through charity, moral causes, patriotic posturing, as a way to boost our social standing. How do your theories of hidden motives and signalling help explain the way people behave online? And how does that affect the rise of political polarisation in the US perhaps?

Robin: So the term virtue signalling is usually used to describe behaviour that the speaker doesn't think is very virtuous. Um, so when we signal in general, typically our signals are effective and that we are actually showing the thing we claim to have. So if by going to school you show that you are smart and conscientious and conformist, then typically if you go to more school than other people, you are in fact more conscientious and conformist and intelligent than other people. You are successfully showing that. So the analog, if you took it literally for virtue signalling, would be that you are showing that you are virtuous. And that should be good. Maybe it's not so great that you are so eager to show it, but it is a good thing about you that you'd be showing. So the phrase virtue signalling is instead a criticism of people who are trying to appear virtuous without actually being very virtuous. That's, I think, the implication of the claim. And so that certainly could be happening and we should certainly wonder whether people who are claiming to be virtuous actually are virtuous. So certainly a lot of what's happened on the internet in the last ten years is what they call cancel culture and so that's where a particular person is accused of being bad or doing bad and then a mob, you know, jumps all over them and maybe gets them fired, gets them, uh, you know, thrown out of an organisation, gets people to quit their YouTube channel, et cetera, because they have been accused of being bad. Then the question is, well, if in fact they are bad, and if in fact these sort of responses are the appropriate response to someone who is bad in the way they are claimed to be bad, this wouldn't be such a terrible thing. Uh, the claim is that in fact they are accusing people of things they aren't guilty of or vastly exaggerating their guilt. And then it's bad if people are going way overboard to cause them harm without good cause.

So certainly one of the things that's going on in the world is the difference between gossip and law. So, uh, law didn't really exist until, say, 10,000 or so years ago. Before that, for maybe a million years, we had gossip. And the way we managed people doing bad things and dealing with that was by gossiping about it. And we mostly lived in pretty small groups who knew each other pretty well, so it wasn't that hard for people to gossip and figure out what's really going on and then react by whatever way they chose to do when they talked about it together. But in much larger societies that we've created in the last 10,000 years, gossip doesn't work so well. Because there's this incentive to a rush to judgment. When somebody comes to you with a complaint about somebody else, your main incentive is to agree with this person in front of you who you know better than the other person being complained about. And so in gossip, people tend to believe whatever they're told and they don't get the whole story. They don't ask for the other side of the dispute. And law was invented substantially to overcome this problem with gossip wherein there's a central place that you take an accusation to and that central place's job is to hear all the evidence before they make a decision. And then that overcomes the rush to judgment.

But when we have things people disapprove of that aren't illegal, then we revert back to gossip and then we have the problems of gossip wherein people are too quickly agreeing with an accusation before they've looked at the full, um, evidence from the other side. That's something that's going on lately with new social media when there are many accusations that many sympathize with that are things that aren't and not, in fact, illegal. But these are all relatively minor variations on the basic thesis of our book, which is that people are trying to look good and they do many things in order to look good, but when they do, they are actually good. On average, they are showing things that are actually good in order to look good.

Tobi: An idea that also become quite popular first in scholarly circles, but I mean, I see it almost everywhere now, maybe that's not a statistical fact, but it's the idea that evolutionarily, humans are not truth-seeking, we are coalition-seeking and our reasoning is basically to get people on our side. Looking at social media and how people use it, would you say that it's fundamentally amplified our worst signalling instincts by rewarding outrage and performative statements? And do you think it can somehow be a harnessed to improve honesty and information sharing?

Robin: So the thing I can be the most sure about is just looking overall at human behaviour across the world, across history, and roughly describing the middle of the distribution of that human behaviour and what's going on there. That's what the point of our book is about and that's what I feel most confident about. When you go to try to explain differences between some places and others or differences across time, you have to dig in deeper into the details of what's happening in your data about that in order to draw conclusions about those smaller differences. And honestly, we were just wrong about the basics here. So our book is saying that look up until our book or recently, people have been pretty wrong about the very basics of what people are doing on average across time and space. And so that's what our priority was, is to try to figure out just what are people doing in the typical situations. And because that was hard enough to figure out, maybe we shouldn't be very confident in our ability to judge differences in time and space. So, recently there have been some changes in the world in terms of social media, for example, and many other changes, and many people are eager and interested in tracking those changes and predicting their consequences, but... honestly, that's just a secondary priority from my point of view. Uh, I don't think I can judge as well. So we do have a long history for many centuries when any time there's a new element in the world of communication or, um, talk, people have disapproved. And they have complained about the new thing compared to the old and for novels, for example, and the telephones and video games and TV. Pretty much any substantial change in the way we get information and share with each other, people have criticised as making things go bad, and no doubt some of them were on average bad, and some of them were good, but I just don't feel like we can tell very well, uh, certainly at the moment, very recent changes in which ones were good or bad, how.

Tobi: So, I mean, before I move on from that line of questioning, as someone who call out uncomfortable truths and who has had some brushes with online outrage, generally. How do you personally navigate online conversations where image conscious signalling can really drown out sincere debate?

Robin: So compared to most people, I've chosen my role in the world to be a certain kind of intellectual analyst, a certain kind of person trying to figure important things out near sometimes uncomfortable topics. So I just feel it's my job to take whatever hits that are coming from doing that. And I think I have suffered some hits where people made accusations against me which I didn't think were fair but still cost me in reputation terms in some eyes. And I just feel like that's gotta be my job.

Now, honestly, actually, the biggest times when people complained about things I said were about pretty minor things relative to my whole main area of research. So... had I anticipated those particular things being what would bother people the most, I might have just not mentioned them out of the practical constraint that they weren't actually that important. Basically, side comments, often on gender, have been the things that have most bothered people about what I've said, mostly because I think... people believed other people's claims about what I intended when they were wrong.

Uh, look, compared to most societies in history, we have a lot more freedom to say things and think things and share them with each other. And even if we do suffer some penalties, they are still vastly less than people in the past have suffered for such things. So I still gotta think I've gotten off easy compared to, heretics or, uh, you know, people who give disturbing thoughts in history.

Tobi: So I'd like to move on to foragers versus farmers. You've written about the deep tension between our ancestral forager mindset, which is egalitarian, expressive, novelty seeking and later farmer mindsets, which is hierarchical, discipline, abstinent. And the cultural conflicts today, you say, can be traced to this clash. Uh, you've also written that wealthier societies are gradually reverting to more freewheeling forager values in many domains. Can you expand on this idea a bit and its implication broadly?

Robin: There are many long-term trends that people are eager to explain. You were just talking previously about recent trends in social media, but there are trends on many different timescales. And one of the most common interests that people have is explaining trends. What things have changed, how? So, in thinking about trends in the last few hundred years in the modern era, there are a number of consistent trends that are hard to explain. And so I, you know, ten or fifteen years ago, looked to our longer term history for a framework to explain these more recent trends. So the key idea here is that human's nature is actually pretty flexible. So there probably is sort of a human nature in the sense of what we revert to without any other pressures. But a distinctive fact about humans is we are culturally pliable. We can change and become different things in different cultural contexts. And the biggest example of that, most plausibly, was the switch from foraging to farming.

So as foragers we were more like animals in the sense of just doing what felt natural and that typically worked out okay. And then farming became possible, but only possible if humans would just drastically change a lot of their ways of life. And we did. So we became farmers. We stayed in one place instead of drifting around. We had property. We had marriage. We had war. We had trade. We had more inequality and slavery and domination. Disease. It was just a pretty different world. And we were actually pretty different. Humans became substantially different as farmers. And, you know, you could certainly just see that if you ever... You know, see traditional farming communities and compare them to traditional foraging communities. They are just enormously different. Foragers not only don't have much property or marriage, they're very egalitarian. They wander around. They have more variety of places they go and food they eat and they work less hard. They're certainly less religious and they're just really quite different.

So my key idea for explaining the last few centuries is this idea that: as we got rich, the pressures that had made us into farmers weakened. We were made into farmers in substantial part because we were poor and near the edge of survival and people could credibly threaten us that if we didn't follow the farmer norms of our world, we would die. And that actually happened. But as we've gotten rich, we can look at ourselves and say, if we don't follow the farmer norms, so what? We'll do okay. We see all these other people around us and they seem to do okay, even if they don't follow the farmer norms. And so we have... just drifted back more toward forager attitudes and styles because that deep down feels more natural. And this can explain a number of big trends over the last few centuries. So for example, more democracy, less religion, more leisure, more travel, less slavery, less domination, more egalitarian attitudes, less fertility. A number of the most important, largest trends over the last few centuries can be understood as our going back to being more like foragers.

Now, one thing to notice here is that this trend back to being more like foragers is plausibly explained by the absence or weakening of selection pressures. So that means this change is not plausibly adaptive. That is, we haven't changed because this is a better way to be in our new world. We've changed because the world is less disciplining us and forcing us to be any particular way. And this is what feels natural. So it may in fact be maladaptive. That is, we may be suffering in the long term in terms of evolutionary success by becoming more forager-like. Nevertheless, we have this space to do so because we're rich and comfortable and peaceful. And this is what we feel inclined to do.

Tobi: So, if that is the case, what does it mean for the stability of our more traditional farmer-style institutions that have brought us this far as a civilisation and um, yeah.

Robin: Well, so there's been a lot of change in the last few centuries and a key question about that change is which of it has been driven by healthy cultural selection pressures and adaptive processes such that the new behaviours make sense and are actually more useful and adaptive and productive in our new world, and which of these changes are not? Are just changes that are happening because we feel like it and we can't be stopped, at least for a while, but are not going to make our world more healthy and functional, etc. And so a major challenge in analysing the world to try to distinguish these two cases. So one simple way to distinguish them is to think about how local is the variation that's allowed. So think about most technology. Technology is the sort of thing that if you see a new technology, you're typically allowed to switch to it without too many other people complaining about it. And because of that, we have the strong selection pressures for people to adopt the technologies that they think they like. And therefore, plausibly, over time, as we've adopted technologies, those have been adaptive choices. They have been ways that the new world makes more sense when you have these new technologies than without them. Because there are these strong selection pressures. And more generally, if you think about firms in capitalism, businesses, we have a great many firms around the world and they try a great many different corporate cultures inside the company, different attitudes and practices and norms inside companies. And different companies try different approaches and plausibly there's enough different companies facing strong enough selection pressures that over time, the better business practices probably went out.

If we have firms having business practices today that are substantially different than they had three centuries ago, that's probably because these are better business practices. Or because there's enough selection of variation. But if you think about aspects of culture which are sort of our basic values and norms where we face strong conformity pressures to all adopt the same ones, it's less plausible that those are actually going to be adaptive. And therefore, it's plausible that changes are maladaptive. And that's more the problem. Uh, so if you'd like, we can go through, you know, a number of specific examples, but the key issue is to distinguish which kinds of changes seem to have been subject to enough selection pressure and variation to produce healthy cultural evolution and which have not.

Tobi: Please go ahead. Be as expansive as you can.

Robin: From a biological point of view, falling population in times of plenty… peace and plenty, and, you know, low disease is problematic. It's just puzzling. It's plausibly evidence of maladaption. So the most clearly maladaptive trend is falling fertility. And we can identify a number of cultural trends that are causing that. And so those are also candidate maladaptive cultural trends. So for example, we get a lot more education than we used to and education seems to be hindering fertility and plausibly we're just getting too much education. It's the amount we're getting [that] is maladaptive. We, for example, switched from cornerstone marriage norms to capstone marriage norms. Like, when I was young, the idea was to marry young, somebody. You weren't fully formed, they weren't fully formed. You didn't know exactly where you're going to be in the world. And both of you figured that out together. And now the norm is more that you should wait and to figure out who you are, find your place in the world, be secure, then find somebody else who matches your particular place in the world, after they found themselves and figured out who they are and then that's you should marry. So that change also is a big hindrance to fertility.

Another norm that's limiting fertility is that we pay a lot more attention to children now than we did in the past. So it could be that some distance time in the past we were paying too little attention to children, but plausibly now we're paying way too much attention. And the more each parent is supposed to pay a lot of attention to the children, the less likely they are to have more because they think they've kind of run out of time and energy for the children they have. Um. So these are some examples of cultural trends that have been hindering fertility and that are plausibly maladaptive, because they're not only hindering fertility, it's not obvious that they are overall making the world more adaptive.

Tobi: I'll get to some of what you've written on culture drift later. But for now, one of the preoccupations, at least in the domain of what is called development economics or studying economic development generally, is institutions. Largely because it is perhaps major determinants of which policies get adopted by countries and those policies can be the difference between being poor and being rich. Right. You've championed a provocative idea called Futarchy - in which elected officials would define a national welfare metric. I'm a big fan. And prediction market speculators will then decide which policies are most likely to improve that metric. In Futarchy, if the market odds clearly show that a proposed policy will increase expected national welfare, that policy becomes the law. In theory, this could make governments far more informed by leveraging collective expert knowledge and avoid, you know, some of the problems [of] political gridlock or interest-based politics. But I want to put it to you directly. How realistic is Futarchy in practice? Especially if we go outside of markets like the US.

Robin: So, for every policy proposal, there's two very different questions about that proposal. And it's realism. One question is, is anybody ever going to adopt this thing? And as an economist, I have liked many policy proposals over my decades that have not yet been adopted and that many people think are just never going to be adopted. And so they think we're wasting our time and effort if we pursue and elaborate and think through the details of policies that nobody's ever gonna do. And, you know, that's a fair critique and it comes down to what are the chances of it getting adopted and then, you know, finally being tried. A second question is, if we tried it, would it work? That's a very different kind of question in terms of feasibility or realism. And I feel much stronger that that should be addressed. So I'm okay with making proposals that maybe have a low chance of being adopted if I'm pretty sure that if they were adopted, there'd be a good chance of success. But, I mean, another thing to realise is all we need to do when we adopt something is try it for a bit and see if it works. So the main harm of trying something is the short time during which you would have tried it. And then found out it didn't work very well and then quit. Nobody should be proposing making vast changes to society on the basis of relatively speculative things that haven't been tried much. The proposal is to take an idea and then try it out on a small scale. And when it works on a small scale, try it on a bigger scale and it keeps working there, bigger, bigger, until eventually it might be big and be applied everywhere and give us huge gains.

Tobi: So why aren't there more experiments? What is holding up experimenting with this idea on a very small scale, perhaps within companies or local governments? Is it about trust or yeah?

Robin: Yes. So, um, like all my life I've been around economists and other people inventing things that they think should be tried and seeing some of them tried and most of them not.

So first thing is to say is there's a lot of energy in politics. A lot of people really like to be involved in politics, and they really want to argue for this policy or that, or this administration or that, or push for this person to be elected or that. But when it comes to thinking about new institution ideas, there's very little energy. Very few people care at all about that, or they don't want to be bothered to try. So unfortunately, just trying new institutions seems to be low status and not very interesting to most people. Right. And when things do get tried in the world, they tend to be tried because someone high status with a lot of prestige and power in some area endorses an idea. So a major limitation of things getting tried is what are the high status, prestigious people willing to endorse to get tried? Most people are just not interested in trying something unless it gets that sort of endorsement. And people like me aren't powerful, high status people. So that means we have to influence somebody who is more powerful and high status to be interested enough in something to try it in order to get it tried. So the major reason why not enough stuff is tried is because for most people, they don't care very much about trying new things, they're just not eager to. And then we have this bottleneck. They need high status, powerful people to endorse an idea, for trying it in order for it to get tried. And of course, if it doesn't work out well, that may be worse for the reputation. But if it succeeds, it may go better. And that's basically the world we live in.

I would rather people spent less time arguing about politics and more time trying out new institutions. I think the world would just be much better off if we put more energy into trying out new ideas, but just because I wish that were true doesn't make it actually true. Now, you asked about the specific idea of Futarchy a particular governance mechanism, and I can happily report that in the last few years we now have a bunch of experiments, a bunch of people trying it. So I first described the idea over 25 years ago, in roughly 1999, just before then. And for a very long time, many people had heard about these ideas and liked to talk about them and to hear about them, but almost nobody wanted to try them. But now, in the last few years, there are trials, and so far they seem to be relatively successful. But as I said, what we need to do is try things on smaller scales and then work up to bigger scales, etc. until we can get them much more widely adopted. But most of the experiments in the last few years have been crypto-based organisations. There is this thing called a DAO, a distributed autonomous organisation, that people have tried out on crypto where there's some governance mechanism on the blockchain and that drives an organisation's behaviour. Those haven't worked very well, but applying Futarchy recently has had more success in governing these organisations.

There's also been government based experiment that's seemed to have gone well. And now there's a number of other crypto-based organisations that are setting up to do trials and experiments here. So I'm excited that we finally have some trials.

Tobi: I assume you are in touch with some of the people running these experiments.

Robin: Yes. I am officially advisers on many of them.

Tobi: Oh, okay. That's cool. What have you learned from those experiments? And has it led you to refine your vision on how decision markets might work in governance?

Robin: Yes. I have to admit that 25 years ago, I thought through the idea in substantial detail, but there were some details I just didn't get into, and that finally seeing people try them now made me think a little more detail about some of the issues that I had neglected and slopped over before. So I guess I could have always thought about those more, but I didn't feel very motivated to when no one was actually trying it. So there have been some details. I've tried to work out more, and we're going to see how those play out in these small scale experiments. I also hope to do some lab experiments to test these things. So, yes, we're working out some particular details. I mean, I don't know how far you want to go here in this conversation into those details, but they're relatively detailed. But still, there's work to be done.

Tobi: Another subject that's risen in status over the years is, um, the idea of progress and debating progress has also risen in status, I should say, in public discourse. I mean, we have even, uh, people on the left arguing for abundance with the new Ezra Klein and Derek Thompson's book and there's the whole progress studies ecosystem that seems to be growing. Uh, one of the things that makes me laugh while researching the themes I want to cover for this episode is there seems to be either a Robin Hanson blog post or paper for everything. So one of your papers that I loved so much is Patterns of Patronage, where you looked at the 18th century practice of prizes in spurring scientific research and how that was replaced by the grant system. Uh, and you found that the shift wasn't because grants are inherently superior, but rather because the dominant patrons changed, you know, more non-local democratic governments who prefer grants. What does this historic lesson tell us about how the structure of funding can shape the pace and direction of innovation, especially at a time where there seem to be worry that innovation is slowing down.

Robin: Right. So a lot of people I know in economics or even science studies have a strong presumption of progress. That is, whatever changes happen must have been good. And unfortunately, this particular datum and some related ones suggest that's not true. So one of the biggest trends in academia and science in the last few centuries is that academics themselves wrested control of academia from other people who fund it. And that happened first in grants, but then it later happened in tenure and in basically other ways in which academia doesn't have to listen to outsiders as much as it used to. So many centuries ago, say, during the beginning of the Scientific Revolution, there were outsiders who had a lot of influence over science because they were paying the money. So scientists typically didn't all do it themselves on their own wealth. They got money from other people to do science, to do academic things. And those other people had a say. In the past, people initially gave out money more often through prizes than grants, and then they also gave money through sort of just supporting infrastructure, like making a library or funding an expedition, you know, paying for journals.

The funders had a sort of direct influence over the topics and priorities via they paid and so they could dictate, through their paying, some conditions. And what happened? We did have the switch from prizes to grants. And grants are a way in which academics are more in control of the money. You give money to a bunch of grant givers, and the grant givers decide who the money goes to. And then there's no particular accountability of whether those grant receivers actually do anything particular with the money. But in addition to moving from prizes to grants, we also moved to peer review. When Einstein did his papers, for example, those were not peer reviewed. Peer reviewed is something that showed up more mid 20th century. Previously, there were editors of journals who just had a lot of control over those journals and could use their judgment to decide what were good papers or not. And that was another way in which academics were held accountable to outside powers, in this case, journal editors who could disapprove of what they were doing or think things were low quality and make an impact that way. And the third change that happened was tenure. So most professors didn't have tenure long time ago. They might have job security the way most people have. If you've been working somewhere for a while, they don't really want to get rid of you because you have a good working relationship. But the formal idea of tenure is also something that showed up in the 20th century, and that was yet another way in which outsiders couldn't influence the academics and their behaviour and choices as much. The idea is after a certain number of years, you get tenure, then you can't be fired and nobody can complain about what you do.

Now, academics like all these freedoms, the way in which academics have wrested control from the outside of the world and run their own world to their own tastes, they like that. But it's not obvious that we actually have more total intellectual progress as a result of that, I guess in fact, we probably have less. But this was a consequence of academia becoming much more prestigious, and that prestige is what allowed the change. So the first change from prizes to grants happened because the people who were running prizes, who were managing prizes were in fact the main scientific societies of the time. And then the scientists who ran those societies decided to do a coup, basically, and to say, we refuse to accept any money to run prizes anymore. We're only going to accept money to run grants. If you want our name to be on this money you give, you have to give it in the form of grants. And that happened both in the French scientific society and in the British. And they had a successful coup. And so they made people giving the money change their mind about how to give it so that they could have their name on it. And that's a way the academics wrested control of the process from the people who are giving the money, and got more autonomy to give it to their friends. It's not like the money was handed out at random to people who said they wanted to do science. It was a set of insiders who took control over academia and then used it to favour themselves and their friends, and that's now basically how academia works.

Academia still has enormous autonomy from the outside world. People give it money, but then it's basically the most powerful insider academics who decide who gets the money, who gets the jobs, who gets the publications. That all is decided by those insider academics. They, of course, will claim that that's great because they have great taste and they have good judgment, and everybody else should shut up and leave them alone and let them decide. But we can reasonably be skeptical about whether they actually have better taste.

Tobi: Science is still largely funded by large institutions, governments. Uh, Donald Trump's clash with big education might reorder that, but the alternatives that are most likely to rise will also be rival governments who are engaged in geopolitical or technological competition with the US. And I take your point or caveat so to say about progress. But if we want to encourage more positive breakthrough innovation, what alternative funding models do you think needs to be revived?

Robin: I do think prizes just do work better than grants. So I think if we would switch back to prizes, that would be an improvement. With a prize, you basically say what you want to have accomplished, but you don't have to say how they do it or who does it. So anybody who achieves that accomplishment can get the prize money. And that's a more open competitive process than grants, where the grant giver has to decide who has a promising approach and who they believe has a chance of doing it and then they hand out money according to their judgment, to their friends, basically. Prizes would be better, but I actually have a more elaborate solution to academic problems. That's also one that you might think is less likely to be adopted, but that's the trade off we talked about before.

Tobi: Yeah. Yeah. So please tell me.

Robin: Okay. So, I am perhaps most famous for my work on prediction markets - betting markets for things - and that's the basis of the Futarchy governance mechanism we talked about a few minutes ago. And from the very beginning, my first motivation for thinking about prediction markets was how to reform academia. And over the years, I've thought a lot about different ways to do that and I've realised that the initial ideas that I had, and most people have when they come to the topic, just probably aren't going to work. And so initially I just thought if we just had betting markets and most scientific questions, that would be great and then we'd have a better consensus about it. But in fact, most academics just don't want to bet on their stuff. And so there's very little energy and interest in that.

Secondly, I thought, well, we could have betting markets on scientific questions and then you could subsidise those markets as a mechanism of funding so that people who figured out the answer to scientific questions first would then be able to trade in the market and make profit from their trades, and that would be how they would fund their research. But that would require that the people giving money change how they give money, but they don't want to, because the people giving money are in the same equilibrium game as everybody else. They're also just trying to gain prestige by affiliation with impressive people in the same way everybody else in the game is. So the problem is that the game as it's set up encourages people to do things to win personally, but that doesn't encourage the system as a whole to make more intellectual progress. So these approaches don't seem to work.

The approach I think that more plausibly would work relies on the following claim, the assumption that the one thing people will not give up as academics is the claim that the people they most celebrate today as the most prestigious academics are, in fact, the same people that historians looking centuries later back at this era will say were in fact the most important academics. Academics are not willing to say, oh yeah, we're just playing this game and later on none of us will seem very important but, hey, we just like to play this game. They are not willing to say that. They are going to continue to claim that the people that they give the most prestigious jobs, funding, journal article publications to, those people are in fact the people that, when you look back on this era from later on, will in fact have seemed to have been the most important. The people who had the most influence and who were doing the stuff that should have been looked at the most, that should have been paid the most attention to. So that's the thing I'm going to hold with. That's my lever to influence the system.

How am I going to influence the system? Well, simply, I want to create betting markets on what those distant evaluations will be. I want to create a futures market in the reputation of each academic. So centuries later, I want to have panels of historians go back and look at current academics and rank them according to who should have been listened to the most and they can use all their knowledge of the future to know which research programs petered out, which had promise, which led to important, interesting results. They use all of that to go back and say who should have been listened to the most in order to best produce more of the progress that had happened. So now we would have betting markets in those future numbers so that every academic would have some score, some current market price that represented the market consensus - evaluation of their potential to be somebody that the future would say, yeah, that person should have been listened to a lot. And now when academics make choices like hiring someone or publishing them or giving them a grant, we can all compare those choices to these market prices. So when Harvard sociology department hires somebody, we can say, okay, the guy you hired is now ranked 372 out of all the people who might be judged to be as important as the guy you hired. And why did you pick number 372? You had a lot more higher ranked people to pick. And now they'll face a choice. They can either make their choices more consistent with the market so there's less of an embarrassing question to ask. Or they can deny the market knows anything they can say: that's stupid market, why would you listen to that? We're the Harvard sociology department. We know better. But then you could say, well, how come you aren't betting in these markets if you know better? And they should be a little embarrassed not to be betting in the markets if they know better. And so that embarrassment they're not wanting to be too obviously differing from the market estimates would be a pressure that would make these market prices influential and therefore, academic choices would move more toward the choices that are actually the better choices about who should be getting funding and attention and resources and jobs because they, in fact, do have the better shot at having important long term influence.

Tobi: Hmm. That's deep.

Robin: That's that's my idea.

Tobi: That's deep. I'm still struggling to wrap my head around that. I mean, we are still in governance territory here. I want to speak a bit about the rise of philanthropic organisations who also do some funding and in some cases fund science, again, basically through grants. But generally philanthropy has risen in status. Most prominently, the Effective Altruism movement has done quite a lot to influence this. Another one of your papers, Showing That You Care, where you argue that much of what looked like altruistic policy say, paternalistic health regulation or support for universal health insurance may actually be driven by an urge to help and signal loyalty to our allies and shaped by our ancestral environment. We genuinely care about others, but we subconsciously choose ways of caring that also broadcast our good intentions to observers. You argue that this perspective can explain puzzles like why medical spending often have very low marginal health benefits, because the social role might be more about showing concern than improving health. So do you think organisations like Effective Altruism are trying to truly break free of our primitive signalling drives to do good more rationally? Or do you suspect that status or image and these things you've written about still quietly shape a lot of these newer, quote and unquote, altruistic efforts?

Robin: So I'm not the first person by a long shot to have noticed that humans often don't live up to their ideals. People talk a good talk about their grand goals and their grand ideals, and they talk as if they are trying to achieve their grand ideals, and they often don't. Their behaviour deviates from that. Now, the fact that many people have observed that then induces people often to say, well, we're different. We, this organisation over here is actually really going to be idealistic. So if many religious organisations don't achieve religious ideals but we're different, we're the religion that's actually going to do it. There are charities that aren't actually very effective at charity, and people notice that. Then another charity shows up and says, ah, but we're going to be better. And this is just a common feature of human behaviour forever. Like, a government that says we are here as a government for the people. Often people notice, well, you're not actually working so much for these people. Then another government shows up for another political party, says, hey, we're going to actually, we're actually going to help the people, right? So this just keeps going on and on. Why? Because when somebody claims that they're actually going to do better, the question is how carefully does anybody look to see if they do do better? Often it's enough just to make the claim. It's enough to make the claim that your political party actually cares more about the country and the people and whatever else it is. And the other political party, they're corrupt, they don't care. But it's often enough for your supporters to just make the claim. And then people are willing to assume you must be right because you're one of them, you're a friend of theirs, you think like them, you feel like them. You live in the same places they do. They're going to assume, okay, yeah, you're like me. So you must actually want to live up to your ideals. Not like those other hypocrites out there. But you can see that if we're allowed to just make the claim that we're better without anybody checking on it for better. We're not actually going to be better, right?

The way in which people will actually be pushed to live up to their ideals is if somebody's checking, looking at the difference between their actions and their ideals, right? That's the only way that people are actually going to be pushed more to live up to their ideals is to to be checked, to be on it. So, um, that's of course, the key question is who does the checking? Now, of course, some people will say, we'll do the checking. Trust us. Like, you know, there are people out there who say, we will tell you what politicians to vote for. Just trust us. And we'll send you a list of who to vote for. And then you'll vote for those people, and then everything will be better because we're doing the checking. You don't need to check us. We're just going to check for you. But of course, if you don't check them, they'll just claim they're doing better but not actually do better. And then it won't be any better, right? So this is always the problem: is can you make a process that people can inspect to see that you're actually doing better?

In the early days of Effective Altruism, one of the main mechanisms was evaluation of charities. So one of the new things was we're going to have an independent organisation that evaluates charities and their claims and sees how they're doing. So we have such things in other parts of the world. We have, like, Consumer Reports; does evaluations of business products. We have bond rating agencies that rate the risk of bonds. In many other parts of the world, our world, we have independent organisations that are offering independent evaluations of things. And often you can tell by their independence and their efforts that they are actually telling you more information than you were going to get from these sources themselves about the quality of their product. So I think that is, in fact, a great way to make people offer higher quality products of all sort, is to have independent evaluators, who are not funded by or getting kickbacks from the people they're evaluating. You're paying them separately to do the evaluation, and then they, in fact, tell you different ratings, and they show you the process they use to do that rating so that you can see they didn't just making up numbers. They are, in fact, looking at something real in order to evaluate the things they're rating. So I thought it was very promising in the early days of Effective Altruism that this was a solution. They're saying, well, how do you know which charities to trust? They're all claiming to be great. We're going to offer you an independent evaluation, and we're going to show you how we're doing it. We're going to show you the process and the formulas we use to evaluate these charities, so that you can trust our independent evaluation. And one of the first big organisations like that was called GiveWell. And they got a lot of attention, and a lot of people donated money to them so that they could do evaluations to help the rest of us decide which charities to go to.

And I still think that's a great idea. Unfortunately, the field or the community of Effective Altruism, they decided after a while that that wasn't such a good idea because that was too indirect. They wanted to just have the money and just do the stuff they thought was good. So now most Effective Altruism organisations, they're just getting money from someone and doing the things they think are good and they're not trying to, like, have independent evaluations of what they're doing in order to prove that it's good. You're just supposed to trust them. Hey, we have a good heart, so just trust us. We're doing the right thing. Which means they're just in the same boat as all the other charities everywhere.

Tobi: Especially with the whole FTX thing and some of the negative publicity that Effective Altruism got in the last two years, it makes me think about signalling generally. Do you think that it would be more efficient for us to just lean into it. I mean, kind of like education and Bryan Caplan's argument, even if that were true, that most of education is signalling, education is not a net negative and I don't see it going away anytime soon. So regarding altruism, charity and all the other feel good things that we do, should we just lean into it? I mean, should policymakers just create ways where we can visibly demonstrate how we care rather than trying to optimise for what is rational or not?

Robin: So it comes down to what it is you're showing off when you're showing off. See, if you're trying to signal that you were effective, then you'd have to show credible evidence that you were effective, and then people wouldn't actually support you or praise you until you were actually effective. The problem is, in a lot of these domains, we're satisfied with signals of other things. So for example, in medicine, we're satisfied with signals that show somebody they care about you, even if they're not very effective in how they care. With education, we're satisfied with signals that show somebody is smart and conscientious, even if they didn't learn anything at school and in charity, we're often satisfied with showing that somebody sacrificed and therefore cares without actually seeing how effective their efforts are. So it's not about whether there's signalling going on, it's what you're signalling and which signals you will accept as a sufficient signal. If all you want to know is that somebody cares enough to sacrifice and to, say, give up some money to donate it to a charitable cause, if you were willing to say you're a good person because you sacrificed and we don't care where the money went or what happened to it, all we care is to see that you sacrificed it. Then you'll continue to have people throwing money at random things that don't work because nobody cares about that. It's only if we care about how effective your donations were, as a reading of you, that we will then want you to show us how effective your donations were in order to judge you. But that requires that we change what we care about in you. And so that's unfortunately a problem. So a lot of these signalling games are driven by the things that people actually care about. And they would go better if people cared about other things. But of course that's the problem. People care about what they care about.

Tobi: Mm-Hmm. Let's drift back to culture drift, which is your... except I'm not current anymore, which is your latest big idea. And you touched on it earlier. Uh, basically, culture is evolving, you argue, I should say, in potentially maladaptive directions. And you talked about fertility, especially in wealthy societies where they are not even coming close to replacement rates. I mean, future generations might look back with amazement at how we squandered our abundance by failing to reproduce. How serious is this cultural drift, in your view? I should ask first.

Robin: The one thing that most distinguishes humans from all the other animals is that we have been driven by cultural evolution. We have some other distinctions, like, you know, we stand on two feet and we have bare skin instead of fur. But those other distinctions are just not remotely as important as this one key distinction that we are driven by cultural evolution, that's our superpower. So if we broke it, that's really important. If we broke our superpower, it means we're not going to be super very long unless we fix our superpower. Our superness is going to fade away and decay into collapse and death and destruction until we fix it. It might be a slow decay that takes centuries, but still, this is our superpower. So it's hard to exaggerate just how important this is. An analogy I'd like to have you imagine is driving down a road in a car, say, there's a control problem in controlling the car to stay on the road, and there's a bunch of control parameters of the process you use to control the car that need to be in the right sort of a range to make this feasible. So if the car is going slowly, you can see the road really clearly. The road only changes slowly. You're awake. You're not drunk. You can clearly see the road. You can think clearly and make a decision to turn the wheel. And the wheels just strongly connected to the car tires themselves to move the car. The car driving process will work. Those parameters are in the range that you can effectively see the road turn a little, you think about it a bit, you turn your steering wheel a little, the tires turn a little. The car stays on the road. You don't go off the road.

But if we turn these parameters to the other extreme, if you're driving really fast, the road is changing really fast. You can hardly see the road. It's really dark and rainy. The wheel is floppy. Your mind is slow. The tires are wobbly. You can see that as these parameters get bad enough, you're not going to stay on the road. You're just going to drift off the road. And depending on what's next to the road, you might well crash. Our superpower, this cultural evolution is a system that has parameters like this. It's a system where basically there's a set of points in a space, and somewhere in the space is the adaptive region and the points in the adaptive regions, they grow and they multiply and they do well. And points away from this adaptive region: they decay, they die, they disappear. And this adaptive region moves around in the space. And so if you have enough points near the adaptive region, then even if the adaptive region moves, some of the points will be there. And so those points can grow. And the cloud of points can be a lot of points near that adaptive region, even with the region moving around, or even if these points actually wiggle around randomly and drift around. Still, if there's enough points strong enough selection pressure of the points near the good region increasing, and the other ones going away, this whole process works, and it's worked for a million years. And 300 years ago, we had basically hundreds of thousands of little peasant cultures in the world, all of which [were] near the edge of survival. They were poor. They had famines, they had wars, they had disease. So if they made bad choices, they would just disappear and be replaced by neighbouring cultures. So we had large variation, strong selection, and the world was changing only slowly, and these cultures were very conservative. They didn't want to change very much. So this system worked. A control system to drive the car of human cultures had worked because the parameters were in the right regime.

But in the last few centuries, we've taken these hundreds of thousands of peasant cultures, and we smash them down into 100 or so national cultures, and then we smash those together into a shared world monoculture, and these cultures that are remaining much fewer of them, they face much weaker selection pressures in terms of disease and war and famine. They basically don't die anymore. And the world they're trying to track is changing much more rapidly. Technology and other changes are making the kinds of things they need to track to be adaptive, changing fast. And in addition, rather than being conservative and being reluctant to change our cultures, we've become eager to change our cultures. Cultural activists have become our biggest heroes, and we love to celebrate the people who tried to cause cultural change, even if it wasn't obviously adaptive. That's not an important feature of the cultural activists we celebrate. So these are four different parameters that are all gone wrong in the last 300 years. And plausibly what that means is this cloud of cultures that we have remaining is not tracking the adaptive region of cultural space. It's drifting away. And that means our cultures are becoming maladaptive. That's the key problem.

Now, I want to be clear. There's two levels of culture. There's the kind of things that can vary individually easier, as we talked about before. And those things go fine. So an analogy is biological species. In biology you can have habitats that are fragmented with lots of little species or habitats that are big and integrated with a few big species. In the first sort of place, evolution within species doesn't work as well because each species has fewer members, but evolution of the species of the features that species share, that does much better. In the big habitat place, the evolution in species does better because each species is larger. So in our world today, within cultures, the things that can change within cultures, because we have a few big cultures, that's going great. We have better evolution of business practices and technologies and all sorts of things that can vary within cultures. The thing we have less of is evolution of the things that define our cultures, that it's hard to vary within a culture like, marriage norms, education norms, medicine norms, things about war, things about community, things about patriotism, a lot of cultural attitudes that are hard to vary within a culture because you'll be punished if you deviate, those are the things that we have very little variation of now and those are plausibly drifting into maladaption.

Tobi: So I guess the big puzzle for me, though the culture drift argument is very Robin Hanson, Hansonian in that sense. You're not the only one talking about fertility. It's become quite a huge topic in the West.

Robin: Yes.

Tobi: And again, some other people, scholars, public intellectuals, whatever, also give cultural diagnosis, uh, the collapse of religion, or marriage, you know, and things like that. But my big puzzle or question is, can cultural trends really be reversed? What is the solution really?

Robin: So first, I think I mentioned this before, but when you're talking about cultural trends and which directions do we want culture to go? That's actually the most prestigious people we have in our intellectual world. The people we most celebrate and give the most attention to and love the most are the people who comment on cultural directions, what's happening and which directions they favour. So there's no lack of discussion of cultural evolution from the inside, which direction do we want to push for, for culture to change? Cultural activism is really popular. What's rare is to stand outside the system of culture and to see it as a system, and to think about how that system could go wrong even when the individuals in it are doing things they feel are good. That's the hard part to see. And that's plausibly what we need to think more about, because that's where the system’s going wrong. We're going wrong in just having a system like this where we make such huge changes and we have such little variation and weak selection pressures. So many people do see fertility as a thing happening, but whether they think it's a problem we're solving depends on how they frame it culturally. Many people say, oh, look, it's not such a bad thing if population declines, we have a huge world. We could, you know, go on for thousands of years before we went extinct, that probably won't happen. So, you know, what's to worry about? We'll have less environmental impact. We'll be happier. You know, just let the population decline. Because those people see the alternative policies that might make population no longer decline as much as their cultural enemies. That is, they're pushing for culture to go one way, and they see the people who are opposing their pushes on the other side, and they think those people will win more if we let, you know, this fertility argument go forward. And then the more people do about fertility then those people will win. For example, religious people tend to be more fertile. So one way to promote fertility is promote religion. And a lot of people just hate the idea of promoting religion. They exactly want to stop that. Or say gender equality. Gender equality has, in fact, been something that's been reducing fertility, and many people are so eager to promote gender equality that they don't want to risk at all any sort of weakening of that by acknowledging that fertility might be a problem.

Tobi: One last area I would like to touch on is your personal intellectual journey. You studied physics, computer science, and then you transition into economics, and you've become known for exploring big, really, really big ideas. What were the pivotal influences or moments in your life that set you on this, I would say, unique intellectual journey?

Robin: Well, uh, first of all, I just became someone who wanted to be an intellectual. That is when I first came to college, I was inspired by some lecturers who made this grand vision of some people who figure things out that are important, and I wanted to be one of those people who figured out important things. Now, that doesn't make me especially unique, lots of people bought into that, but that was my vision. And for many people, like wanting to be a professor and academic is about being respected person who has a nice office and who gets to give lectures and other people invite to give keynote addresses and they're distinguished and they're thought highly of. And for that sort of a future, then they just should like follow the standard path and do what they're told and get the proper credentials. And then they are successful in their eyes because they have become a respected person who's doing respected things. But that wasn't my vision because I was sold on being a person who figures important things out. And that was kind of random, I guess, I could have been sold on the other vision, but because I was sold on the vision of figuring important things out, it wasn't enough for me to just collect some credentials and, you know, be thought of as a respectful person. I wanted to figure important things out, so I relatively early on tried to dig into everything that I could to ask - what's the fundamental here? What's the deeper underlying thing here? What are the key questions? How can we figure them out? So, that's the first part of I guess my life is to pick that as my framing.

So everybody in some sense, early in life picks their image of status, their ideal, and they pursue that. And they often assume everybody else must have the same ideal. But they don't. And people often don't realise the choice they're making about what to set up as their ideal. But that's where I fell into. I fell into this ideal. I'm going to be the person who figures out big, important things. That was the game to me. That was the whole point of everything. And then through school, I kept thinking about things and figuring things out. And it was a long time before I could realise, oh, I should, like, have a career plan or something. I was just so focused on reading things and thinking about them and figuring them out, and then taking whatever excuse I could do that, that I didn't actually realise, oh, well, if I want to be one of these big thinking and important people, I'll have to, like, get a job somewhere and I'll have to have credentials to support that. And so it took a long time for me to realise that I should have a plan like that.

And basically, I'd been out of school and I had some things I thought were interesting ideas, including prediction markets. And then I thought, okay, how am I going to do this? Oh, I need to go back to school and get a degree. And at that point I was more focused on, okay, I'm going to have to make compromises here. I can't just study what I'm interested in. I'm going to have to also accommodate what other people are interested in in order for me to get credentials and, you know, institutional backing so that I could continue in this world. And so I returned to school at an old age of 34 to start my PhD. And I had at that point two kids aged zero and two. So it was a big disruption to my family to go back to school and get my PhD. And then for the duration of my PhD and then a postdoc and the first few years of a tenure track position, I did lots of fun stuff on the side, which I thought was interesting, but then I constrained my main intellectual activity to be close enough to what the establishment wants, that I could, you know, get a PhD, get a tenure track job, and eventually get tenure. And then when I finally got tenure, I could go wild again, ignoring what everybody else wanted and just doing what I thought was interesting and important.

Tobi: You've explored brilliant, uh, sometimes even eccentric ideas from prediction markets to ancestral psychology to far future brain emulations. You've also had to play the contrarian at times in academia and public discourse. How have you handled scepticism or controversy around your ideas? Have you ever had a moment of doubt or personal crisis, so to speak?

Robin: See how I frame this? I see the whole point of everything here as figuring out big, important things. And it's what we're trying to find is news. You're trying to find things that are surprising. So a lot of academic work actually tries to show that the usual conventional view is exactly right. And people find that as prestigious and important, and they give people, you know, big accolades for that. But it's not really news if you thought this was true and then you check and it's still true. To me, it's the thing you're looking for, is the news. Things that you didn't expect to see that are surprising. And so you should expect good work to be surprising, i.e. a priori unexpected. That is, people should not believe you until they see your arguments for your conclusions. That's what news and surprising stuff is, right? So I'm completely happy with having news, having results that people, upon hearing the claims I'm making saying that can't be right. That's what news is. Unfortunately, many people, upon hearing what you say and thinking, that can't be right. That's where they stop. And they're not willing to actually listen to the arguments and evidence you've collected for this surprising view. If we're going to be looking for surprises, you've got to be ready to hear something that's claimed to be a surprise and then consider if it actually is a surprise. Okay.

And then there's a separate effect, which is basically I've been focused on looking for the most important neglected problems where I can find an angle. And it turns out humans just have a bunch of blind spots. And so there are just more important neglected things near the blind spots than elsewhere. So that made me interested in those blind spots. That is, wherever it is that other people have been neglecting stuff that's important that I could make progress on then, yeah, I want to go there. So, for example, I was initially in physics and computer science, and I would say in those areas, if you find something that's unusual, there's usually been a lot of other people near there looking for the same sort of stuff. And so it's hard to find a big advance in computer science or physics exactly because so many people have been looking around for advances.

Tobi: Yeah.

Robin: You're competing with all these other people who would love to find a new, important neglected thing because the world is really eager to find all those things. The world's really eager for new physical materials or physical processes, or new computer science algorithms or devices. The world loves that stuff, and they're eager for it. They pay a lot for it. So there's a lot of people eagerly looking for all that stuff.

And then I started to dabble in social science, and it seemed to me that in social science, it was much easier to come up with surprising results. And so that's why I switched into social science. Wow. Now, I thought, I must be really good at this, but not so much. The problem is, in social science, people just have a bunch of opinions about what they want to believe about the social world, and they're not so open to hearing that they're wrong. Humans don't actually fundamentally care about computer science or physics. They have induced interest in those areas because they're practically useful, but they don't fundamentally care. So there's not so much resistance to a new idea in those areas because we don't really care so much about which particular theories we believe or things like that, we more care about what we can do with them. But in social science, people care about particular opinions on medicine or education or politics, etc. And because they have pre-existing opinions that they are working to support, that's an obstacle to them thinking clearly, which means that they often leave important neglected problems unattended because of those obstacles.

So I went, okay, great. There are these important and neglected questions, but that's also an obstacle to convincing people that you found an answer to something. That is, you can go past the obstacles that block other people because they have pre-existing opinions. You can think about it fresh. You can figure out new answers. You can get evidence for those answers and arguments. You can bring them back to people, and then they just won't listen. That's what I didn't realise about social science is the reason why it's so much easier to find new, important stuff there is because the world's not listening. The world's not so eager to get that stuff. And so, um, you know, by the time I figured that out, it's kind of too late. I'd made my commitment to social science. I'm still happy that I'm able to make a lot of surprising, important insights and advances. But I see the problem here is that the reason that it's so easy is other people just aren't trying that so much. There's not so much demand for that, because if you find something, the world shrugs and goes, nah, we don't believe you.

Tobi: Final question for you. Um, this is a bit of a tradition on the podcast. What's the one idea that you would like to see gain more status, influence, and be more widely held, adopted even? You're not allowed to say culture adrift, by the way...[Laughs]

Robin: So can I say Futarchy? Look, if my intellectual strategy is to find important, neglected things, I'm likely to think that the things I found are in fact important and neglected. If you ask me, what are the important neglected things I'm going to say? Well, the ones I've been working on, of course, that was my whole point in picking them.

Tobi: Yeah, I agree, I agree, but I mean, can you give me something new?

Robin: I mean, so for example, there are institutional ideas that I didn't invent that I still think have a lot of potential. I think, for example, we could change democracy in big ways to make voters more likely to be informed either through tests or for random selection or other incentives. We could switch from first-past-the-post to proportional representation. We could do Harberger taxes - self-assessed property taxes, that's a better solution to an eminent domain. And so we wouldn't need government to overrule individual property rights if we had Harberger taxes as a way to create large chunk projects. There is a world full of interesting institutional ideas that I didn't invent, that the world should be more eager. So if you want me to generalise it, I think I said this before, which is if we just gave more status and attention to trying out new ideas, we would just make a lot more progress in the world than if we argue more about politics. So people are eager for new ideas and technology in physics or computer science, they're just not very eager for new ideas in institutional arrangements. And they mostly want to fight over who's in control of institutions, not about the structure of institutions. So if we could just try more variations on the structures of institutions, see what works well, then we could just make a lot more progress on institutional change, and that would be a huge value to the world.

Tobi: I've been doing these podcasts for close to six years. I think that's the most meta answer I've gotten on that question.

Robin: I like to be meta.

Tobi: Yeah, that's very Robin. Thank you so much. You're listening to Ideas Untrapped Podcast, and my guest today is Robin Hanson, economics professor and an all-around intellectual giant. Thank you so much.

Robin: Books.

Tobi: Author of two books, actually, The Age of Em and Hidden Elephants in the Human Brain. I'll put up links to his books and some of his most important essays and articles in the show notes. Thank you so much, Robin, for joining me.

Robin: Thank you for talking to me, Tobi.

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Welcome to Ideas Untrapped podcast. In this episode, I speak with economist Sugandha Srivastav about the hidden political economy of electricity in developing countries. Using examples from her study of Pakistan's electricity market, we explored how opaque power purchase agreements, regulatory capture, and poor procurement practices drive high costs and unreliable supply in many developing countries that are in desperate need of energy. Sugandha also shares bold insights on how competitive markets and renewable energy, especially solar, can transform the power sector and deliver affordable electricity for all. Dr Sugandha Srivastav is a Lecturer in Environmental Economics and a Senior Research Associate at the University of Oxford - and a Fellow at Energy for Growth Hub.

Transcript

Tobi: Welcome to Ideas Untrapped. It's nice to have you on the show. I've been looking forward to this, so thank you so much for doing this with me.

Sugandha: Yeah, thanks for having me, Tobi.

Tobi: Yeah. So, why I wanted us to have this conversation was I read your paper on power. By power, I mean electricity, and the corruption, and basically surrounding power purchasing agreements in Pakistan last year. So briefly, can you just summarise what that paper was about, what you found, and what were the general lessons that we can draw from that?

Sugandha: Yeah, sure, so basically about two years ago, we started looking into contracts in the power sector. And as all of your listeners know, electricity is so important to all of our lives. It's very important for businesses. It is hard to overstate how critical electricity is to our lives, so we were just really curious about how is electricity being procured by the government? What are the contracts that underpin this electricity? And, um, can we learn something about how much we are paying for electricity? So we wanted to dig into these power purchase agreements, which is what the contracts are called, but we very quickly realised that they're not disclosed most of the time. So even though this is government money, which is going towards paying for something as basic as electricity. The public has very, very little information on what these contracts are and one of the few places in the world where we could find information about power purchase agreements was Pakistan because they actually released a law which said that tariff agreements have to be disclosed. So what we then did was we spent, many, many months actually downloading all of these agreements and contracts and, in the end, I think it was over 6000 PDFs with very detailed contract information and we put together a database. And that's when we started discovering a lot of very interesting things. It became very obvious to us that some of these contracts seemed extremely generous and that raised some questions on why electricity is being procured with these particularly generous terms and conditions. And whether that means that the electricity sector is enabling transfers from the public to a certain groups of vested interests. So the long and short of it is that we think that these contracts are really important to study, and what we found from our investigative work is that a lot of these contracts are extremely lopsided and, you know, there isn't any competitive procurement, and we know when there isn't competitive procurement, you have no idea whether you're getting value for money, whether you're getting the best product. They're just being solicited bilaterally through these very, very opaque contracts.

Tobi: So, I mean, in that situation, and reading through your paper. After going through all the details and all, did you find out whether that was specific to Pakistan or is there a pattern across poor countries who have no power generally.

Sugandha: It's definitely a pattern. So one of the striking things is that across so many parts of the world electricity is not procured competitively and by competitively I just mean the normal process of firms submitting bids and choosing the least cost bid.

You know, that seems like an obvious way to do this, but that isn't what's happening. To give examples of countries where there are these very opaque power purchase agreements, um, Indonesia has them. Ghana has them. I think Nigeria, by the way, also has them. Mozambique has had them. And till date, we have just had very limited evidence. So what typically happens is that some journalist goes out there and finds a very specific scandal related to this power purchase agreement. And they report that.

So, for example, in Pakistan, journalists have said that the cost of coal being used by these power plants is much more than the market rate. Sometimes it's 50% higher than the market rate. And that's a very strange thing to observe. You know, why aren't power plants using cheaper coal? It turns out that power plants get reimbursed for the cost of coal. So if they say it's more expensive, they get a bigger reimbursement and that is the incentive behind lying. We've also seen that happen in India. So, to answer your question, this type of rent-seeking behaviour in the power sector is not unique to one country. We have seen it across the developing world. And one of the reasons it's there is that there isn't competitive procurement and a symptom is that the price of electricity becomes higher. And it also becomes more unreliable. And in general, you have this situation where public money is not being used efficiently. Unfortunately, yeah, it is a common story.

Tobi: Yeah. to use Nigeria example, not that I want you to respond to that specifically. Um, so in Nigeria, all sides of the bargain in the electricity market is complaining. Uh, the government complained about the fiscal burden of the subsidies. Consumers, citizens complaining because the electricity supply is not stable and the power companies do complain that they are not charging market rates, they are not making money, they are heavily indebted. What is it about the structure of the electricity market that creates this kind of dysfunction?

So, for example, some will argue that power purchase agreements are so structured because electricity is capital incentive and hence you need these lopsided contracts as an incentive for people who are willing to invest that kind of money. So what is it about the structure of that market broadly?

Sugandha: Yeah, so you do need risk reduction to incentivise entry in developing countries. I mean, that is a feature of developing countries. The question is how much risk reduction do you need? So you want enough so that people invest in your electricity sector, but if you give too much, then you'll create a debt crisis. And so there's a sweet spot in the middle where you allow entry into your electricity sector, but you're not going to create a debt crisis which creates havoc for your government.

This is where we think that some of these power contracts have gone too far on the other side. They're creating way too much burden on the government, and to put some numbers here, you know, often like the return on equity that is offered in these contracts, at least in Pakistan, we've seen can be up to 30%. But when you account for the corruption and cheating, so for example, as I mentioned before, power producers can get reimbursed for input costs. So sometimes they lie about their input costs and say that they're higher than in reality because they get reimbursed. So once you factor that in, we've seen some power plants making a return on equity of 83%. Which is much, much higher than the contracted value of 30%. So in that case, what we're documenting is actually explicit cheating.

Now to go back to your question of why this causes dysfunction in the entire power sector? If you think about it, essentially each step of the system is breaking and you know, so the power producers are making super normal profits in some cases. Then the utility, which is in between the power producer and the customers, they often can't charge higher tariffs because they're politically constrained. So they are buying this expensive electricity, but at the same time they can't pass on the higher cost. So they're making a loss. Then because they're making a loss, what they do is that they cut off power. So, because they make a loss per unit, they don't want their total losses to go above a certain threshold. So then their option is to simply switch off the power. That's something called economic load shedding.

So to your listeners, you can have load shedding for many reasons. Sometimes it's because of technical losses. Sometimes it's because you don't have electricity supply. But other times it can be just because your utility turns it off. Because they're not making a profit or in fact they're probably making a loss per unit of power, so they just turn it off. And that's a very under-appreciated reason why electricity is unreliable because it has nothing to do with supply. It has to do with the economics of it. And then you go to the government side because now that the utility is making a loss, eventually this utility has to be bailed out and the government does the bailing out. So then the government fiscally is in a bad position. This is how the entire system starts basically breaking down and the solution is simple. I mean, we need to have a meritocratic electricity system. So if an electricity generator can provide good quality, low cost electricity, they should be able to enter the market, sell and outcompete the old generation. It's as simple as that. And if that's risky, then you can provide risk hedging mechanisms that don't fundamentally distort the market the way they are doing now. Because right now it's a broken market, which is happening over and over again across the world.

Tobi: Yeah, so suppose I'm a developing country that is democratic. And I happen to inherit these contracts, uh, as problematic as they are. We also know that they are also notoriously long term. And sometimes the efficient or should I say fiscally responsible thing to do is to cancel some of these contracts. But again, as a poor country, you can bear at the reputational costs and economic costs for that. You're viewed as unreliable, there's no private property protection and not investment friendly. So how do you deal with this dilemma of handling inefficient corrupt contracts that are also very, very expensive?

Sugandha: Yeah, I'm gonna give a couple of examples. So, for example, In Indonesia, one of the very first independent power producers was called Python. And it emerged through really good investigative work that this independent power producer had such a generous contract and they were overcharging for electricity. And then it turned out that they were connected to the president of the country. They were connected to Suharto. And so what happened was that this actually went to court. Because there was all this evidence that emerged and because it was very clear that this was a case of corruption and using the electricity sector to benefit people in political office. One route is to use the judicial system and to go to court and say: these power purchase agreements are supporting incumbents or they're supporting politically connected individuals that they haven't been negotiated on a fair basis Because part of the legal system is to enshrine these protections and part of contract law is to ensure that a contract is fair and is a fair value to both sides.

So that is one option, you know, where you find very clear evidence of corruption and rent-seeking and the misuse of public funds to benefit certain interest groups you can use the judicial system. Now there's another side to it. If you don't find evidence of explicit corruption, but you're just worried about the fact that this contract is thirty years long, there was no competitive procurement, the tariff is three times the market rate for electricity, but you can't point to any specific corruption, it just seems like they signed a bad contract. In that case, it might call for renegotiation. So you get both parties on the table and you see what you can renegotiate because one of the other principles of contract law is if you're going to sign things that will last for thirty years, then reality might evolve, right? There could be very fundamental changes. And another principle of contract law is renegotiation - the ability to kind of meet and see what you can renegotiate.

So for example, Pakistan had a very, very big round of renegotiations. And one of the elements that they renegotiated was payment in U.S. dollar. So many IPPs were getting paid in U.S. dollar. But of course, Pakistan was collecting its electricity bills in rupees. And whenever there was an exchange rate issue, sometimes the price of electricity could double or triple because the rupee depreciated relative to the dollar. So the simple fix, they said, the government said, look: this is crippling our economy, this is putting too much pressure on our foreign exchange reserves, can you come to the table? Can we have a conversation and can we change these contracts from US dollars to rupees? And a bunch of independent power producers agreed, right? They could see that the country was in a very debt distressed state and that there was a lot of pressure on foreign exchange reserves and so they agreed.

And the good thing about a structured renegotiation process is that it doesn't decline your credit rating because in this case you have consulted with the other party. You have brought them to the table. You've talked it out. Now, that's assuming that they're willing to renegotiate. There can always be a situation where you think the contract is very lopsided, you think you're paying too much for electricity, and when you try to bring them to renegotiate, they decline. So now to give you an example of that situation, that is all the Chinese contracts in Pakistan. So in 2015, China built eight gigawatts of coal in Pakistan. This is now providing some of the most expensive electricity in the country. The coal plants are only used 20% of the time, which for a coal plant, if you don't use it 75% of the time, you're in big trouble. Because it is a high capex investment. You need the utilization rate to recover costs. But in this case, the Chinese coal plants get a fixed payment on a monthly basis, even if they're not used at all. These are called capacity payments, which are very common in power purchase agreements. So it means that in an ordinary situation, they would have gone out of business, but because of the generosity of the power purchase agreement, they're not going out of business. And these Chinese power contracts account for one-fifth of total Pakistani power sector debt, so there are really key piece of the equation when it comes to fixing that. Now this is a very tricky domain right because if you don't find outright corruption, you know, you can't litigate. You try to call them to the table, they refuse to renegotiate. And you're stuck. And it's a huge, huge, huge part of your debt.

This is where I think the international system needs to restructure, because this is when you have a really systemic issue and it goes like this: Pakistan gets bailed out by the right? It's on its fifth IMF bailout package. An investor from China can come and say we can write whatever contract we want and Pakistan will sign and ultimately the debt will be repaid by the IMF through the IMF bailout package. That creates a moral hazard. Because the investor ultimately knows that there's the IMF backstop. So one option is you take this to the international court of arbitration and Pakistan says we have to get out of these contracts. They're not fair. They don't reflect good value. The International Court of Arbitration hasn't been functioning well at all because there's something called the Energy Charter Treaty, and it is very biased in favour of power generators. And there's been a lot of criticism in the academic community about how the Energy Charter Treaty is being misused to prolong the lifetime of fossil fuels that are uneconomic. You know, if we had a normal market where you just have meritocracy, these assets would have been out of the system. so that's where I think we need structural change. And the final point I will say is going forward, looking into the future, developing countries have to do a couple of things. They absolutely, 100%, need to procure power competitively. You know, if there isn't an auction, a sort of beauty contest to see which power plants reflect the best value of money, citizens should ask questions because then you're always wondering, are you giving this contract to your cousin, to a friend, to, you know, I mean, there has to be competitive procurement. By the way, both in letter and in implementation, many of these countries have competitive procurement laws, but they don't follow them in practice.

And I think the second point is actually introduce a market for electricity, because even after the procurement stage, power producers should always feel the pressure. To deliver low cost energy. And that is what the market is for. The market creates the incentive to do that. Whereas if you just have long term contracts, they can sit back in their chair and say, ok, we won the first round, now we're here for thirty years, no one can kick us out. And that's not the right incentive. The incentive should always be that if we don't deliver efficiently, we can be out. You need that incentive. Otherwise, you won't have good quality energy.

Tobi: So, two-part questions, maybe I'll take them one after the other. First one is that there seemed to be some regulatory capture going on because I recall the last privatisation round that Nigeria did in 2013. It was not competitive. It was opaque. And of course we ended up with a mess and a lot of those power companies and contracts and assets ended up with government cronies. So, in terms of regulatory capture, what really can be done and is it unique to the electricity market or it is usually reflective of the general institutional and governance environment?

Sugandha: Yeah, I love that question so much because if I back up and give some context. Um, you know, in the 1990s, the Washington consensus was the rage, you know, everyone was like privatise, privatise, privatise. This will make you more efficient. That was the main recommendation coming out of Washington. And that's why a lot of developing countries started this whole endeavour of bringing private sector investment. But here's the thing. Privatisation only works if it has its key partner, and its key partner is governance reforms, because if you don't have governance reforms, then the privatisation can be misused and abused in the ways you just described. It can result in regulatory capture. And this can be across many sectors of the economy, right? It can be procurement related to construction. It can be related to sourcing materials. It can be related to sourcing electricity. But essentially, whatever type of procurement there is can be massively misused. And so the issue that happens for a lot of developing countries in the nineties, you know, for Asia, a lot of this privatisation of electricity really kicked off in the early nineties. I know for some parts, um, I'm not sure when it happened for Nigeria. What was the year you said?

Tobi: 2013.

Sugandha: So, so for a lot of Sub-Saharan African countries, it happened a decade, sort of a decade and a decade and a half later. Um, but, the key thing is you need these governance reforms and by that I mean you need to have a protocol of transparency. You need to have a protocol of competitive procurement and establish a clear rules-based system that has to be followed. And you also need to have monitoring and enforcement because, of course, things will still go wrong, but there should be fines, penalties, potentially jail terms associated with any type of misconduct and fraudulent activity. So those three pieces are so critical because without those, you can absolutely have the regulatory capture. And that is the other side of the story, right? Some of these contracts, when I looked at them in Pakistan's case, when they are signed in the 90s, any economist looking at that could actually say, oh, my God, if we honour this contract for the next thirty years, there is a risk this will cause massive pressure on foreign exchange reserves. There is a risk that this will lead to a debt crisis. And that would have been the time to turn back and say to the IPP, no, no, no. Let's sit down again at this table. Let's renegotiate, some of these terms need to be softer. Right. But one of the reasons that typically isn't done is because there is a regulatory capture. So I think that those norms of transparency, the rules-based system, the auctions and then the monitoring and enforcement, those are such critical aspects of institutional capacity and they go hand in hand with privatisation. They're compliments. You can't just do one without the other.

Tobi: So the second part of that question, uh, speaking on the electricity market specifically, so if you have to have private sector participation which is a position that most developing countries have found themselves. What are the core principles that should guide the relationship between, say, state-owned utilities and private power producers to ensure a balance between investment security and public interest protection.

Sugandha: Yeah, absolutely. Well, one of the key principles is don't just copy and paste old contracts. I mean, you'll be surprised, but some of these contracts do not change much. And in fact, You know, there's no reason why a contract that had to be very generous in the 90s looks exactly the same ten years later, because in that time there's obviously been development, there's been de-risking, etc. So one thing is really to treat everything on a sort of case by case basis to do a proper negotiation and not to just copy paste and this I think, you know, it sounds so simple and it sounds so intuitive, but when we looked at these contracts, what ends up happening is just the opposite. For example, if you're an independent power producer and I give you dollar indexation, then everyone who comes after you asks for it too. And I basically keep writing the same contract over and over again, even though the macroeconomic situation in the future may not warrant dollar indexation. So I think that's really important. The other structural change, which is something that you start seeing in advanced markets, is to have a place where you can actually bargain for power purchase agreements via a platform. So the UK has a platform for power purchase agreements. Uh, you know, the UK doesn't have a state owned utility. It has many, many different retailers. It has a retail competition, but what happens in this is that the independent power producer can suggest its contract terms and then the utility on the other side can look at this and it can look at other options of other independent power producers that suggest their own contract terms. And in this case you know as the independent power producer that if you ask too much, then someone else will win out over you and will get the contract. So it creates this incentive to basically discover the optimal contract just so that it's enough to cover your costs, it's enough to cover the risk of entering and the risk of participating in the electricity sector, but it doesn't result in super normal profits. And I think that's a really clever design.

Um, you know, one of my colleagues at Energy for Growth Hub says, why aren't power purchase agreements like mortgage agreements? You know, they should be very competitive. It should be very transparent. There should be a rules-based system. The information should be all out there. And we know mortgage agreements change over time depending on the economic situation, why are PPAs shrouded in secrecy, you know, this should be as standard as your typical mortgage contract. And I agree with that.

Tobi: So I'll ask you a question that I'm pretty certain that everybody that's gonna listen to this episode is dying to find out. To sort of like set the scene for that question, if you ask any power producer in Nigeria, for example, why electricity is unstable, it's always about tariff. You know, there seem to be no ceiling on tariffs. It's always tariff, tariff, tariff. We need to charge market reflective tariffs. It's why you don't have power. And it's a source of constant tension because the government then has to subsidise, you know, keeping an eye on energy costs. I mean, the cost of living crisis that the country is currently going through is mainly due to a surge in the price of energy. So what is the right approach to tariffs and pricing electricity generally? And can you give us a formula that you economists use to determine the market rate for electricity? Because like you said in your earlier answer, some of these contracts and the actual economics of it are above market rate and yet there's no electricity. So how do you determine the actual market rate for electricity?

Sugandha: Well, basically, if it becomes a very structured market, the goalpost, like, where Nigeria would want to get you is a situation where, for example, every day, you have a bunch of power generators line up and submit bids. Okay. And one of them says, okay, it's going to cost twelve cents per kilowatt hour for me to give you power. Another one will say, okay, I can do it for ten cents. Another one will say, oh, I can do it for two cents. By the way, the two cents will be the solar power, right? Because solar power is cheapest form of electricity because there is no fuel, right? So in terms of submitting your marginal cost, the marginal cost is zero because sunshine is free. Whereas for other things, the marginal cost of gas, et cetera, there's a fuel that you need to combust. So it typically is higher. And then on the supply side, the utility will check, okay, what is going to be the demand in Nigeria today? You know, is it a very hot day? Is everyone going to turn on their air conditioners? And they will basically move up those bids. So they'll start with the cheapest ones and they'll say, okay, okay, you know, you who said you can do it for two cents per kilowatt hour we'll get all of your electricity first. If that's enough to meet demand, good, you're done. But if it's not, then you'll go to the one who can do it for five cents per kilowatt hour. If that's not enough, then you'll go up to the one that does ten cents per kilowatt hour. And in the end, the price that people pay is a weighted average of all of those different generation costs. But remember in the system which repeats, let's say, every day on a daily basis, you work your way upwards towards the most expensive. So you start with the cheapest and then you work towards the top. And sometimes if you have something super expensive that is… you know, this is called the merit order when you rank things from cheapest to most expensive in the electricity system. If you have something like a gas generator that really, really cannot compete because it's offering very expensive gas, then ultimately that will get pushed out of the system because it's consistently the most expensive. Right? Because you order things.

Now this is the opposite of what's happening in power purchase agreements. In power purchase agreements, the price is fixed for thirty years and you're locked in. It's very, very different. So, when people say that electricity is super expensive and I do know enough about Nigeria to know it's very sunny, but there's really not enough solar being installed at the utility scale level. And let's be clear, right, I know there's domestic reasons because there's indigenous resources in Nigeria, but when we consider this kind of merit order ranking, solar can often put a lot of downward pressure on prices. And that's just because of the very, very intuitive reason that with solar, the cost is just about building the solar farm. But once you have paid that, sunshine as a fuel source, quote unquote, as a fuel source is free. It's a God given fuel. Right. And so that means that it is always amongst the most competitive in the merit order and then it puts downward pressure on prices.

I can give you the numbers from India. So India has a lot of domestic coal, you know, it's one of the biggest, it's the second biggest coal combusting country in the entire world after China. And guess what solar in India is three times cheaper than the coal. But the solar in India cannot generate as much as it should be. So India is installing a lot of solar, but if it wasn't for the power purchase agreements, it would be even faster and even bigger in solar because If we had this proper system of the merit order, which covered the entire Indian electricity market, then solar would be beating fossil fuels all the time. The reason the fossil fuels are not being beaten is because they're kind of hiding under their power purchase agreements and they don't want to let go of their power purchase agreements. So, we have a very funny situation in India that even when the utilities like hey it's been twenty-five years, I've been buying your coal, can I please finish my power purchase agreement. The coal generator says, no, no, no, we're going to extend this for another ten years. Right. And these utilities are like, no, please, please let us switch to solar because that's going to reduce costs. Um, so that's my kind of simple answer. So you want a situation which is really driven by plant level economics. It is dynamic and with every day you have this kind of beauty contest. Who can do it for the cheapest? And on the utility side, they're going to work their way up from the cheapest to the most expensive. I think that is, um, yeah, that is where we eventually want to go to.

Obviously, that kind of reform takes time.

Tobi: I mean, speaking of solar, um, in Nigeria, usually when you hear solar or think solar these days, there's really not much happening at scale. It's usually households and solar solutions has almost been stereotyped for rural electrification, which is weird. But you recently published something on Substack about solar in Chile. Tell me what's been happening in the market in Chile, especially on solar and what's the cool thing that we can learn?

Sugandha: Oh, well, um, so Chile had a big problem. So in Chile, um, just for your listeners, you know, Chile is a very skinny, long country. The capital, Santiago, where most people live, is down south. And in the north, you have the Atacama Desert, which is very sunny. It's actually one of the sunniest places in the world. Now, ironically, in Chile and, you know, in the south of the country where most people live, electricity was very expensive. I mean, it cost around $200 per megawatt hour at its highest. These were the types of really severely high prices that were being paid. And it was being generated through coal. Um, there was quite a bit of coal generation. And it was a very odd situation because people kind of just were like, well, there's a desert. There's so much space and it's very, very sunny up there. The problem was there was no way to bring the electricity from the north to the south. There were no power lines that went that way. So the government decided that they're going to invest in a massive power line that will connect the Atacama desert all the way down to cities like Santiago. And the moment the government announced that plan, a lot of private players suddenly started entering into the Atacama Desert and building solar because suddenly they knew they will have a way to sell the electricity to the biggest markets, right? Because before the power line, who cares if you build solar there. There's no way to transport the electrons. So this was super interesting. Suddenly private investment in solar boomed. Now the interesting thing after that is that once the line was completed, and the solar power turned on. And by the way, these are big solar farms. So normally with solar, if you go bigger, you can actually reduce your costs because of economies of scale. These are fairly large [solar farms]. And the moment the solar started generating, you know, your electricity prices went down from a high of $200 per megawatt hour to a low of $20 per megawatt hour. This was basically very, very transformative for the country and many coal power plants went out of business.

Now, the difference in Chile, by the way, is that the power market is competitive. So once a better technology comes on the block, that mechanism that I described before of always prioritising least cost and doing that on a dynamic basis kicked in immediately in Chile. So that's why you saw solar was supplying for all of the daylight hours, right? Solar was winning. Solar was supplying daytime energy. And then at night, yeah, some of these fossil fuels ran at night, but that wasn't enough for them to stick around or for them to make enough of a profit. And so the upshot was that Chile started pivoting to this very interesting mix which became cleaner and cleaner. It was solar. They're doing a bit of batteries now. I think they also have other energy generation sources that help balance. And for the normal person, it has made a big difference to their bills. But the best part is that the cost of building that power line was paid back in eight years because of the savings. The savings were so huge that even though the government had to build this kind of big piece of infrastructure, it was all worth it and eight years is a fairly short amount of time to recover the fixed costs of such a large investment.

So in terms of the takeaways we can learn from this, right, one of them is - there are strategic investments that government can make that can really unlock benefits, and that is something that countries should be doing if there is a place which has lots of solar potential but it's not currently well connected to where people live and where cities are. Building those transmission lines is going to be a critical piece of the puzzle. And then the second is to also fight the narrative that solar doesn't work. I mean, it's a narrative that exists in many places because like any good competition, you kind of want to talk down the other team and you want to kind of play them down and say, no, no, but they actually can't do this. But to be honest, I mean, I don't think we need to believe opinions and narratives, we can just look at the costs and the numbers and then it's a different story. And I think that with Chile, that's what it shows. Like, here's a global south country that reduced electricity prices so significantly because of solar. That's helping firms. It's helping households. And it's a way to combat that narrative with data and statistics, which is why like that. And I have kind of similar stories from India as well, where you really see it has made such a big difference to people's livelihoods. And the bigger picture here is that, look, we care about electricity. We care about electrons. It doesn't matter whether that comes from a lump of coal or from solar, like, the electricity is the same. Ultimately, we want it to be affordable. And so whatever does it in an affordable way, is what we should turn towards and the truth now with the numbers is that that is solar. I mean, it's quite unambiguously solar.

Tobi: I have two more questions for you to go. The first one is that recently, this goes back a few years actually, uh, a lot of developing countries have been pushing back on rich country led climate agenda basically on the reason that it deals developing countries a very poor hand in terms of energy needed for development and prosperity. Some of it I have a problem with. Some of it actually can come up as political signaling and sometimes a way to get generous deals so that some of these leaders can just embezzle money from carbon exchange agreements or whatever. But generally, what do you think? What's your take? Because another problem that I have that makes me uncomfortable is that climate change is indeed a global problem. There's no region of the world that won't be affected and the solutions to it, there's no statute of limitation on its deference. So what do you think? What do you make of all of this?

Sugandha: Yeah, I would say that in some ways the side of climate change that gets the most media attention in popular press is these COP conferences and diplomats and fighting and negotiating and it's like a game of hot potato. It's like, no, I won't do it ,you do it, no and you know, and they just pass around this hot potato. And I think that to me that's a shame because climate change to me is not a diplomatic game. That's the wrong way to frame this. I think it's actually a game of science and technology and engineers and it's not the playground of diplomats and I think the politicisation of it has actually been very, very damaging. Because it's taken something that should have been a technical challenge for innovation and scientists, and they've made a farce and a joke out of it. And I think if we look at this another way, like, if we just reframe it and say: this is the next big industrial revolution. This is the time in human history where we need to pivot towards another mode of production, something that is more efficient, something that utilises renewable resources rather than exhaustible resources, right? Because if you think of fossil fuels, these are very old paradigms, right? The fossil fuel paradigm started with the industrial revolution in Britain, the steam engine. And if you think about it, it's very simple: you dig up something from the ground, you burn it. The burning creates heat. Which boils water, which creates steam, and that steam moves a turbine. It's a very old, basic concept. There's nothing particularly inspiring about it.

But now, look at where we are. We have discovered that actually if the sun shines on certain materials, electrons can jump and that can automatically in a one step process generate electricity that was the discovery of the photovoltaic effect, and now we know how to harness it at scale. And if you look all around us, the entire earth has been using the sun's energy. Everything that's green is a type of solar panel. That should be very inspiring to us because it's taken humanity a long time to figure that out, but now we're aligning with this ultimate source of power. And just to say fossil fuels are ancient solar energy, right? We're just mining biomatter that's been condensed over millions of years. So if we reframe this, it takes it from burden to opportunity because it creates the idea of a green race. You can have winners in this. This is a new industrial paradigm. This is a growth sector. This is something that is advancing the old paradigm because technologically, it is far, far superior. You're not just digging and burning. It is actually a very sophisticated paradigm which connects to smart meters, the internet of things, batteries. So what I would say to your listeners is that the whole miscategorisation of climate in this political domain. Has done a great injustice to the technological side and the technological framing is what I think is much more appropriate for this. Because then suddenly the way any developing country wants to be technologically advanced, well, why not do it for energy, right? Energy is the backbone of your entire economy. Why do you want to be an 18th and 19th century energy paradigm? It's a very weird way to think about it, right? Like, if someone told you, hey, if you want to expand your transport sector, You should go with 18th century horse carriages because that's how Britain did it. You would laugh, right? You would say that's ridiculous. Why would I do a horse carriage? We have much better technologies today. It's the same thing with a lump of coal or gas, like, honestly, there's a new horizon. Why would we go to old centuries technologies? So that's kind of my response to that. I just think it's a whole circus over there and it's distracting. It's missing the point.

Tobi: Yeah. My final question for you, and this is a bit of a tradition on the show. What's the one idea? It could be your idea. It could be something you've read or seen or heard as elsewhere. What's that one idea you like to see spread everywhere? You’ll like to see people believe it. You'll like to see people live it. You'll like to see people be inspired by it. What is that one idea?

Sugandha: Well, I mean, one thing that I find very inspiring is the fact that sunshine and wind are free. When was the last time anyone ever paid for a ray of sunshine or for a beautiful gust of wind? And sure, we need to build wind turbines, we need to build solar panels, but once you do that, the rest is essentially free. You don't need to dig up more of anything. You don't need to drill wells. You don't need to do these kind of very complex ancillary processes. It's kind of a one step process. You build and then you utilise this abundant free fuel. And to me that's so inspiring. I think that the idea that we live in a world that is already solar powered and, you know, we've had millions of years of evolution and the energy source that evolution has prioritised has been the sun's energy. You know, I take a walk outside and I see a green planet and I'm like, well, you know, chlorophyll is green because that's what taps into the sun's rays effectively. And I think that that is just really inspiring because it's already hinting at this kind of bigger, deeper future. And it's something that I think is very aligned. And I do think that that is something where humanity will go. And in some ways, it's almost like there's always been energy around us, right? Every gust of wind is energy. Every ray of sunshine is energy. We just haven't known how to harness it. So yeah, that's kind of the main idea I would want people to take away with, which is that sunshine and wind are free. You know, why don't we use them more because that is the logical next step in my mind.

Tobi: Yeah, that's a fantastic idea. We'll be sure to help you spread it.

Sugandha: Great.

Tobi: So I mean, it's been wonderful and insightful talking to you. Thank you very much.

Sugandha: Yeah, thanks so much for having me. I've had a lot of fun talking to you.

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Hello, everyone, and this is Ideas Untrapped podcast. In this episode, I explored the challenges of acceptance of free market ideas in Africa with my guest, Tinashe Murapata. We talked about how the struggles of free market ideas can be traced back to historical misinterpretations that link capitalism with colonial oppression. We also discussed the weaknesses of Africa’s electoral politics in prioritizing economic issues and emphasised the need for cultural change to embed economic freedom in public discourse. The conversation concludes with a vision for localized, community-driven solutions to reduce state dependency and encourage market-driven development. Tinashe Murapata is the Chief Executive Officer of Leon Africa, an investment holding company in Zimbabwe. he is also a former executive at Barclays Bank and host of a popular Youtube show called Friday Drinks about economics and policy.

Episode Summary

Introduction

Tobi:Welcome to Ideas Untrapped. It's fantastic to speak to you. I love what you do so much—I’m a huge follower of your YouTube channel. It's nice to speak to a fellow ideas merchant on the continent. So, welcome to the show.

Tinashe:Thank you very much. I really appreciate this.

The Paradox of Free Markets in Africa

Tobi:A couple of weeks ago, I was speaking to an Indian economist on the show, and he said something fascinating. He observed that in America, when he speaks to his colleagues about free markets, they claim the U.S. doesn’t have free markets. Instead, he tells them, “Come to Africa—where you can be in traffic for five minutes, and there are vendors all around trying to sell you one thing or another. That’s the real free market.”

I found that interesting. But later that day, ironically—or unironically—I saw a news report that Nigeria’s communication agency was petitioning Elon Musk’s Starlink for increasing prices without government approval. And I laughed—so much for free markets!

This got me thinking. Price control and general illiberalism in economic policy are deeply embedded across Africa. You’re from Zimbabwe, I’m from Nigeria, and we see this pattern across the continent.

So, my first broad question is: What do you think is holding back the acceptance—or even tolerance—of free market ideas, particularly among the elites and economic policymakers?

Historical Misconceptions and African Economic Thought

Tinashe:That’s a very good question, Tobi. And thank you again for having me.

The answer, I believe, predates us. It’s rooted in Africa’s transition from colonialism to independence. There were two ideological sides at play—the West and the East. Colonialism was associated with the West, which championed capitalism. Meanwhile, the East, which supported African independence, was viewed as the antithesis of capitalism, embracing socialism and communism.

This led to the flawed perception that capitalism was the ideology of the colonizer, while socialism was the ideology of liberation. However, this is historically inaccurate. Both socialism and capitalism originated in the West. Karl Marx himself was European, and socialism predates him—it was fervently supported by Europeans.

Unfortunately, the narrative that communism and socialism “freed” Africa while capitalism “oppressed” it became ingrained in our political and intellectual culture. That misconception remains a significant obstacle today.

To move forward, we need to disentangle ourselves from these historical misinterpretations and critically evaluate which economic system actually leads to human flourishing. And without a doubt, capitalism—particularly from the 18th and 19th centuries—played a key role in advancing global civilisation.

The Role of Economics in African Elections

Tobi:My next two questions are related.

Sometimes, it feels like the economic well-being of Africans isn’t a central issue in electoral politics. Electoral competition on the continent is still more about politics in the traditional sense—identity, ethnicity, and power struggles—rather than economic policies that affect people's lives.

For example, look at the recent U.S. elections. Donald Trump won, and all post-mortem analyses suggest it was largely due to voters' perceptions of inflation. People didn’t feel the economic boom in their pockets, so they voted for change.

Now, in Nigeria, we are suffering from high inflation—especially food inflation, which has reached over 40%. People complain about it, yet when it comes to elections, they don’t express the same anger at the polls. Economic issues do not seem to drive political competition the way they do elsewhere.

So, is this part of the problem? And does the way Africa’s economic challenges are portrayed in international media—where we are always framed as victims—affect how we think about holding our leaders accountable?

Understanding Africa’s Young Democracies

Tinashe:I see your point, but I think we need to be kinder to African nations.

We are young democracies. Zimbabwe has been independent for just 44 years; Nigeria, around 60 years. In the life of nations, that is still infancy. Meanwhile, colonialism lasted much longer. In South Africa, it was close to 400 years.

Our democratic institutions and political culture are still evolving. Many of our governance systems were built within a history of disenfranchisement, where political competition wasn’t based on broad economic accountability. That legacy lingers.

This is not to excuse bad policies. Inflation is effectively a tax on the poor, and we should demand better governance. But we must recognize that political maturity takes time. Sometimes, societies learn through bad policies.

There are two ways to build a great society:

• The Meritocratic Approach – You start with the best people in leadership, ensuring competence from the outset.

• The Competitive Ideas Approach – You allow different ideas to compete over time, and eventually, society discards what doesn’t work.

Africa has largely followed the latter path. Socialist and paternalistic ideas are seductive, so people are often drawn to them. But over time, as failures become evident, they start to reconsider.

This means free-market ideas may take longer to gain traction. But our job is to keep advocating and ensuring these ideas are in the public square. Even if we don’t see the change in our lifetime, it will happen eventually.

The Free Market and the Battle of Ideas

Tobi:I view politics as a battle of ideas. Even identity-based politics is ultimately a form of idea competition. Political actors present their vision, and electorates choose.

Yet, in Africa, the marketplace of ideas seems weak when it comes to free markets. Civil society is filled with advocates for democracy and governance reforms, but very few champion economic freedom. Even in academia, free-market thought is largely absent.

Why is this? Is it just a matter of being “too young,” as you said, or has our education and civic discourse gone astray?

Changing the Culture, Not Just the Politics

Tinashe:This is a crucial issue. Politics is downstream from culture. Politicians do not create ideas—they simply pick up what is already popular in society.

If free-market ideas are not resonating in the culture, politicians will not advocate them. So, our focus should not be on convincing politicians. Instead, we must embed these ideas in the culture—in conversations, in media, and in everyday interactions.

Historically, ideas spread not through institutions but through cultural discourse. That’s why platforms like Ideas Untrapped are important. We need to ensure these ideas are part of the public conversation. Over time, as they gain traction, politicians will naturally follow.

Final Thought: A Vision for Localised Solutions

Tobi:One final question—it's a tradition on the podcast.

What is the one idea you’d love to see spread everywhere?

Tinashe:Local provision of essential goods and services—such as water, streetlights, and electricity—organised at the community level rather than by the state.

If communities own their schools, manage their waste collection, and control basic infrastructure, they become self-reliant. This reduces dependence on government and proves that the state is not always necessary for progress. If this idea spreads, more people will recognise the power of markets and decentralised decision-making..

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Welcome to another episode of Ideas Untrapped podcast. My guest on this episode is Raymond Fisman, who is the Slater Family Professor in Behavioural Economics at Boston University. He is one of the foremost researchers on corruption and institutional behaviour in the last three decades, and I have been looking forward to talking to him. The main theme of our conversation was the re-election of Donald Trump as the new U.S president and his swift embrace of corporate oligarchs as his new inner circle and power proxies. We also discussed why corporate America is rushing to fall in line and "kiss the ring". This was an enlightening conversation for me, and I do hope you find it useful as well. I also hope to have Raymond back on the podcast for a more global exploration of the topics he covered.

Transcript

Tobi: Hi, everybody. This is Ideas Untrapped Podcast.

My guest today is Professor Raymond Fisman. He's the Slater Family Professor in Behavioral Economics at Boston University. He's a brilliant, brilliant economist that I've been looking forward to talking to for a while. It's a pleasure to have you, Raymond.

Raymond Fisman: It's a pleasure to be here. I'll tell my children that someone said I was brilliant. They'll find that very funny.

Tobi: I think the interesting place I would say to start is what was your reaction to the inauguration two days ago? [This conversation was recorded on January 22, 2025 two days after Donald Trump was inauguarated for a second time as the President of the United States of America] I mean, in some kind of mildly amusing horror, like, I would say I was at the open blatant embrace of the core of American government of oligarchy and downstream of that, corruption. What were your thoughts?

Raymond Fisman: Yeah, I think it's a little hard to know where to begin because there is so much to say and literally relevant news and so far as self-dealing is concerned, as well as obsequiousness of business elites in the U.S. is coming so quickly that if we had this conversation six hours from now, there'd probably be yet more to say about it.

On the one hand, I would say that it was horror, not mildly amused, except that it does almost transcend satire, what's going on, like, you can't make it up sort of thing. But something that I want to be very careful to emphasise throughout is that I really don't want to pin this on a particular party or make this about partisanship, as opposed to we have an individual who has been elected to the highest office in the land, that I think is doing a lot that runs counter to good government. And those are the issues I want to emphasise.

And I do think that we've seen a lot of troubling signs. I did not watch the inauguration. I'm following the advice of my friend, Marianne, who said that to stay sane, she just reads the news in a physical newspaper. Otherwise, it just comes at you too often and too fast.

But some of the things that have emerged in recent days that are really quite troubling are signals that the U.S. is moving towards a much more, if you like, personalistic approach to policymaking. And there's always been a role for connections in the way the U.S. is governed. But it does feel like it's just going to a different scale.

The most recent and high profile example is that of TikTok, where Trump had been in favour of a ban of the app, he met with the CEO and before that, a billionaire Republican mega donor, and he flipped his position on it. Now he is going to be TikTok's saviour. So that's on the one side. On the other side, you see TikTok entirely aware that they need to engage in flattery. So, you know, they personally thanked Trump for his intervention Monday morning after it was brought back from a very brief ban and now has a 90 day extension. But again, Trump has sworn to save it.

So it's this kind of very personalised, very public favour trading is clearly sending a message to business that they need to fall in line in order to remain profitable in Trump's America. And you can easily, or I shouldn't say easily, you can imagine sliding into a system in which we have something closer to what's termed competitive authoritarianism, where you do hold elections, but the media, as well as the levers of government, are so commanded by the party in power that oppositions are playing from such a disadvantage. We've seen this emerge to some degree in India. We've seen it emerge in Hungary. We've seen it with X. We've seen it with other sites. We've seen it, to some extent, with Facebook very recently. You can see it potentially emerging in the U.S.

So I do see a lot of troubling signs, and it is certainly a collective project to push back against these trends.

Tobi: One thing that I was surprised, you might not be, given that do work in this area is how quickly people fell in line once Trump won or it looked like he was going to be the next president and you know you had this scrambling for people to get face time in Mar-a-lago to book hotels and to basically make deals and then it does make me wonder that, yeah, like you said, the U.S. is shifting to a more personalistic type of governance. But do you think that the quickness or the way that this shift is rapidly happening before our eyes has something to do with perhaps grievances in whatever form with good governance generally or impersonal bureaucracies? You know, because there's so much gripe about the elites or the deep states and how they have failed. And this is how the people are getting the power back. But of course, we know that's not what it really is. But what exactly about the status quo stopped working to give us this shift we are seeing to a new equilibrium?

Raymond Fisman: I'm sure there are many things and one always runs the risk of naming the thing that you think is most important, or even worse, the first thing that comes to mind, and presenting kind of a monocausal case. So I'll say that I'm going to name the thing that I think is most important. It's the first thing that comes to my mind. I'm sure there are many factors that are pushing in this direction, including what you described, people being perhaps dismayed - that it's going to be related to what I say, including what you say about the seeming gridlock of the U.S. government.

But what troubles me most and what I think is perhaps enabling the most is increased polarisation, which is more extreme in America than elsewhere, but is also a global phenomenon. It shows up very clearly in the data. The extent to which people identify as left versus right has been steadily widening over the past few decades. And somehow it tinges everything, including people's views of good governance, with a partisan lens.

So somehow all that has come to matter is, is he my guy or is he not my guy? As opposed to, is this an honest, competent guy or a dishonest, incompetent one? So somehow people's views, people's attention is entirely drawn to partisan questions, rather than good versus bad government questions.

The fact that businesses fell in line so quickly, it is kind of hard to fault them, given the opening example of TikTok. That seems to have already reaped tremendous dividends for the company. If I take at face value, the stock price of Tesla as some summary measure of how valuable it is to have the president's sympathies. It went up by around 30% in the week following the election. There are lots of companies that appreciated in value for reasons that can easily be tied to policies. For-profit prison companies went up by a lot. That's because of anticipated immigration policies. Other carmakers, and especially electric carmakers, did not do so well. So what's special about Tesla, that's not like a big secret. It's that its biggest shareholder, Elon Musk, was a tremendous financial and personal backer of Trump. So if you say, well, being well-connected to this government is worth 30%, that's a pretty good incentive to fall in line.

I will note as an aside, or maybe not as an aside, something that's very directly related. So my PhD thesis was on the value of political connections in Suharto's Indonesia in the mid-1990s. And my thesis looked at what happened to the value of well-connected companies when there were threats to Suharto's health. And if you take the results of my PhD thesis at face value, connections in America now are worth something comparable to what they were worth back in mid-90s Indonesia, which at the time was viewed as one of the most corrupt countries in the world.

Tobi: I mean, a recent example in Nigeria is a particular oil company that was in trouble for a while, running to about five years, was on the edge of bankruptcy and could not even publish its annual reports. And after the the last election, we've had a new government now for 18 months. After the last election, due to the perceived closeness - I mean, it's an open secret - of this same company to the new president, it's recovered tremendously. Its financial fortunes have recovered tremendously to the point that during the Christmas party last December, this same nearly bankrupt company hosted the three biggest musical artists in Nigeria to its annual Christmas party.

So I read the Indonesia paper a long time ago, and one thing I want to draw your attention to, maybe with a bit more of an international lens, is the role of ideas here. I know you talked about partisanship, and I hope we'll get to unpack that a little later. So there is a general acceptance now, especially in the subfield of what we call development economics or international development scholarship generally, that some form of corruption is not so bad, right?

Since you… I don't know how much you followed that field, but a lot has happened since your paper. You know, there's this subfield of political science meshed with economics that talks about political settlements. Scholars like Mushtaq Khan have said that, well, some corruption can be beneficial to growth and not all corruptions are bad. You can see the flavour of that with what is happening with Donald Trump, right? Because, I mean, again, a couple of weeks ago, I read an article in The Economist's which I consider to be embarrassing, was more or less making the same point that, hey, listen, folks, corruption is not as bad as you think, because there are evidence to some exceptions. So do you think that these situations where you have economies that are sufficiently big to challenge traditionally big Western economies, like China, like India, like Brazil, who we might describe as, you know, relatively more corrupt than Western countries, but who seem to be doing so well, you know, because when you talk to a lot of Silicon Valley guys, they talk about China and how they get things done and how it is impossible to build or do anything in the U.S. because of bureaucracy.

So, are we seeing the influence of ideas here that, well, corruption might not be the worst thing in the world as long as we can get some growth, we can build new nuclear reactors and build new roads and have high-speed railways? So is that a bit of what we are witnessing here?

Raymond Fisman: Yeah, I mean, there's an awful lot in that question. So at the risk of taking a bit of time to respond to Let me make a few observations. So first of all, you're absolutely right that the idea of efficient corruption has been floating around in the literature and out there in the so-called real world for some time. There's the classic article by Nathaniel Leff that refers to Brazil specifically and contrasts it with Chile. And that's, I think, a useful starting point for this view; which is precisely as you described, that you have “bad” government policies, bad in quotes here, but bad for growth, and thank goodness for corruption because it affords some workaround.

Now, the most standard response to that view, which I think also has some legitimacy, the grease-the-wheels view of corruption, is the so-called endogenous regulation perspective, which is definitely worth mentioning in this broader discussion; which is that once bureaucrats and politicians know that the way that they can extract payments is by creating onerous and burdensome rules, they just make more and more rules because that's the way they extract their side payments.

So you can end up with hopeless amount of red tape where businesses spend even more time dealing with bureaucrats and still pay bribes than in a corruption-free world. So this is a debate that remains in progress 30, 40 years after the Nathaniel, more than 40, a half century maybe after the Nathaniel Leff article. And you can easily marshal evidence on either side of this view.

The second point, you mentioned China. I think just empirically, it is worth observing that, you know, I give the case of Indonesia. I can even within Indonesia say, well, here's the good and here's the bad of it. Suharto took over in the mid-60s. He was a brutal dictator. So what I'm about to say is just about the economy. It's not about human rights abuses or torture or other horrors that took place under Suharto. The country grew very fast for 30 years under his rule. And if I take as my main overall view that, yeah, all else equal, less corruption is better than more corruption, we do have to confront these uncomfortable case studies of Indonesia under Suharto. It is also worth noting that he put in place a system such that when the regime fell in 1998, it had a GDP drop of 15% in a single year.

So in some sense, it was a fragile foundation that the economy was built on. Going to China, you see the same thing. Whatever you think of the country's most recent anti-corruption crackdown dating back to the early 2010s, from the 80s to the present, the country has grown tremendously in a system that was widely viewed to be quite corrupt. We definitely want to understand, and there's been a lot written on what might make China corruption different, from, say, Haiti corruption.

I pick Haiti not at random. There was this devastating anecdote. I believe it's Baby Doc, not Papa Doc, who at some point there was a railway that connected Port-au-Prince to the second largest city in the country whose name is escaping me. This is a productive asset for the economy, but for long-term prosperity. But for short-term gain, Papa Doc sold the railway ties to a multinational company that boxed up the metal and shipped it overseas.

That's like the ultimate short-termist thinking that a so-called roving bandit in the economics literature, someone who's not thinking about harvesting benefits year after year after year. So the question of, broadly speaking, is corruption good or bad, I feel like there are relatively few people who will say, all else equal, I want more corruption. I think there are relatively few people when they take the broader view of here's the evidence on Brazil versus Chile, China versus Sweden, etc., say, yeah, we want to add some corruption to the system.

But we're not really taking all else equal, are we? We're saying, well, we have this system in Indonesia, that The system in China, again, whatever you think about their social or other policies, have grown tremendously. China's brought an enormous number of people out of poverty. We need to understand what worked in that system. Now, the last thing I'll say on this is if we come back to the U.S. So, first of all, there's some of what you're describing in what seems to be going on with Elon Musk where he seems to be actively lobbying to have government litigation against him dismissed for environmental violations and so on.

So whether you think that the rules are set too tight, such that, oh, great that we can be unshackled from all of this pointless red tape, or whether you think, oh, now he's free to kill us all with whatever he's releasing into the atmosphere for the sake of greater financial return, that I'm not going to take on. But it does fit with your broader narrative of the trade-offs. I think what troubles a lot of people is when you get into a system of personalistic policymaking where profits are determined and part of a longer conversation would involve how this might fit in with the China model especially. When the system is set up such that profits are dictated by favour-seeking and personal connections, that's what companies invest in.

You don't invest in building the best electric car. You invest in making the best connections to government. And if you want to link to the larger economics literature, in a way, this is what the Nobel Prize was awarded for this past year on the role of extractive institutions and development. Sorry for that long answer, but what you asked, there's really many pieces to it. I've tried to give just the briefest of surveys of a response.

Tobi: Yeah. And one thing that does worry me, and maybe this is not a direct question, but I would like your reaction to it. What does worry me is the overseas effect. I know that, yes, Americans have a lot to be worried about. But, you know, in situations where some of the domestic rules against corruption in places like the United States and the UK have also helped to fight or, at least ,keep corruption at bay in many economies, Nigeria included.

There are many laws in the U.S. that prevent American companies working in Nigeria from, I mean, engaging in certain things and certain practices, whether it's environment or bribery and so many other things that they are used to doing in the 80s and 90s. And if we have a situation where companies can leverage personal relationships with executive to sidestep those rules. I fear they will also be unshackled internationally and we just might be back to some bad old days.

Yeah.

Raymond Fisman: So again, there's a lot that is embodied in this question, but I'll still try to be brief. So what you are describing, I think very legitimately, is the fact that, okay, Swedish companies don't pay bribes in Sweden. But what's Skanska doing when they're operating overseas, which they do a great deal? And for a while, Transparency International tried to produce a bribe-payers index, which was meant to evaluate the extent that companies based in particular countries felt more empowered to pay off public officials outside of their own countries. That proved to be hard to do for reasons I won't get into. It didn't last very long. But I do think this question of what is the role of multinationals operating in Nigeria, operating in Brazil, operating in Colombia, what is their role in promoting or enabling a corrupt system is really an important and understudied one.

On the very specific question of US companies, i was very concerned in 2016, as I think many people were. Enforcement of these foreign anti-bribery laws, I think the sense is mixed. So we do have some very high profile cases, Siemens being the biggest. But as I said, I don't think this is extremely well studied, so it's hard to kind of give an overall well or less well enforced. We do know that Foreign Practices Act enforcement in the U.S. did ramp up in the 2000s.

I think there was a lot of concern that in 2016 it would fall off a cliff. And it didn't really. So despite any worries we might have had about Trump meddling in the Justice Department, that one didn't really seem to come to pass. Am I worried again in 2025? A hundred percent. And I guess we'll have to see. As with many instances in which there are legal constraints, but also, I guess I might say moral constraints, this is my excuse to say that some of the responsibility rests not with the U.S. government, but rests with U.S. business people. And dare I say, even the institutions like Boston University or Columbia University, where I used to work at the business school, in educating people who will run the businesses that operate in Nigeria or Colombia or Brazil. And that, again... business education and whether we can and should try to inculcate a sense of business principles is probably for another conversation.

Tobi: So I want to return to the partisanship question, which is, I think it's generally accepted that some contest is necessary, if not perhaps mandatory in a democracy. But what are the ways in which partisanship drive polarisation. Because for me personally, I worry about this too. I mean, the last elections we had in Nigeria was super online and hyper-partisan, right? It's not so clearly ideological as it is in the US in the case of right versus left. In our own case, it's usually ethnic, which I would argue is even far more dangerous because there may be violence. There's threats of that in the U.S. as well.

Raymond Fisman: Yes, I was going to say. And also, I will say that it feels almost tribal in the U.S. in terms of people just like aligning themselves or identifying, that's the right word, they identify with one group or the other. So I'm not sure how different it is. As you were describing it, that's what I was thinking. It feels very identity based.

Tobi: Yeah, so I want to learn from you. I know that there might not be a simple answer to this. There rarely ever is in social science anyways. So how does something as necessary and even essential, you know, having a viable, active opposition, you know, partisanship generally, then drive polarisation to the point where people are unable to agree on certain basic rules of how a government should work. I mean, something that really shouldn't be up for debate.

Raymond Fisman: So I'm going to give more of a descriptive commentary than say anything about what we could hope to do. I think it's actually quite important to recognise that if you go back a half century, exactly, again, as you described, the hand-wringing and concerns went in the opposite direction. There's a great essay by an eminent political scientist from the 70s talking about how these concerns, these worries since the 1950s, that the two parties were just becoming too much alike. So people didn't actually have viable options. There was just one option, which was the dead center. And in a way, it's easy to see how something like the median voter theorem, which describes this force that drives parties to the average voter preference, how it could emerge in that world.

Since then, people have amended the median voter model to account for the fact that we can also have this splitting apart. I want to actually mainly just make one observation that comes from an economist who was a politician for some period of time and worked in politics, or maybe two observations, which is one of his great frustrations was that issues are not valuable unless in a polarised system. And this just drives further polarisation. You can think about this as all feeding on itself. An issue is only valuable politically if it's a wedge issue. So, for example, if everyone can agree that we need better science education in schools, then no party is going to take that up as their cause. Whereas more religion in schools, that's something for which it can be us versus them, a means of differentiation. It is also not a bad thing for the parties themselves. Think about a model of monopoly. You really love to have your captured market because then you can lead the quiet life of the monopolist. You can be lazy and stupid because they're going to vote for you anyway. So it's in the party's interest to do this. So we do see, tempted to say, absurd versions of this in U.S. politics recently, which is the Democratic Party funding to extreme Republicans to try to get extreme candidates to into the general election because that way they're sure to win. They don't have to try to get voters because the opposition is so far to the extreme that it makes it easier to win the election.

And so how we got here and how we will escape from it, I'm tempted to say either that's not my department. I'm really focused on good government issues as opposed to understanding polarisations, or it's above my pay grade, like this is, as far as I'm concerned, the great challenge facing U.S. society. But I also do see it as essential precisely because it's distracting us. It's getting us to focus on religion in school rather than science in school.

Tobi: Two questions before I let you go. One is, yeah, I know that you are Canadian also, But I was reading Joseph Wallace's paper a while back, talking about the distinction between venal and systematic corruption and using America as a case study.

Raymond Fisman: Sorry, I missed the first one. Something in systematic?

Tobi: Yeah, venal and systematic.

Raymond Fisman: That's what I thought you said.

Tobi: Yeah. So this isn't particularly a new territory for the U.S., as historians would say. So what can you say that America can learn from its history to deal with what is happening now?

Raymond Fisman: Yeah, I'm going to try to end on an optimistic note, which is that I think this is something that people were concerned about in 2016 as well, and it really never came to pass. And so I do think we just have to remain alert to these concerns. As an American or a Canadian I can still say whatever I want, I can still write whatever I want, I can still try to persuade whomever I want that my perspective has merit and there are many places in the world where I cannot do that. And so in a world or in a country where we still maintain these civil liberties, it still feels more possible to find our way back to a system of constructive exchange on what really matters.

I do think what concerns me, and this brings us back to the very beginning, is if we are moving towards what some have called competitive authoritarianism, what Sergei Guriev and Dan Treisman call spin dictatorships, I think of those as being not entirely different from one another we're potentially moving to a system where, again, like, I can say whatever I want to say but no one's listening. They're tuned into whatever Elon Musk or Donald Trump is saying. So we'll see, there's still a long way to go before America loses its democratic processes and institutions but it's entirely possible that we can stumble down that path.

Tobi: My final question, please feel free to answer as long as you want. A couple of weeks ago, you wrote an essay in the New York Times about the Department of Government efficiency that will be run by Elon Musk. And generally, the attitude amongst a lot of people that might not even be hyper-partisan has been one of optimism that, oh yeah, the government can use some efficiency. A lot of my friends, even here in Nigeria, mostly work in tech, are also optimistic that, oh yeah, this would be a model that is presumably exportable as a governance model for other parts of the world. What's your central critique, especially drawn from that piece? What is the flaw, central flaw, in the idea of running a government like a private business?

Raymond Fisman: To be clear, I'm all in favour of government efficiency. I don't want to equate that to, as you described, and as it's too often equated to, running government like a business. Because a business, its primary purpose is to maximise profits for some residual claimant on that profit, shareholders or the owners. Whereas a government has a much more complicated, job, which is, for example, catching terrorists, setting up schools, building roads that serve everyone, to benefit entire communities. And in general, the jobs that businesses do are relatively simple because there's generally a clearer mapping from action to desired outcome, which is higher profits. The jobs that governments take on tend to be a lot more complicated and harder to measure the outcome and give incentives for success.

And so if we decide, oh, we're going to run the U.S. government the way we run Tesla, which involves measurable outcomes for every action we might take, it's a standard problem in business as well, you end up distorting efforts to achieve something you can measure rather than something that you want. Part got cut out of that article was I wanted to mention Boeing, that this sort of thing happens in businesses as well. You're in the business of building really great planes, which is a complicated thing. Do involves lots of, again, relationships and long-term planning. And you bring in a CEO that's really just focused on shareholder profits. You stop focusing on the more complicated long-term agenda, and all you do is focus on this single, easy to measure, but not necessarily most important thing.

I'm not sure that I gave the best description of that. I guess I would refer your listeners to the New York Times article, where I had lots of time to sit down and spell out with care the argument here.

Tobi: Yeah, I'll put up a link to that article in the show notes. So final question, which is a bit of a tradition and maybe some upbeat ending to the overall gloomy tone of this podcast is what's the one idea that you are excited about at the moment that you would like to see spread everywhere? You like to see other people get excited to be your idea, maybe from someone else you admire or any other source.

Raymond Fisman: Oh, goodness me. I wish you had prepped me for that so I don't have to answer off the top of my head. So I'm going to end up giving an answer which isn't necessarily like this is the thing as opposed to this is the thing that I was thinking about this morning, which is that I do think people need to feel more empowered to influence organisations in the direction they want them to go in. And so what makes me think of this is, as reading this morning about shareholder democracy, if we all want ExxonMobil to behave differently as a company, if we all want Siemens to behave differently as a company, who gets to decide, if it's the owners, then I get a little voice. And just as I vote in every election, I really should take much more seriously my job as a steward of ExxonMobil and Siemens. And hopefully all of our little voices will add up to something bigger. And maybe that's the larger point, is we need to take more seriously our little voices and how they impact some larger societal outcome.

Tobi: Thank you so much, Raymond. It's been fantastic talking to you. Any other thing you would like to share that you'd like us to know that you've been thinking about lately?

Raymond Fisman: No, thank you very much. This last one relates to… I've been working on a book on whether business will save the world or destroy it. The answer obviously being neither. And yet there are people who believe very strongly in one of these two views. And so I'm excited to try to communicate to the world how these two different groups come to these very different conclusions and what we might do if our objective is to make business the greatest force for good.

And that's partly where my answer to what's your big, important idea, that's partly where that comes from.

Tobi: I mean, when your book is out, maybe I'll get you on for another episode.

Raymond Fisman: It would be a pleasure.

Tobi: I did enjoy the last one I read, which was the one with Tim Sullivan, The Org. I did enjoy that very much.

Raymond Fisman: Thank you very much.

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Happy New Year to our listeners. This is the first episode of the year, and I had a conversation with Oliver Harman about global value chains (GVCs), foreign direct investment (FDI), and regional governance in economic development. Oliver and I discussed how GVCs have evolved, the crucial role of multinational enterprises in knowledge transfer, and why regional governments—rather than national ones—are often better positioned to shape policies that maximize benefits from global trade. The conversation highlights the importance of GVC-sensitive policies, investment promotion agencies, and upgrading strategies to help economies move up the value chain and develop their economy. Oliver Harman is an economist. He specialises in spatial economics and economic geography. He is a Senior Policy Economist for the International Growth Centre at the London School of Economics and Political Science. He is also a Research Associate at the Blavatnik School of Government, University of Oxford. His book with Ricardo Crescenzi, which was the subject of this podcast, can be found here.

Transcript

Introduction

Tobi:Welcome, Oliver, to Ideas Untrapped Podcast. It's wonderful to have you here. I have to say that your work, along with Riccardo Crescenzi, is one of the most refreshing things I've read in the last couple of years on global value chains. It's a wonderful book. I'll put up links to how people can access it in the show notes, and I think everyone should read it.

I want to start with the basics. The phrase global value chain is frequently used in economic discourse, particularly in discussions about geopolitics. But what exactly are global value chains? How would you describe them?

What are Global Value Chains?

Oliver:Thank you for having me, Tobi, and for your kind words on the book—it is much appreciated. I can provide you with an open-access overview of the book for your listeners who may not be ready to purchase the e-book but want a taste of its content.

To answer your question, global value chains (GVCs) have gained prominence academically since the 2000s. Before then, there was little academic literature on them, and even less in policy discussions. This book emerged from that gap.

A useful way to conceptualize GVCs is through an evolution of economic thought. Traditionally, economists described trade in terms of final goods—like the classic example of England producing cloth and France producing wine, and then trading them. GVCs, however, break down final goods into intermediate parts.

Take the bicycle as an example. Many think of it as a single product, but a Canadian photographer once disassembled one and found 571 intermediate components, all researched, designed, produced, packaged, and marketed in different regions across the world. The same applies to more complex products like smartphones, where an iPhone or Samsung device contains thousands of parts sourced globally.

GVCs have completely reshaped how we think about trade—moving beyond final goods to the intricate networks of intermediate goods and services that contribute to production.

Evolution of Global Value Chains

Tobi:How have global value chains evolved over time? What key events have shaped their trajectory over the past 20 to 30 years?

Oliver:That’s a great question. GVCs have gone through different stages of transformation.

• 1990s-2000s Boom: Trade became more fragmented, and participation in GVCs surged. Nearly every industry saw increased participation, with 40-50% of trade occurring through GVCs.

• Post-2008 Financial Crisis: GVC expansion plateaued. The crisis led to economic restructuring, stabilizing GVC participation at previous levels.

• Recent Trends (COVID-19 and Beyond): The pandemic disrupted global supply chains, causing temporary shocks. While GVCs held steady, they are now evolving in response to technological advancements and geopolitical changes.

This makes it more critical for economies to find the right GVC for their development, rather than just benefiting from an overall expansion of trade.

Multinational Enterprises and Governance in GVCs

Tobi:Your book highlights three key aspects of GVCs:

• Multinational Enterprises (MNEs)

• Foreign Direct Investment (FDI)

• Regional Governance

As a Nigerian, I’m particularly interested in MNEs. We've seen many multinationals exit the country in the past six or seven years. Some policymakers argue that local investors can replace them, so it's not a big deal. But can you elaborate on the governance role that MNEs play in GVCs?

Oliver:Absolutely. Multinationals are the governing arm of GVCs. They control and structure value chains by determining how production and trade flow across different regions.

For regional policymakers, engaging with MNEs is crucial. They are at the frontier of technology and knowledge, and when properly integrated, they can transfer expertise to local firms. This is particularly important for emerging economies—it allows them to leapfrog to higher-value production.

However, MNEs can also be extractive if not managed properly. So, it’s important for governments to structure policies that maximize benefits while minimizing exploitative practices.

Governance Policies for Maximizing Benefits from GVCs

Tobi:How can governments and policymakers structure governance around MNEs to ensure they enhance local economic growth?

Oliver:We argue for Global Value Chain-Sensitive Policies, which explicitly consider how policies interact with GVCs. Some examples:

• Investment Promotion Agencies (IPAs):

• These agencies attract the right investors suited for the local economy.

• Evidence shows that subnational IPAs (e.g., at the state level) are often more effective than national ones.

• Skills Development Aligned with GVCs:

• Training programs should be customized based on industry needs.

• Example: The Penang Skills Development Centre in Indonesia worked with MNEs to align workforce skills with global industry demands, leading to economic transformation.

Foreign Direct Investment (FDI) and Upgrading in GVCs

Tobi:Some countries like Vietnam, Poland, and Malaysia have effectively used FDI to upgrade their economies. What are the general lessons from their success?

Oliver:The key takeaway is that quality of FDI matters more than quantity.

• Traditional Thinking: Measure FDI by the sheer amount of money coming in.

• More Effective Thinking: Assess what type of FDI is being attracted.

For example:

• $100 million in basic assembly work adds less value than

• $10 million in high-tech R&D investment, which has long-term benefits.

Upgrading within GVCs involves moving from low-value tasks (e.g., assembling phones) to higher-value tasks (e.g., designing microchips). This is the essence of economic transformation.

Regional Governments and GVC Policy

Tobi:You emphasize regional (subnational) governments as key players in GVC policy. Why focus on regional rather than national governments?

Oliver:There are two reasons:

• Granularity of Data:

• National policies aggregate data, ignoring local variations.

• For instance, a port city has different needs from an inland capital city.

• Local Expertise:

• The people of Lagos understand their economic strengths better than the national government in Abuja.

Empowering subnational governments allows for more tailored, effective policies.

Challenges in GVC Data Collection

Tobi:How can regional governments access reliable data to guide policy?

Oliver:Data is crucial but often lacking in emerging markets. Solutions include:

• GVC Mapping Exercises: Identify key industries and their global connections.

• Global Datasets:

• Inter-Country Input-Output Tables

• OECD’s Trade in Value Added (TiVA) database

• Firm-to-firm transaction data

Final Question: One Idea Worth Spreading

Tobi:What is one idea you’d like to see widely adopted?

Oliver:The value of global trade and specialization.

Many policymakers today are pushing for economic nationalism—wanting everything made domestically. But different regions have comparative advantages, and trade creates mutual benefits.

We must resist mercantilist policies and embrace efficient global cooperation.

Closing Remarks

Tobi:That’s a fantastic idea. Hopefully, we move past the current mercantilist mindset. Thank you, Oliver, for being on Ideas Untrapped.

Oliver:Thank you, Tobi. I appreciate the opportunity to discuss these ideas with you and your listeners

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In this episode of Ideas Untrapped we discussed the challenges and complexities of education, economic growth, and public health systems in developing countries with two brilliant guests James Habyarimana and Jishnu Das. We started off with an example on the rapid expansion of tertiary education in India and its unmet promise of better jobs, which led to discussions on similar dynamics in African contexts. The conversation explored the balance between market-driven growth and government intervention, emphasizing the need for robust processes and inclusive dialogues to address inequality, improve infrastructure, and shape a collective vision for the future. James Habyarimana is the Provost Distinguished Associate Professor at the McCourt School of Public Policy. His research is focused on identifying low-cost strategies to address barriers to better health and education outcomes in developing countries. Jishnu Das is a distinguished professor of public policy at the McCourt School of Public Policy and the Walsh School of Foreign Service at Georgetown University. Jishnu’s work focuses on health and education in low and middle-income countries.

Transcript

Tobi: Welcome to both of you. This is actually the first time on the podcast that i'll be hosting two guests at the same time and i feel so lucky that it's both of you, so welcome to Ideas Untrapped it's fantastic talking to you.

Jishnu: Great to be here, Tobi. Glad we're doing this.

James: I feel privileged to be sharing this time with both of you.

Tobi: Okay, thank you. You can take turn to answer as you choose. What inspired me to do this episode primarily was a very powerful article by Jishnu talking about

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college education and how young people may have been shortchanged by the promises

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and what the evidence suggests.

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So briefly,

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if you can just summarise for us,

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Jishnu,

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what inspired you to write that piece and what were the major findings?

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Jishnu: Yeah, sure, Tobi.

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And I'll ask James to talk about the African context.

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I mean, I know India fairly well.

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And one of the things that's so surprising and, you know, when people in the U.S.

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or people elsewhere hear it,

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they don't realise just how fast college education and college enrolment has

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increased in the country.

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Right.

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So one of the statistics that I got wrong because I couldn't believe it is between 2003 and 2016,

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India was building a new college every eight hours, right?

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And you think about a number like that and you say, what happened here, right?

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It's completely out of the experience that any of us has ever seen.

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There's a real, real thirst for education among young people.

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And it's not just a certain group.

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We are seeing it in all kinds of socioeconomic status, girls, boys, men, women.

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And it's interesting,

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like in a country like Pakistan,

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which is traditionally thought to be very patriarchal than it is,

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there are more women in college now than men.

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So there's this huge upsurge,

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maybe a huge demand for college education that's being met by all kinds of places.

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And, you know, education is a bit like looking at the stars.

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You're going to see what happened in the past in terms of, OK, all these guys came into college.

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What's going to happen to their lives after that?

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And that part is not clear.

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So India has grown a lot.

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It's a huge success story on some fronts, kind of.

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But really, more than 90 percent of the jobs are still informal.

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And we keep thinking BPO, you know, business process outsourcing.

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They're taking a lot of outsourcing jobs.

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You know,

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there's so little of that in actual numbers that it supports less than a percent of

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the population.

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So the question,

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the big question that comes is,

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OK,

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all these guys who are going into college,

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they're going in with the expectation that their lives are going to be a lot better.

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And are we going to be able to meet that expectation?

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And the phrase that people use is, you know, we have the so-called demographic dividend.

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where we have lots of young people and fewer older people.

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And the right way to think about it is how do we make sure that that demographic

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fraction which we call a low dependency ratio is a dividend and doesn't turn into a

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nightmare when you suddenly have these tons of people who are like,

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look,

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you sold us a dream.

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You told us that if we make it through the schools,

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which are not great,

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and we go to college and we finish our college,

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We'll get a decent job.

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Where is that job?

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That's why I called my blog a coming of rage story, because our college education has come of age.

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And the big question now is whether it's going to come of rage as well.

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And that's kind of, you know, where I left it.

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But I don't know.

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I mean,

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James,

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do you find kind of similar patterns in Uganda or in Tanzania where you work or

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other countries?

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James: Right.

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I guess I want to start by saying, yes, I mean, Africa is in some ways pretty, pretty diverse place.

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And so I'm going to focus a lot of my comments on the places that I'm familiar with,

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which would be East and Southern Africa.

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Tobi: Yeah.

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James: But I fully expect,

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as I was saying to Tobi,

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I've done some work both in Lagos and in northern Nigeria on education.

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So even though this is a little bit a while ago,

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so I don't quite understand the long run trends and,

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say,

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demand for college.

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But, you know, Africa is a very young continent.

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In many parts of Africa, the share of the population is under 30, you know, is close to two thirds.

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And so, yes, there is the same dynamics in terms of expectations of a better life.

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And of course, I think this is the challenge for politicians.

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So

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So earlier when Tobi was saying maybe,

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you know,

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infrastructure projects get more attention than,

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say,

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education,

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I actually think in the places where I work that,

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in fact,

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education gets much more attention because politicians are concerned about this rage,

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right?

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They're concerned about this gap between people's aspirations and essentially kind

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of the opportunities that are available when they finish school.

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I think that is a huge problem.

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Even in places,

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actually,

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the northeastern Nigeria,

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where I started to do some work on kind of apprenticeship programs,

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there's a lot of attention being paid to addressing essentially kind of this gap.

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Because I think ultimately,

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and I think most political scientists have suggested that essentially kind of the

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share of males between the age of 15 to 29 who are not engaged in school or active work,

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in some ways can be a major source of instability.

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And so I do see the same concerns.

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There's certainly been an explosion in

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in terms of tertiary institutions outside of government.

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And so there are many more private institutions in East Africa than exist,

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say,

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you know,

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20 or 30 years ago.

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I don't think people are building universities or colleges at the same rate as they are in India.

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But there's certainly kind of an attempt to respond to the exploding demand

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And I think ultimately the question for whether there's a demographic dividend or not,

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I mean,

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I've certainly made the case in other fora where I've said,

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look,

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we need to essentially kind of take advantage of this opportunity and we need to

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give these young people the skills to be effective in the world.

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But I think ultimately there is kind of a bigger question about sort of can these

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places produce the jobs and find the markets to really deploy these people?

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Yeah,

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so I hope we won't start the conversation by essentially kind of talking about rage

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as opposed to the high hopes.

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But yeah,

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I think many places where I work are facing the similar sort of challenge of,

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you know,

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how do we convert this opportunity into prosperity as opposed to civil conflict?

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Tobi: So I think for me, the rage...

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question is sort of unavoidable.

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Perhaps the evidence might tell us differently, but at least on some level of perception.

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Certainly, it's a story that resonates with me.

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I mean,

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I live in Lagos,

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Nigeria,

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and I can certainly tell from my observation that you see an army of young men from,

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say,

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18 to 25 with

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absolutely nothing to do, you know, just walking the streets, standing on the corner.

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So what I want to tease out with my next question is the intersection of skills and jobs, you know.

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So on the one hand, there's been this great expansion.

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I think it's certainly true, also of Nigeria, the expansion in tertiary education is crazy.

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Like private schools must be

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Now,

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I don't have the data immediately,

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but I think private universities must now outnumber public universities in Nigeria.

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You can certainly see the same trend in secondary schools.

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But at the same time,

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when you speak to employers,

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the story they tell is that,

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yes,

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there's a lot of schooling,

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but these folks are not really skilled.

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And then recently,

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the National Bureau of Statistics did a labour market survey and what they found is

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like 97% of jobs in Nigeria are still in the informal sector,

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right?

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So is it that we are not creating enough formal sector jobs or the inadequate

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formal sector job is itself a consequence of the quality of education?

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James: That's a great question.

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Let me try and take a stab at it.

(00:08:15):

So my view is that clearly causation is running in both directions.

(00:08:19):

But I actually would say that,

(00:08:20):

in fact,

(00:08:21):

I think it's the absence of better jobs that is possibly keeping down the quality

(00:08:26):

of education more than essentially kind of the other way around.

(00:08:29):

You know, we've written about the demographic dividend in, say, Southeast Asia.

(00:08:33):

I think those were places where, in fact, the export markets essentially kind of provided lots of jobs.

(00:08:38):

And it wasn't that the people first got education and then got the jobs.

(00:08:42):

I mean, you know, in some ways, the question is, why do people get educated?

(00:08:45):

There's a nice paper that talks about,

(00:08:47):

ultimately,

(00:08:47):

should we worry about education policy and improving quality of schools?

(00:08:51):

Or should we worry about how to essentially kind of grow the economy, expand opportunities?

(00:08:56):

And then in some ways, people will then respond

(00:08:59):

to those opportunities by getting the education that essentially maximises those opportunities.

(00:09:05):

One way we can generate lots of opportunities is to come up with great new ideas.

(00:09:09):

Great new ideas create new markets,

(00:09:11):

and you could argue that innovation requires a high-quality education system.

(00:09:16):

But I think for many countries that are growing from the levels where Nigeria,

(00:09:21):

Kenya,

(00:09:21):

Zimbabwe are at the moment,

(00:09:23):

My sense is I don't know that the kind of innovation that we're talking about is

(00:09:27):

essentially kind of the most important thing.

(00:09:28):

I think the lowest cost path is to find manufacturing related markets where,

(00:09:34):

in fact,

(00:09:34):

you can employ lots of people, where you don't need people to have PhDs and be

(00:09:39):

creating patents to get the economy started.

(00:09:41):

I suspect Jishnu might have a very different take on this.

(00:09:43):

But I think my view is it's the opportunities first that shape the education system

(00:09:48):

rather than output of the education system in some ways failing the country.

(00:09:52):

Even though I should say I think both of these directions are important,

(00:09:55):

I think, I certainly would put much more weight on the former.

(00:09:59):

Jishnu: So, Tobi, your podcaster is Ideas Untrapped?

(00:10:02):

And the second part you didn't tell us, it's like Speakers Trapped.

(00:10:06):

I mean, that's one of the deepest questions I've heard in a long time.

(00:10:12):

And I'm going to push it back as a question to you and James, but it's a question that worries me.

(00:10:18):

And just to quickly summarise,

(00:10:20):

you probably already know this,

(00:10:21):

but just to summarise kind of three big thought pieces that are out there.

(00:10:26):

So Dan Rodrik,

(00:10:27):

Kennedy School's been arguing that countries that are not already doing a lot of

(00:10:31):

manufacturing have basically missed the manufacturing bus.

(00:10:36):

And he's arguing that unlike, say, the U.S.

(00:10:39):

or U.K.,

(00:10:40):

which deindustrialised much later down the employment chain,

(00:10:45):

a lot of countries,

(00:10:47):

including Brazil,

(00:10:48):

including other places,

(00:10:49):

are deindustrialising prematurely,

(00:10:51):

right?

(00:10:52):

So he's saying, look, the manufacturing bus is lost.

(00:10:54):

I mean, if you think you're going to generate those jobs through manufacturing, it's gone.

(00:10:59):

I don't know how right these are, but let's just put these out there.

(00:11:03):

And then interestingly, Rohit Lamba, who is an economics professor, has this

(00:11:10):

very interesting book with Raghu Rajan,

(00:11:12):

who was earlier our central bank governor and professor at Chicago,

(00:11:17):

basically arguing that if India has to grow…

(00:11:20):

So this is similar to Dani and they're saying,

(00:11:23):

you know,

(00:11:23):

it has to kind of give up on this idea of manufacturing and move to really high

(00:11:27):

scale services and patents.

(00:11:29):

Right.

(00:11:30):

And for that, a whole host of changes are necessary.

(00:11:34):

So then it kind of comes back to this big question of if you are able to create

(00:11:41):

these really high skilled people coming out of the schooling system and the

(00:11:46):

university system,

(00:11:47):

will you be able to transition to a great service economy?

(00:11:51):

And I'm going to put that question back to you,

(00:11:54):

but kind of argue two pieces there,

(00:11:57):

which,

(00:11:58):

you know,

(00:11:58):

I didn't find in Rohit and Raghu Rajan's book or in Dani's thinking.

(00:12:02):

One is,

(00:12:03):

look,

(00:12:03):

if you ask people,

(00:12:05):

and I think this is definitely true for India,

(00:12:07):

I think this is true for many countries in Africa,

(00:12:09):

what do you want from the government,

(00:12:11):

right?

(00:12:11):

They don't get upset.

(00:12:12):

Like, I've never talked to a parent, and I've talked to many parents, but

(00:12:16):

they don't get upset at the schooling system.

(00:12:18):

You ask them, hey, why is your kid not doing great?

(00:12:21):

They'll blame the kid.

(00:12:22):

It's like, oh, she doesn't study enough or he doesn't study enough.

(00:12:25):

They will almost never say, look, the teacher is a disaster.

(00:12:29):

They'll never say, oh, the schooling is a disaster.

(00:12:31):

They'll say, it's my kid, right?

(00:12:32):

Because they see some kids do well and they see some kids not do well and they're like,

(00:12:37):

oh,

(00:12:37):

that's the kid.

(00:12:38):

On the other hand, so when you ask them, what do you want from the government?

(00:12:42):

The number one priority is we need jobs.

(00:12:45):

Now, I don't know, and I'd love to hear from you and James on two things.

(00:12:50):

One is,

(00:12:50):

do you think we can shift or do you think it's even worth saying,

(00:12:55):

you know,

(00:12:56):

how does the government shift expectations from we want a job to we want our

(00:13:03):

schools and universities to function at a totally different level,

(00:13:06):

right?

(00:13:07):

Do you think politicians are willing to take the risk of saying,

(00:13:10):

hey,

(00:13:10):

if we give you really good schools,

(00:13:12):

but you don't get the jobs,

(00:13:15):

you will still re-elect us.

(00:13:17):

I don't know.

(00:13:17):

And I want to hear what you guys have to say about that.

(00:13:20):

And the second one,

(00:13:21):

Tobi,

(00:13:21):

that people are underestimating,

(00:13:23):

and I'm more and more sure in 20 years is going to become a major dynamic,

(00:13:27):

is that Europe is running out of people,

(00:13:30):

right?

(00:13:30):

I mean, the fertility rates are really low now.

(00:13:33):

At some stage, they're going to have to get over their racism and bring people in.

(00:13:38):

I don't know who these people coming in are, right?

(00:13:40):

A big proportion of them are going to be nurses, right?

(00:13:44):

nurses who are comfortable working with old people, right?

(00:13:48):

So we used to think exactly, as James said, export-led.

(00:13:51):

Now, Nigeria already exports a lot of doctors, right?

(00:13:54):

I mean, we know exactly how big that export industry has been.

(00:13:58):

But are we also thinking about a totally different scale of migration into Europe?

(00:14:05):

And what do those skills look like?

(00:14:09):

Because I think in 20 years,

(00:14:10):

this conversation we're going to have is going to take on a completely different tone.

(00:14:13):

Migration is going to be a big part of it.

(00:14:15):

You know, how our countries are sending people to other countries is going to be a big part of it.

(00:14:21):

And I don't know where that leads.

(00:14:22):

So let me put those two questions back to you and James.

(00:14:26):

I mean,

(00:14:26):

this one about are we willing to transition to politicians saying jobs are really

(00:14:31):

the private sector and you guys,

(00:14:33):

we are going to give you the skills.

(00:14:35):

And second,

(00:14:36):

Are we thinking hard about the fact that given how much European fertility is

(00:14:41):

declining and other countries' fertility is declining,

(00:14:45):

that they're going to need people for all kinds of jobs?

(00:14:49):

And is that something on the political horizon?

(00:14:52):

And I don't know the answers to these two things.

(00:14:54):

So let me tee that back to you as a question.

(00:14:58):

Tobi: I think James should go first.

(00:15:00):

James: You know, this is the trouble with having Jishnu on.

(00:15:02):

He's supposed to be answering the questions, but now he's asking a lot of the questions.

(00:15:06):

No, these are the most important questions I think facing certainly our field of development economics.

(00:15:12):

And so I think on the second question about

(00:15:15):

Does the government, is the government willing to change the offer, right?

(00:15:20):

The social contract, change the terms of the contract to say, look, you're on your own.

(00:15:26):

We'll give you the tools you need.

(00:15:28):

You know, I don't know.

(00:15:29):

But let me just say that from what I've observed in a number of places,

(00:15:32):

including even in northeastern Nigeria,

(00:15:34):

in Adamawa State,

(00:15:35):

where we started some work,

(00:15:36):

but then it got caught up in essentially kind of the impeachment of a governor

(00:15:40):

there a few years ago.

(00:15:41):

No, I think that it's extremely hard to change the terms of the contract.

(00:15:45):

I think that voters are thinking about their bottom lines.

(00:15:48):

They're not thinking about,

(00:15:49):

you know,

(00:15:50):

give me the tools and I will do the work myself to put food on my table.

(00:15:53):

So I'm not sure that's an easy thing to do.

(00:15:55):

And if I think about sort of

(00:15:57):

what a number of governments in East Africa essentially kind of doing,

(00:16:00):

at least in this domain,

(00:16:01):

you know,

(00:16:02):

I think they find themselves having to come up with all sorts of cash transfer and

(00:16:08):

other labor market support programs because ultimately it's not enough for them to say,

(00:16:12):

hey,

(00:16:12):

you know,

(00:16:13):

schooling is free because ultimately,

(00:16:15):

as Tobi said,

(00:16:16):

when you see those guys walking the streets,

(00:16:19):

it's not like they stop asking,

(00:16:20):

where is the job that I was promised?

(00:16:22):

I think this deep implicit promise is very, very hard to shift.

(00:16:25):

But to your second question, I'm curious what Tobi will have to say to this.

(00:16:29):

The second question on the global demographic structures and maybe the future of jobs,

(00:16:35):

and yes,

(00:16:35):

the Rodrik and Raghu and Rohit kind of claim that the manufacturing bus has left

(00:16:41):

the station.

(00:16:42):

First of all, I'm not entirely sure that I completely buy it, but of course, we're also in the age of

(00:16:47):

AI and more powerful machines that are essentially kind of around the corner.

(00:16:50):

So it is possible that maybe that bus has left the station.

(00:16:53):

And so maybe the future of,

(00:16:54):

you know,

(00:16:54):

the kinds of jobs that will create opportunities for this large group of young

(00:16:58):

people in Africa and in India is essentially kind of in the service sector.

(00:17:01):

And,

(00:17:02):

you know,

(00:17:02):

I already see some of that,

(00:17:04):

you know,

(00:17:04):

so in East Africa,

(00:17:05):

they're big migrant worker,

(00:17:07):

essentially kind of programs with the Middle East.

(00:17:09):

They are straddled with lots of problems around abuse and exploitation.

(00:17:14):

But I can tell you that if you get on a plane to Dubai or Qatar,

(00:17:19):

that in some ways many of the people that will be surrounding me will be a lot of

(00:17:23):

very young people going to work

(00:17:25):

Either essentially kind of inside people's homes or in some cases as baristas and construction workers.

(00:17:30):

So I think that's already started.

(00:17:32):

And in the places where it's politically, I guess, feasible to do.

(00:17:35):

I mean,

(00:17:36):

I think,

(00:17:36):

yes,

(00:17:37):

Europe,

(00:17:37):

Japan,

(00:17:38):

North America,

(00:17:39):

you know,

(00:17:39):

yeah,

(00:17:40):

I think those are places where in some ways the political barriers remain

(00:17:42):

quite strong.

(00:17:43):

But I do think that politicians are certainly looking at a lot of these programs.

(00:17:48):

I believe in Kenya just recently signed an agreement with Germany along these lines

(00:17:52):

of basically being able to essentially kind of having some guest worker programs.

(00:17:55):

So I think this is top of mind and it in some ways reflects perhaps the difficulty

(00:17:59):

of kind of changing this contract between voters and their governments.

(00:18:03):

Jishnu: Ah, super.

(00:18:03):

And I just wanted to add one more thing to this,

(00:18:05):

Tobi,

(00:18:06):

for your next question,

(00:18:07):

which is,

(00:18:08):

you know,

(00:18:08):

if you look at Kenyans,

(00:18:09):

Nigerians,

(00:18:10):

I suspect,

(00:18:11):

Indians,

(00:18:11):

I mean,

(00:18:12):

we are ingenious people,

(00:18:14):

right?

(00:18:15):

When I came to the US for my PhD, you know, they would teach that the US is a free market.

(00:18:19):

I was like, you guys have no idea what a free market is.

(00:18:22):

A free market is when,

(00:18:24):

you know,

(00:18:24):

there's a traffic jam and the bus breaks down and you have 30 vendors come to your

(00:18:28):

spot in five minutes.

(00:18:30):

Tobi: Yep,

Jishnu: right?

(00:18:31):

Selling everything under the sun.

(00:18:33):

That's a free market.

(00:18:35):

A free market is not having any clue what your tax is going to charge because

(00:18:38):

everyone's going to negotiate depending on whether it's raining,

(00:18:41):

where you're going,

(00:18:42):

what time of day it is,

(00:18:43):

right?

(00:18:44):

That's a free market.

(00:18:45):

And very fascinating,

(00:18:46):

you know,

(00:18:47):

Rem Koolhaas,

(00:18:48):

the architect,

(00:18:50):

he worked in Lagos for like eight years and they have this wonderful book called Lagos: How it Works.

(00:18:55):

And recently, well, not, I don't know, recently, a while back, I think, his co-author, Kunle Adeyemi

(00:19:01):

I hope I'm pronouncing it right.

(00:19:04):

And it's fascinating what they said.

(00:19:05):

They have a Guardian interview where they said,

(00:19:07):

look,

(00:19:07):

Lagos in 1997 was this fascinating city where the government wasn't there,

(00:19:12):

but still people created a lot of structures that allowed that city to function at

(00:19:17):

a fairly high level.

(00:19:18):

I don't know whether you agree with that.

(00:19:20):

I don't know Lagos at all.

(00:19:21):

And in that interview, you know, at that point, the state had really withdrawn from Lagos.

(00:19:26):

The city was left to its own devices, both in terms of money and services.

(00:19:31):

That, by definition, created an unbelievable proliferation of independent agency.

(00:19:36):

Each citizen needed to take in any day maybe 400 or 500 independent decisions on

(00:19:42):

how to survive in an extremely complex system.

(00:19:47):

That was why the title of the book became Lagos: How it Works,

(00:19:49):

because it was the ultimate dysfunctional city.

(00:19:52):

But actually, in terms of all the initiatives and ingenuities,

(00:19:56):

It mobilised an incredibly beautiful, almost utopian landscape of independence and agency.

(00:20:02):

At this point,

(00:20:03):

you know,

(00:20:04):

and James,

(00:20:04):

I don't know whether that social contract will be able to change it,

(00:20:07):

but the ingenuity of our populations is just through the roof.

(00:20:13):

So we have a sense of how to move it forward and thinking about what are the

(00:20:17):

guardrails we need,

(00:20:19):

right,

(00:20:19):

in this kind of new world that's coming up is,

(00:20:23):

I think,

(00:20:23):

the key question.

(00:20:24):

Tobi: Hmm.

(00:20:25):

Before I jump to my next question, I'm certainly not as skilled as you guys.

(00:20:31):

So my observations are just going to be a layman's observation, basically.

(00:20:37):

On Jishnu's point, first of all, Rodrik has to at least I’ve extended an invitation to him.

(00:20:46):

He has to clarify a lot of things with that new paper.

(00:20:49):

Because for years, he has been arguing the opposite.

(00:20:55):

When people point out that,

(00:20:58):

yeah,

(00:20:59):

a lot of low income countries are stuck in low productivity,

(00:21:03):

informal services jobs.

(00:21:04):

And, you know, perhaps the question should be how to make those productive.

(00:21:11):

I think Rodrik is one of the people that has been arguing that,

(00:21:14):

no,

(00:21:14):

you need manufacturing to really,

(00:21:16):

really,

(00:21:16):

you know,

(00:21:17):

do the structural transformation.

(00:21:19):

So I don't know why or if the evidence that he has now is sufficiently robust to

(00:21:25):

like shift really,

(00:21:27):

really big.

(00:21:28):

But I mean, for Rajan and… Rajan, for example, has been like pushing that view for a while.

(00:21:37):

I think I've heard a few speeches before that book.

(00:21:41):

especially on the construction question.

(00:21:43):

So I'll give you an example.

(00:21:44):

In Nigeria,

(00:21:45):

for example,

(00:21:46):

the two largest private employers are construction firms,

(00:21:52):

Julius Berger and the other Chinese company.

(00:21:55):

The third largest is a microcredit bank, right?

(00:21:59):

So I agree with Rajan that construction is something that might

(00:22:07):

provide that sort of soft landing in terms of large-scale employment creation that

(00:22:13):

manufacturing is for some countries.

(00:22:17):

But as for manufacturing bus leaving the station,

(00:22:22):

again,

(00:22:22):

I'm skeptical because if you look at what Bangladesh has been able to do,

(00:22:27):

yes,

(00:22:27):

they are struggling with diversification away from textile.

(00:22:32):

If you look at what Vietnam has been able to do,

(00:22:36):

on manufacturing, then you see that, okay, well, maybe there's still some hope there.

(00:22:44):

In my own view,

(00:22:45):

I think the challenge would be how democracies manage to create… low income

(00:22:54):

democracies manage to create a highly productive industrial sectors.

(00:23:00):

So, and I think all eyes will be on India for the next decade.

(00:23:05):

you know, how the attention, the investment and everything coming in now can create that

(00:23:13):

China-like story.

(00:23:15):

All eyes will be on India.

(00:23:16):

And if India manages to make that a success story,

(00:23:20):

I think it provides a good example for how other democracies will… where the social

(00:23:26):

contract provides a bit of tension,

(00:23:29):

like you said.

(00:23:30):

And I agree with James.

(00:23:31):

It's difficult.

(00:23:33):

Again, if I want to use Nigeria as an example, electoral politics right now is largely redistributive.

(00:23:42):

You know,

(00:23:42):

if you want to shift spending and public investment towards something with,

(00:23:48):

you know,

(00:23:49):

a little more delayed gratification,

(00:23:52):

I'm not sure that politicians are willing to take that risk.

(00:23:58):

And secondly,

(00:24:00):

I would say that even if you find a government that is willing to take that leap,

(00:24:05):

you're going to run into some serious fiscal challenges that you need to figure out.

(00:24:12):

Macroeconomically, a lot of our economies in Africa are challenged.

(00:24:17):

The debt burden is a huge, huge topic.

(00:24:21):

So the kind of financing necessary to improve your education sector,

(00:24:28):

I think a lot of governments look at that and they would rather spend a fraction of

(00:24:34):

that on cash transfer schemes and expanding

(00:24:39):

public employment, public sector jobs.

(00:24:43):

So if we are able to figure out the finance and the level of fiscal investment that

(00:24:51):

that is going to take,

(00:24:52):

that is a question mark that would need to be resolved,

(00:24:55):

which,

(00:24:56):

I don't know,

(00:24:57):

then leads me to my next question.

(00:24:59):

Again, on the quality of education, what are the low-hanging fruits that

(00:25:09):

are available.

(00:25:10):

If we are trying to, say, improve the quality.

(00:25:14):

You know,

(00:25:14):

like I said earlier,

(00:25:15):

you speak to a lot of employers,

(00:25:17):

they tell you that a lot of graduates,

(00:25:19):

yes,

(00:25:20):

they are schooled,

(00:25:21):

but they are not skilled enough.

(00:25:23):

They are poorly matched to the job they are applying for.

(00:25:28):

For example,

(00:25:29):

most of the people you find in the financial sector in Nigeria are people who

(00:25:35):

graduated from STEM subjects.

(00:25:39):

Mathematics students,

(00:25:40):

engineering students,

(00:25:42):

physics students,

(00:25:43):

chemistry students,

(00:25:44):

they come out of school and they go straight to the financial sector,

(00:25:48):

to the banking jobs,

(00:25:49):

investment banking,

(00:25:50):

advisory consulting.

(00:25:52):

And to be honest,

(00:25:55):

you can say that if you have a thriving STEM sector,

(00:25:59):

they will be poorly matched because they did not actually get that STEM education.

(00:26:06):

You know, I went through the Nigerian schooling system.

(00:26:09):

I can tell you how much practical, laboratory or experimental work I did.

(00:26:16):

Very little, you know.

(00:26:18):

So what are the low hanging fruits to improve the quality of education?

(00:26:25):

Because we seem to have gotten ourselves into,

(00:26:29):

to use a phrase I first learned from Lant,

(00:26:32):

isomorphic mimicry,

(00:26:34):

you know.

(00:26:34):

We have graduates,

(00:26:36):

we have tertiary institutions,

(00:26:37):

but the quality is certainly not the same across the world.

(00:26:43):

James: Let me give this a crack and then I'll let Jishnu polish up my response.

(00:26:46):

So I don't know that there are necessarily low-hanging fruit.

(00:26:49):

I mean,

(00:26:50):

in some ways,

(00:26:51):

I think the way to think about an education system is that the people who are

(00:26:54):

producing the outputs are also essentially kind of products of that education system.

(00:26:58):

And so,

(00:26:58):

yes,

(00:26:58):

I certainly think that if you want to improve the education system,

(00:27:01):

you have to start with the teachers.

(00:27:03):

And then you have to make it easy for the teachers to essentially kind of do their job.

(00:27:06):

And in a context of a historical and,

(00:27:08):

you know,

(00:27:09):

pretty unprecedented expansion of schooling,

(00:27:12):

you know,

(00:27:12):

over the last 50 years,

(00:27:13):

you know,

(00:27:13):

these school systems have expanded very,

(00:27:15):

very rapidly.

(00:27:16):

The curriculum that essentially kind of is being taught,

(00:27:18):

I mean,

(00:27:19):

you know,

(00:27:19):

when you were talking Tobi,

(00:27:20):

I thought,

(00:27:20):

OK,

(00:27:21):

you probably had the same curriculum that I went through,

(00:27:23):

which was,

(00:27:23):

I think,

(00:27:24):

in some ways quite challenging.

(00:27:25):

And if you went to a good school,

(00:27:27):

you had good teachers and you were surrounded by students who actually were well

(00:27:31):

prepared to learn.

(00:27:32):

But my sense is an expanding kind of school system cannot maintain the same degree

(00:27:37):

of difficulty of the curriculum.

(00:27:38):

Or even these things like,

(00:27:39):

you know,

(00:27:40):

the language of instruction is a language that nobody speaks at home.

(00:27:43):

And so the teachers might be struggling to teach in English or French or whatever language,

(00:27:48):

you know,

(00:27:48):

in many places.

(00:27:49):

Tanzania and Kenya may be in some ways a little bit different.

(00:27:52):

So I do think making it easy for teachers requires changing the curriculum and

(00:27:56):

making it easy for students to learn.

(00:27:57):

But,

(00:27:58):

you know,

(00:27:58):

also realising that teachers now deal with,

(00:28:01):

you know,

(00:28:01):

in Tanzania where I work,

(00:28:03):

the average class size for a first grader is on an order of 80 to 100 kids.

(00:28:07):

And teaching in that environment is not easy.

(00:28:10):

And so the low-hanging fruit, I think the low-hanging fruit, in fact, is not that low-hanging in my view.

(00:28:15):

It's really essentially kind of to have to invest a good deal more in early childhood

(00:28:19):

education and to really try and make it easy for that first grade teacher to

(00:28:23):

actually be able to give kids the skills they need.

(00:28:26):

There's a really nice paper,

(00:28:27):

and Jishnu can say a bit more about this,

(00:28:29):

that sort of looks at a panel of kids from four countries,

(00:28:32):

I think is Young Lives Data,

(00:28:33):

and compares Vietnam,

(00:28:35):

Chile,

(00:28:35):

and I believe India and Ethiopia.

(00:28:37):

And of course, you know, Vietnam is a high-performing education system.

(00:28:41):

But it suggests,

(00:28:41):

at least to some extent,

(00:28:43):

that much of that great performance actually comes from the fact that the kids at

(00:28:47):

age five are doing much,

(00:28:48):

much better in Vietnam than they are in the other countries.

(00:28:51):

And that if you condition essentially kind of where they start,

(00:28:54):

you know,

(00:28:54):

the trajectories don't look so,

(00:28:55):

so different but if you focus their starting at a much better level.

(00:28:58):

that in fact, they're going to learn much more.

(00:29:00):

That I don't consider a low-hanging fruit.

(00:29:02):

I actually think that's a pretty significant investment.

(00:29:05):

And I think a number of countries are starting to take this seriously,

(00:29:08):

which is to say,

(00:29:09):

should we expand the age range for which we publicly fund education,

(00:29:14):

say from age six,

(00:29:15):

and maybe even think about starting to fund education from age four?

(00:29:19):

Because I think it makes it much,

(00:29:20):

much easier to give kids the foundational skills that then make them,

(00:29:23):

I think,

(00:29:24):

much more productive workers.

(00:29:26):

So I don't think it's low-hanging fruit, but in fact, I think of these two things.

(00:29:29):

Start young and make it easy for the teachers to teach,

(00:29:32):

whether that includes changing the language of instruction,

(00:29:35):

whether it makes it easy for teachers to spend more time teaching kids the

(00:29:39):

foundational skills.

(00:29:40):

So don't make kids at age six learn five or six different subjects.

(00:29:44):

Maybe focus it on two or three.

(00:29:46):

I think all of those things for me are ways to make it easy to really give kids the

(00:29:50):

skills that they need to learn when they're 10,

(00:29:52):

12,

(00:29:52):

and 16.

(00:29:54):

Jishnu: I guess I'm confused about things a little bit, but I'll tell you where my confusion is.

(00:29:59):

So I've heard people say, you know, our education systems are not actually designed to build skills.

(00:30:05):

They're selection systems, you know, by which they mean.

(00:30:09):

We are remnants of the British systems.

(00:30:11):

And the idea was,

(00:30:13):

can we squeeze and squeeze and squeeze and see who's going to be a good person for

(00:30:17):

the British to take on or something?

(00:30:20):

I don't think they're a selection system at all,

(00:30:21):

because if they're a selection system,

(00:30:23):

then we should see that in every grade as we go up and up and up,

(00:30:28):

only certain kids are making it forward who are the best kids with the best test scores.

(00:30:32):

And that's not happening.

(00:30:34):

[No] Data showing that, you know.

(00:30:35):

There's just no evidence that the kids who are very smart are invested in a lot more in our system.

(00:30:43):

So I think one thing that I think is or not is actually sitting down and chatting

(00:30:49):

about what the hell do we want our education systems to look like.

(00:30:53):

And a good starting point is to say what kind of budgets are reasonable.

(00:30:57):

So, you know, I think this is right, right?

(00:30:59):

But the Nigerian education budget 2024 was what, about $2.2 billion or something?

(00:31:05):

Is that right?

(00:31:06):

Tobi: Yeah, something like that.

(00:31:07):

Yeah.

(00:31:08):

Jishnu: And I think Nigeria should have, what, about 35 million students.

(00:31:12):

You know, that's like $60 a student.

(00:31:15):

The place where I live in the U.S.,

(00:31:17):

which is called Montgomery County,

(00:31:20):

the public school system has about 160,000 students and a budget of 3 billion.

(00:31:27):

We might be just off the mark.

(00:31:30):

by hundreds and thousands of dollars in how much we're leaving on the table by not

(00:31:36):

investing in the education system.

(00:31:38):

So I think the biggest low-hanging fruit is the mistake that we have made.

(00:31:43):

I mean,

(00:31:43):

I think it's incumbent on us as researchers and profs and scholars to say,

(00:31:49):

give the politicians the damn numbers,

(00:31:52):

right?

(00:31:52):

We need to give them very clear numbers on if you manage to invest and improve the quality of schools,

(00:32:00):

then 15 years later, these are the wage returns you're going to see.

(00:32:05):

The mistake is ours.

(00:32:07):

The deficiency is ours because I am sure that if we were able to give them the

(00:32:12):

right numbers,

(00:32:12):

there would be a groundswell,

(00:32:15):

both among the politicians and among people to say we should be increasing our

(00:32:20):

education budgets not by 1,

(00:32:21):

2,

(00:32:21):

20%,

(00:32:21):

30%,

(00:32:21):

but by 6,000%,

(00:32:21):

right?

(00:32:26):

And hopefully,

(00:32:27):

you know,

(00:32:27):

in a couple of years,

(00:32:28):

at least from a few countries like these Young Lives or other places,

(00:32:30):

we'll have some of those numbers.

(00:32:32):

And I think we'll all be shocked at how big the returns could really be.

(00:32:38):

So I think the big low hanging fruit is to actually put the evidence and have that

(00:32:44):

discussion on what is it that we want our education system to do,

(00:32:48):

right?

(00:32:48):

And how much should we be investing in it?

(00:32:50):

And at what point?

(00:32:51):

And I think that discussion, including James's idea of how much should we invest in early childhood?

(00:32:56):

Do we want it to be a selection system or not?

(00:32:58):

Given our money, where can we go?

(00:33:01):

You know, how do we invest in the teachers, given that so many teachers are tenured?

(00:33:05):

Should we park some older teachers?

(00:33:07):

Getting some young guys who are teched up, know how to use the technology, the AI may change things.

(00:33:12):

You know,

(00:33:13):

all of these,

(00:33:14):

I think we need to have a forum where we are discussing it in our countries on a

(00:33:19):

regular monthly basis.

(00:33:21):

I think that's going to make a huge change moving forward.

(00:33:24):

And our big job is to give you the evidence to take that forward.

(00:33:28):

Great point.

(00:33:29):

I fully agree that there are high returns.

(00:33:31):

I'm not sure that I agree necessarily that people are not sharing this evidence.

(00:33:35):

You're right that in some ways I think the kind of evidence that is shared perhaps

(00:33:38):

is more short-term in nature,

(00:33:40):

right?

(00:33:40):

But I wonder whether in fact, and this is a question for you, Tobi.

(00:33:43):

Whether,

(00:33:44):

in fact,

(00:33:44):

the political system as it is and essentially kind of this,

(00:33:47):

you know,

(00:33:48):

electoral competition makes it very,

(00:33:50):

very difficult for any sort of policymaker to say,

(00:33:53):

I'm going to make this deep investment that pays off in 10 or 15 years.

(00:33:58):

And, you know, we will all be better off because of it.

(00:34:01):

And I hope to persuade the voters that they should essentially kind of,

(00:34:04):

you know,

(00:34:04):

carry this burden with me.

(00:34:06):

And, you know, things might not be great in the short run when I'm up for re-election.

(00:34:10):

But this is something we need to do.

(00:34:12):

I don't know the Nigeria numbers as well as I know the numbers in East Africa.

(00:34:16):

You know,

(00:34:16):

Nigeria's education still accounts for,

(00:34:18):

you know,

(00:34:19):

20 to 25 percent of the budget in many places.

(00:34:22):

And it's coming down because,

(00:34:24):

in fact,

(00:34:24):

there's actually now pressure from other sectors to say we need roads and we need

(00:34:28):

other kinds of investments.

(00:34:29):

But I get the sense that teacher,

(00:34:31):

you know,

(00:34:31):

enrolments are essentially kind of the largest category of worker they pay.

(00:34:35):

They spend a lot of their government resources on remunerating teachers.

(00:34:39):

I don't know that there is actually a lot of additional money around to really make

(00:34:44):

these big investments.

(00:34:45):

Sure,

(00:34:45):

they could go to the World Bank and other bilateral donors and say,

(00:34:49):

you know,

(00:34:49):

give us the billions we need to buy ed tech or do this big teacher training program.

(00:34:54):

I think they are in some ways, you know, quite constrained.

(00:34:57):

And I don't know that it's the evidence that's lacking as kind of the most binding constraint.

(00:35:02):

I think that the politics and the budget are more important, but I could be wrong.

(00:35:06):

Tobi: That's fantastic.

(00:35:09):

I still partially think that Jisnu is right.

(00:35:12):

And from my experience, so one example I'll give is I was at a conference two years ago.

(00:35:18):

And an outgoing state governor was on the panel.

(00:35:23):

And one of the things he said, which actually kind of resonated with me, was that we are politicians.

(00:35:32):

We don't know everything.

(00:35:34):

As a matter of fact,

(00:35:35):

he said that their knowledge is pretty limited and that the way the political

(00:35:40):

system… now,

(00:35:41):

it may as well just be describing Nigeria,

(00:35:43):

possibly.

(00:35:44):

The way the political system is,

(00:35:46):

is that when there is a knowledge vacuum,

(00:35:50):

other things tend to fill that,

(00:35:53):

which is a lot of political sycophants surround them.

(00:35:58):

And of course, lots of interests.

(00:36:00):

You know, I want you to give my cousin a job.

(00:36:03):

And these are political connections.

(00:36:06):

He basically said that within a short period of time,

(00:36:09):

they are surrounded in this bubble where almost no real actual knowledge about the

(00:36:16):

society they are making policy for penetrates that bubble.

(00:36:22):

For me, it certainly rings true.

(00:36:24):

And I'll tell you,

(00:36:25):

part of the reason why I started this podcast is to sort of create a connection

(00:36:30):

between policy and research,

(00:36:34):

you know,

(00:36:35):

with the politicians and the citizens as well.

(00:36:38):

Because if citizens are also quite well informed, they can ask the right questions.

(00:36:44):

So I think that while we are focused on

(00:36:47):

a lot on the incentive problem for our political system.

(00:36:51):

The knowledge problem is there, but it's not getting all the attention.

(00:36:57):

So you can have a senator or a House of Representatives member in Nigeria with as much as 50 to 70 aides.

(00:37:07):

And they are all media people.

(00:37:10):

There are no technical people on their staff.

(00:37:13):

People that can actually pass them briefing notes on

(00:37:17):

what policy is,

(00:37:19):

what the current evidence is,

(00:37:21):

what is the latest research on the particular committee that that rep member or

(00:37:28):

senator is chairing in the National Assembly.

(00:37:32):

So there's a disconnect

(00:37:34):

in how knowledge penetrates the political system, certainly.

(00:37:39):

And I don't know if it is researchers that can make a lot of difference here.

(00:37:43):

There are certainly a lot of other players,

(00:37:45):

stakeholders,

(00:37:46):

people in the non-governmental sector,

(00:37:47):

people like me,

(00:37:49):

media,

(00:37:49):

that can make a lot of contribution here to make sure that the evidence,

(00:37:54):

the numbers,

(00:37:55):

the knowledge really,

(00:37:56):

really rings and it's loud enough to get the attention of political players.

(00:38:03):

So that's my view.

(00:38:05):

Jishnu: I appreciate both sides of this debate

(00:38:08):

And I want to know whether,

(00:38:10):

you know,

(00:38:11):

I almost feel,

(00:38:12):

Tobi,

(00:38:12):

that we need to do some experiments like,

(00:38:15):

you know,

(00:38:15):

like if you put in aides who actually know the policy a little bit,

(00:38:20):

if we bring in some students and work with the governors and this kind of stuff on this,

(00:38:25):

will things start changing?

(00:38:27):

I'd love to get some answers to that because, frankly, you're right.

(00:38:32):

We need to get these answers down.

(00:38:34):

Tobi: Yeah.

(00:38:35):

James: So Tobi, a lot of these senators and governors, they are pretty sophisticated actors.

(00:38:40):

There's no shortage of very technical and experienced folks in Nigeria and outside

(00:38:45):

of Nigeria that these guys could talk to,

(00:38:47):

right?

(00:38:47):

And by the way,

(00:38:48):

I do agree with you that your podcast is a really powerful vehicle for connecting

(00:38:53):

ideas and policy and implementations.

(00:38:56):

This is an important avenue,

(00:38:57):

also because in some ways,

(00:38:58):

I think sometimes the ideas that researchers produce and other technical folks are

(00:39:02):

locked away in formats that are just generally not readily available to the kinds

(00:39:07):

of people who actually need them.

(00:39:08):

And so I think a conversation is a good way to essentially kind of get that started.

(00:39:11):

And I think even the pressure that will come from voters who listen to your podcast

(00:39:16):

is powerful.

(00:39:17):

Stefan Dercon has a book called,

(00:39:19):

you know,

(00:39:19):

I think,

(00:39:20):

Gambling on Development,

(00:39:21):

which is to say,

(00:39:22):

you know,

(00:39:22):

ideas in the abstract can be powerful ways of transforming systems.

(00:39:27):

But the actual work of actually translating ideas and implementing them is risky.

(00:39:33):

And so for a politician to take on these risks,

(00:39:35):

I don't think many are going to be willing to say,

(00:39:37):

I'm going to sink all my political capital in this big program.

(00:39:40):

It takes a long time, is uncertain, is subject to all sorts of other essential kind of shocks.

(00:39:45):

and fiscal risks and reversals and so on.

(00:39:48):

You know,

(00:39:48):

so that for me weighs a bit more heavily than he's a guy who wants to do great

(00:39:53):

things and is just casting around for ideas and they're just nothing to be found.

(00:39:57):

I think they meet with lots of technocrats and other people who tell them this and that,

(00:40:02):

but ultimately they have to think,

(00:40:04):

can I pull this off?

(00:40:05):

Can I do good and still essentially be successful as a politician?

(00:40:08):

And I think that calculus is still maybe as important as the landscape of ideas that they're exposed to.

(00:40:14):

Jishnu: Yeah, I mean, I don't know that much about politics and politicians.

(00:40:18):

I always have a hopeful view of the future and of our compatriots.

(00:40:23):

And I feel politicians should be creatures of our own creation.

(00:40:28):

And I've seen the democracy work,

(00:40:31):

you know,

(00:40:31):

and when we put democratic pressure and bring a coalition together,

(00:40:34):

it matters.

(00:40:35):

So I'm going to be the hopeful guy here.

(00:40:38):

Look, I think, Tobi, what you're doing is super important.

(00:40:41):

And I think as it starts to deepen and these kind of engagements deepen,

(00:40:45):

you know,

(00:40:45):

as long as we on our side are providing reasonable data,

(00:40:49):

evidence that you can have good discussions on the basis of,

(00:40:53):

maybe things will start evolving.

(00:40:56):

Tobi: So along the line of this conversation, I was thinking one curious question about health.

(00:41:03):

of generally what we call healthcare here.

(00:41:06):

Again, this might just be my imagination going wild.

(00:41:11):

So from an incentive point of view,

(00:41:15):

how much do you think that global public health interventions interferes with the

(00:41:23):

incentive to invest in healthcare locally?

(00:41:27):

So I'll give you an example.

(00:41:29):

Recently,

(00:41:30):

Bill Gates was in Nigeria a couple of weeks ago to talk about malnutrition,

(00:41:35):

which is now a very big problem,

(00:41:38):

particularly in northern Nigeria,

(00:41:40):

because in the last decade or so,

(00:41:43):

consistent with even previous years,

(00:41:46):

it's been one region of the country that is most ravaged by poverty,

(00:41:51):

lack of education,

(00:41:53):

a lot of violence and political instability,

(00:41:57):

and

(00:41:58):

Essentially, it's created this crisis.

(00:42:02):

The latest being malnutrition about one in four kids in northern Nigeria are now

(00:42:09):

chronically malnourished.

(00:42:12):

So recently,

(00:42:13):

Bill Gates was in the country to promote micronutrients and some form of technical

(00:42:20):

intervention that is supposed to make all the difference.

(00:42:23):

And

(00:42:24):

Yeah, of course, it's giving some money, about $600,000 for that initiative.

(00:42:30):

And,

(00:42:30):

I mean,

(00:42:31):

low-income countries like Nigeria are never short of such global public health interventions.

(00:42:38):

But at the same time,

(00:42:39):

I kind of worry how it interferes with the incentive,

(00:42:45):

again,

(00:42:45):

talking about politicians here,

(00:42:47):

to invest locally,

(00:42:50):

whether it is in primary health care or whatever.

(00:42:53):

So...

(00:42:54):

How does global public health interventions interfere with the incentive to invest locally?

(00:43:01):

Because there's always state neglect on some level when it comes to healthcare investment.

(00:43:07):

Jishnu: I think James will be a perfect person to answer that.

(00:43:13):

James: Let me take a crack.

(00:43:15):

I do think that the interaction of external actors in health can sometimes do more harm than good.

(00:43:23):

I've seen both sides of essentially kind of this,

(00:43:25):

where in some ways an external intervention doesn't really improve outcomes and in

(00:43:30):

some ways distorts a lot of the decisions that people are making.

(00:43:33):

But I've also seen it in many ways actually sort of bring attention to populations

(00:43:37):

that perhaps don't have the political clout to get the services they need,

(00:43:40):

right?

(00:43:40):

So I don't know that,

(00:43:42):

you know,

(00:43:42):

in some ways that we could conclude comfortably that in fact,

(00:43:45):

if these guys sort of stayed out of our business and

(00:43:48):

that, in fact, would make better decisions in the health sector.

(00:43:51):

In some ways,

(00:43:52):

I go back to environment where these systems are essentially kind of cash strapped

(00:43:56):

and they can't provide a lot of services to most of their populations.

(00:44:01):

And I think Jishnu has done quite a lot of work on this,

(00:44:02):

where in some ways,

(00:44:03):

a lot of these health systems in some ways have a big urban bias.

(00:44:06):

We spend more on hospitals and less on public health or primary health care.

(00:44:12):

In some ways,

(00:44:13):

I do think that sometimes the arrival of,

(00:44:15):

you know,

(00:44:16):

not Bill Gates per se,

(00:44:17):

but,

(00:44:17):

you know,

(00:44:17):

if I think about the other actors,

(00:44:19):

the WHO and other international actors,

(00:44:22):

I think they sometimes actually try and rebalance these programs to some extent.

(00:44:26):

But yeah, I think they can certainly do more harm than good.

(00:44:28):

I mean,

(00:44:28):

despite their maybe good intentions,

(00:44:31):

I certainly don't want to start any rumours that they don't have good intentions

(00:44:34):

because I think there's also a lot of discussions out on social media that suggest that,

(00:44:38):

in fact,

(00:44:38):

they are malevolent forces.

(00:44:40):

They actually don't mean well.

(00:44:42):

I think many times they mean well,

(00:44:43):

but there are sometimes unintended consequences of those interventions.

(00:44:46):

Jishnu: So, Tobi, here I'm going to go all Shakespearean on you.

(00:44:49):

And, you know,

the fault, Brutus, lies not in the stars, but in us.

(00:44:56):

In this case, at least, you know, in the following sense, right?

(00:44:59):

I mean,

(00:44:59):

I know that Bill Gates was in Africa and there's been a bunch of articles,

(00:45:03):

including in the Mail and Guardian and in other places,

(00:45:07):

talking about farmer Gates and what he's getting wrong.

(00:45:10):

And in Zambia,

(00:45:10):

for instance,

(00:45:11):

there's been this big concern that,

(00:45:12):

look,

(00:45:13):

Bill Gates really,

(00:45:14):

according to the Mail and Guardian,

(00:45:16):

Simon Allison writes that he really pushed monoculture.

(00:45:20):

And now the country's been in a massive drought and people are suffering.

(00:45:23):

And earlier, people used to plant many crops.

(00:45:26):

And that's been a standard problem ever since the British tried to introduce indigo

(00:45:30):

in West Bengal,

(00:45:31):

right,

(00:45:32):

from a long time ago.

(00:45:33):

Now, my point is the following, which is we are a democracy.

(00:45:38):

So Zambia,

(00:45:39):

Nigeria,

(00:45:40):

India,

(00:45:40):

you know,

(00:45:41):

we may argue about how effective we are,

(00:45:43):

but frankly,

(00:45:44):

we gave universal suffrage to our citizens long before we got rich.

(00:45:48):

And it has mattered.

(00:45:49):

It has made a difference.

(00:45:51):

So my question is the following.

(00:45:52):

We absolutely should not go down the line of saying,

(00:45:56):

oh,

(00:45:56):

we can do everything indigenously and we'll do everything in country.

(00:46:00):

And who are these foreigners to come?

(00:46:02):

No.

(00:46:02):

I mean,

(00:46:03):

if somebody has a good idea,

(00:46:04):

somebody has something interesting to say,

(00:46:06):

absolutely listen to them.

(00:46:07):

It sounds to me completely bizarre to say,

(00:46:10):

oh,

(00:46:10):

we'll not take penicillin,

(00:46:12):

even though it's been invented because it came from a foreigner.

(00:46:14):

No, ideas belong to humanity.

(00:46:16):

And we should celebrate ideas.

(00:46:18):

It doesn't matter to me where the idea came from.

(00:46:20):

If it's a good idea, let's use it.

(00:46:22):

Where I think we run into problems is when we say and when we allow rich people to

(00:46:30):

have privileged access to our political leaders.

(00:46:34):

I think that's the big problem, right?

(00:46:37):

And it's not just rich people.

(00:46:39):

You know, these guys are like super rich.

(00:46:40):

But frankly, we allow all kinds of people access to our political leaders outside the democratic system.

(00:46:46):

So Bill Gates wants to come and say,

(00:46:48):

you guys should be growing monocultural maize or whatever he's saying.

(00:46:50):

I'm not an agriculturist.

(00:46:51):

And I do know that,

(00:46:52):

you know,

(00:46:53):

there are huge differences in productivity between African farms and American farms.

(00:46:58):

You know, whatever he's saying, put it in a damn newspaper.

(00:47:01):

Get on your podcast.

(00:47:04):

Make the case to the public.

(00:47:06):

Tobi: Yep.

(00:47:07):

Jishnu: That I'm totally fine with.

(00:47:09):

And if you want to put your money behind your case, great, right?

(00:47:14):

Don't go and try and sell it to the cabinet or to a particular minister without

(00:47:20):

going through our democratic processes.

(00:47:22):

And we are the people who have to go to our politicians and say,

(00:47:25):

look,

(00:47:25):

what the hell are you doing while listening to this guy without going through our processes?

(00:47:29):

So I don't find it a question of

(00:47:33):

foreigner, foreign money, not foreign money.

(00:47:35):

I find it a problem when it becomes this idea that somebody can come in and whisper

(00:47:41):

in the ears of the finance minister.

(00:47:42):

I think that's totally anti-democratic.

(00:47:45):

And we have to fight tooth and nail to make sure that that's not happening.

(00:47:49):

James: But Tobi,

(00:47:50):

I guess to this point,

(00:47:52):

I fully agree that there should be a very transparent process of adjudicating ideas

(00:47:57):

and offers of support from outside.

(00:47:59):

But I guess in this case,

(00:48:00):

what is your concern with saying here's a very short term urgent intervention to

(00:48:06):

address malnutrition in the context?

(00:48:09):

And I don't know the context very well.

(00:48:10):

So please inform me where,

(00:48:12):

in fact,

(00:48:12):

you know,

(00:48:12):

states in northern Nigeria are really struggling to really intervene.

(00:48:16):

Like what is the distortion that is being created by the arrival of this idea and support?

(00:48:21):

Tobi: I do not really have a strong objection.

(00:48:25):

I don't even have a strong view.

(00:48:27):

It's just a question of curiosity because prior to some of these issues,

(00:48:34):

intervention or when the problems become serious enough to get some form of

(00:48:39):

international attention,

(00:48:42):

almost often,

(00:48:44):

at least I can speak for Nigeria to a certain degree,

(00:48:47):

there have been a long neglected advocacy or

(00:48:52):

noise that politicians or whoever makes decisions ignore, usually for years.

(00:49:01):

So malnutrition in Northern Nigeria,

(00:49:03):

I know so many local activists who are actively involved in Northern Nigeria who

(00:49:08):

have been making noise about this problem for a long time.

(00:49:12):

In some cases,

(00:49:13):

four or five years ago,

(00:49:14):

that this is what we are seeing on the ground and this will become a problem

(00:49:20):

Down the line, this is a disaster we tend to happen, you know.

(00:49:24):

And all of a sudden,

(00:49:25):

Bill Gates can fly in,

(00:49:26):

talk about micronutrients,

(00:49:28):

meet the president,

(00:49:29):

put some money,

(00:49:31):

you know,

(00:49:31):

and then it becomes a problem that commands urgency.

(00:49:35):

And,

(00:49:36):

you know,

(00:49:37):

again,

(00:49:37):

James,

(00:49:37):

I hear you on the question of resources,

(00:49:40):

but at the same time,

(00:49:42):

for example,

(00:49:43):

if you go to northern Nigeria and you see the way the political class,

(00:49:46):

state governors live,

(00:49:48):

Of course,

(00:49:49):

there is resource constraint,

(00:49:50):

but you can also say with some level of confidence that there is misallocation

(00:49:56):

going on.

(00:49:57):

If you don't even want to lean too hard on the corruption question,

(00:50:00):

which is,

(00:50:00):

you know,

(00:50:01):

perennial,

(00:50:02):

you know,

(00:50:02):

there is some form of misallocation going on.

(00:50:05):

So I just wonder, it's more of a curiosity for me.

(00:50:09):

I don't have a strong view, particularly.

(00:50:12):

James: But I think my response to this would be to say that in some ways that the

(00:50:15):

political process is not tuned to really reallocate resources in the way that you

(00:50:21):

and I think it should.

(00:50:22):

So ultimately, these activists who are organising and making a lot of noise, they're not being heard.

(00:50:28):

So one interpretation would be to say,

(00:50:29):

well,

(00:50:29):

Bill Gates comes in and has this idea and suddenly everybody thinks,

(00:50:32):

you know,

(00:50:32):

this is something you should be paying attention to.

(00:50:34):

That's one interpretation.

(00:50:35):

And yes, going back to Jishnu's point, I mean, you know, I think the power belongs to the people.

(00:50:40):

in Nigeria and not to wealthy and influential outsiders.

(00:50:43):

But I think another view is that the activists have actually sort of broken through

(00:50:47):

and that sometimes you might need this assist.

(00:50:50):

As much as,

(00:50:50):

you know,

(00:50:51):

it's undesirable,

(00:50:52):

I think we all wanted a system where we don't need outsiders to advocate on behalf

(00:50:56):

of the people on the ground.

(00:50:57):

But that's another view too,

(00:50:58):

which is to say that suddenly these people now have a champion who can actually get

(00:51:03):

the attention of the political class.

(00:51:05):

Tobi: Yeah.

(00:51:06):

Jishnu: Can I add one more thing?

(00:51:08):

Tobi: Yes, please.

(00:51:09):

Yes.

(00:51:09):

Jishnu: So it's worth going back and saying, OK, what was maybe it's worth going back.

(00:51:14):

I won't claim that it is,

(00:51:15):

but it might be worth going back and saying,

(00:51:18):

OK,

(00:51:18):

what did people write about,

(00:51:20):

say,

(00:51:20):

colonial medicine?

(00:51:21):

Right.

(00:51:22):

Which we know is a big, big part of what anthropologists and historians have looked at.

(00:51:26):

Right.

(00:51:27):

The person whose work I found most interesting in this is David Arnold,

(00:51:31):

and he has this book called Colonizing the Body on British medicine in India.

(00:51:35):

And he basically argues that,

(00:51:37):

look,

(00:51:37):

I mean,

(00:51:38):

there was a huge give and take happening between both systems that gradually got

(00:51:42):

transformed into kind of British ideas becoming,

(00:51:47):

you know,

(00:51:47):

the British starting to think that their idea should be widely used and whatnot.

(00:51:52):

And it met with massive resistance.

(00:51:54):

But the very interesting point he makes in the last chapter of his book is because

(00:51:59):

of various missteps they took,

(00:52:02):

the Indian group started mistrusting any advice that they gave,

(00:52:08):

thinking that all of their advice was coloured by,

(00:52:10):

you know,

(00:52:11):

colonial,

(00:52:12):

how do I get the labour kind of ideas,

(00:52:15):

right?

(00:52:16):

And as a result,

(00:52:17):

you know,

(00:52:17):

one of the most troubling things for me has been there were all these sanitation

(00:52:21):

commissions that were set up in India.

(00:52:23):

And there's very nice work that Guha has done,

(00:52:26):

that Harrison has done,

(00:52:28):

showing that when these sanitation systems were put into cantonments,

(00:52:32):

the mortality went down dramatically.

(00:52:33):

Right.

(00:52:34):

What's really interesting is they didn't make it out of the cantonments.

(00:52:38):

And part of the reason seems to me and David Arnold's book kind of talks about this,

(00:52:43):

is people really started mistrusting the Brits and saying,

(00:52:46):

look,

(00:52:46):

you're just doing this because of X,

(00:52:48):

which is self-serving.

(00:52:49):

And that's,

(00:52:50):

I think,

(00:52:51):

one big piece that we need to avoid,

(00:52:52):

which is we don't want to end up in a system where we are saying no to good ideas

(00:52:57):

coming from outside.

(00:52:59):

Because we think they are corrupt.

(00:53:01):

No, I think that's the big risk that we need to avoid.

(00:53:04):

And then on the flip side is how do we actually make sure that bad ideas don't come

(00:53:10):

through because they are actually being supported by money that is outside the system.

(00:53:15):

You know,

(00:53:16):

the World Trade Organisation has this idea of anti-dumping,

(00:53:18):

which is you can't just put products at highly subsidised prices in other countries.

(00:53:23):

It's this anti-dumping law.

(00:53:25):

I think we would have an anti-dumping law for bad ideas.

(00:53:28):

Tobi: That sounds interesting.

(00:53:31):

James: But as Tobi said earlier,

(00:53:32):

we need essentially kind of a pretty good constellation of actors to make judgments

(00:53:37):

on what's a good and bad idea.

(00:53:39):

Jishnu: Yep.

(00:53:39):

And I think that given how he described essentially kind of the people around a lot

(00:53:43):

of these decision makers,

(00:53:45):

I worry that that's actually sort of not trivial.

(00:53:48):

Jishnu: Yeah, and I think part of that, James, is we have to do it, right?

(00:53:51):

I mean,

(00:53:52):

yes,

(00:53:52):

we have to suck up to the fact that our funding gets in danger,

(00:53:55):

that we run into all kinds of issues when we take on these things.

(00:53:59):

But, you know, part of our job is all to say, sorry, man, that's a really bad idea. Like,

(00:54:04):

Gabriel Demombynes did that for,

(00:54:06):

you know,

(00:54:06):

Sachs when they had this article on their big push, millenium covering…

(00:54:10):

he said,

(00:54:10):

look,

(00:54:10):

the data is not there.

(00:54:11):

And they had a big fight and it turned out the data was not there.

(00:54:14):

So I think part of what we should be doing is taking that forward and saying when

(00:54:19):

it's a bad idea,

(00:54:20):

giving people the ammunition,

(00:54:21):

giving Tobi the ammunition,

(00:54:22):

giving others the ammunition to say,

(00:54:24):

sorry,

(00:54:24):

this is a bad idea.

(00:54:26):

Tobi: So, I mean, this has been a wonderful conversation beyond my expectations.

(00:54:31):

I just have a couple of questions left.

(00:54:33):

So I'll go back again to another piece you wrote, Jishnu,

(00:54:39):

which also quite literally lit a fire in my belly,

(00:54:43):

where you basically challenged your colleagues in the development economics subfield,

(00:54:50):

you know,

(00:54:51):

about some moral questions that they should be asking and are not.

(00:54:58):

I don't know why you chose to write that piece or what you saw,

(00:55:02):

but the way I'm going to phrase the question to both of you is like this.

(00:55:07):

I know that economics generally is going through some sort of empirical phase.

(00:55:15):

Do you think that that has been traded up for asking the big questions that I

(00:55:23):

certainly believe are still relevant,

(00:55:25):

which is

(00:55:27):

Essentially, for me, how does Nigeria double its average income in the next 10 years?

(00:55:35):

How does places essentially get out of poverty?

(00:55:41):

Do you think we've abandoned trying to find answers to those kinds of questions for

(00:55:48):

maybe what Lant has militantly called “kinky stuff?’

(00:55:55):

Jishnu: James has been going first, so.

(00:55:57):

James: No, no, no.

(00:55:58):

This is a question posed and motivated by your writing, Jishnu.

(00:56:03):

So you should go first.

(00:56:04):

Jishnu: I'm happy to take a first glance at this.

(00:56:06):

But, Tobi, you have to warn us even to, you know, completely put us over the wringer.

(00:56:11):

I mean, these are very difficult.

(00:56:13):

So two things, I think two things.

(00:56:15):

I was at the World Bank when there was this whole Spence report on what causes growth.

(00:56:19):

And they had this line,

(00:56:21):

if you go back to that,

(00:56:22):

they had this line saying,

(00:56:23):

if there was a magic bullet or if there was a specific set of policy recommendations,

(00:56:28):

we would have come up with it.

(00:56:29):

We spent a lot of time on this and there isn't, right?

(00:56:32):

And I think if you look at what Abhijit writes,

(00:56:34):

if you look at Esther's idea of the plumber,

(00:56:38):

the economist as plumber,

(00:56:39):

it's saying,

(00:56:40):

hey,

(00:56:41):

can we be modest and humble about where we are and what we know?

(00:56:45):

And the fact of the matter is we don't have a really good set of prescriptions for

(00:56:50):

what growth should look like.

(00:56:52):

But

(00:56:53):

By working on all these different issues, we do start to make progress on people's lives.

(00:57:01):

So if you think about the Millennium Development Goals,

(00:57:03):

I feel the biggest thing the MDGs did was it created a deliberative process to say

(00:57:09):

it's not only about growth.

(00:57:11):

We should care about the fact that fewer children are going to die.

(00:57:14):

We should care about infant mortality regardless of whether it affects growth.

(00:57:18):

And I completely agree with that viewpoint.

(00:57:21):

Then what our discipline does or is doing, look, it's always the case that there's a seesaw.

(00:57:28):

You know, we are always on a seesaw.

(00:57:31):

Right.

(00:57:32):

And one part of that seesaw is what's going on in the world.

(00:57:37):

And the second part of that seesaw is let's close off a lot of things,

(00:57:43):

otherwise we cannot make progress,

(00:57:45):

right?

(00:57:45):

Every discipline needs to build walls around itself because if you let too many

(00:57:50):

things in,

(00:57:51):

then you don't make progress,

(00:57:53):

right?

(00:57:54):

So around the early 2000s,

(00:57:56):

we really had a lot of work that said what's going on around the world,

(00:58:00):

right?

(00:58:00):

So we had, oh, lots of kids are in school, but they're not learning.

(00:58:03):

Look, people go to doctors and they don't get the right diagnosis.

(00:58:06):

Look, the teachers are absent.

(00:58:07):

Lots of stuff, right?

(00:58:09):

On a lot of different things.

(00:58:10):

And we've made,

(00:58:11):

I think,

(00:58:12):

tremendous progress over the last 15 years in saying,

(00:58:16):

hey,

(00:58:17):

on some things and less on others,

(00:58:18):

saying,

(00:58:18):

hey,

(00:58:19):

these were great pieces on what's going on around the world.

(00:58:22):

Let's now put that wall around it and make progress on these issues.

(00:58:26):

And some places we've made a lot of progress, others less so.

(00:58:31):

I feel that now that we had the seesaw that said the real world, make progress by building walls,

(00:58:38):

Now I think we need to push that seesaw back.

(00:58:41):

So it's not necessarily the type of work that we're doing.

(00:58:45):

It's more within the disciplinary core because you always need both types of work.

(00:58:51):

It's within the disciplinary core.

(00:58:53):

Which one do you privilege?

(00:58:55):

So I think it's time to go back to saying we need to privilege the basic work that

(00:59:01):

starts re-examining the world and saying 20,

(00:59:04):

25 years later,

(00:59:06):

what are people's lives like?

(00:59:08):

And I'll give you one example.

(00:59:09):

Right.

(00:59:09):

I was in Delhi over the summer and it struck me,

(00:59:12):

you know,

(00:59:13):

so many of our cities because of climate change are now on the verge of being unlivable.

(00:59:20):

Right.

(00:59:20):

If you look at a place like Delhi,

(00:59:22):

you know,

(00:59:23):

January pollution levels that are at 500,

(00:59:26):

600 on the P2 at 2.5.

(00:59:27):

Right.

(00:59:27):

It's unlivable.

(00:59:31):

February, same thing.

(00:59:32):

March is kind of OK.

(00:59:34):

April starting to get hot.

(00:59:35):

May, 52 degrees.

(00:59:37):

June, 50 degrees.

(00:59:38):

Heat stroke through the roof.

(00:59:40):

July, humidity, wet bulb thermometers above what is livable.

(00:59:44):

August, same thing.

(00:59:45):

October, kind of livable.

(00:59:47):

November, the pollution is back.

(00:59:48):

You put it together and you say, how is a poor person going to live in this damn city?

(00:59:54):

And somebody who can put that together,

(00:59:56):

somebody who can start to say,

(00:59:58):

OK,

(00:59:59):

here's how I want you to think about the year and climate change.

(01:00:02):

That kind of stuff we solely need now.

(01:00:05):

And I think we are almost there.

(01:00:07):

So it's not a question of fighting the discipline.

(01:00:09):

It's saying what part of the discipline should at this point get the emphasis?

(01:00:15):

And I think that, you know, it's going to move.

(01:00:17):

It has to move.

(01:00:18):

It has to move.

(01:00:19):

There's just no two ways around it.

(01:00:21):

James: So let me just add a few comments on,

(01:00:23):

you know,

(01:00:23):

maybe going back to Tobi's question,

(01:00:25):

like where is the advice about how can we get Nigeria to double its income over the

(01:00:30):

next 10 years or so?

(01:00:31):

And there's a really nice characterisation of the two kinds of development economists.

(01:00:36):

And I will not name the person who has shared this characterisation.

(01:00:40):

But there's a small ‘d’ development economist and there's the big ‘D’ development economist.

(01:00:45):

And I think historically,

(01:00:46):

if you think about the big push ideas of the 60s and 70s,

(01:00:49):

or even essentially kind of the Washington consensus in the 90s,

(01:00:53):

I think much of that advice was really about the big D development economists.

(01:00:57):

And maybe the conclusion there, you know, at least it has been going back to sort of the Spence report.

(01:01:03):

Maybe we just don't really have, you know, a very clear set of guidelines.

(01:01:07):

We thought we did, right?

(01:01:09):

We thought we did, you know, reduce your fertility, make markets work.

(01:01:13):

It doesn't seem to kind of produce the benefits, I think, that we would like to think.

(01:01:17):

And, you know, Dani Rodrik has a book, I think, I wish it were more accessible to the general public.

(01:01:22):

You know,

(01:01:22):

we have one economics,

(01:01:23):

but many recipes,

(01:01:25):

which is to say the solution for Nigeria might be very Nigeria specific.

(01:01:29):

It might require essentially kind of a very untraditional path,

(01:01:33):

which is not coming out of a 10 point or 20 point economic plan.

(01:01:37):

But my sense is that, you know, what's happened perhaps to the field is

(01:01:41):

is maybe being honest with ourselves that we don't have all of the answers,

(01:01:47):

at least for essentially kind of the big question that you asked,

(01:01:49):

Tobi,

(01:01:49):

that that answer is not going to come in a nice big report.

(01:01:53):

That that answer,

(01:01:53):

in fact,

(01:01:54):

is a process of,

(01:01:56):

you know,

(01:01:56):

trying a bunch of things,

(01:01:58):

establishing,

(01:01:59):

you know,

(01:01:59):

maybe let's go back to Dani's idea.

(01:02:01):

Like, let's do industrial policy, but let's try and do it well.

(01:02:04):

And we're going to fail.

(01:02:05):

And maybe we might discover one or two great ideas where Nigeria can be quite successful, right?

(01:02:11):

But that's in some ways kind of saying,

(01:02:13):

rather than,

(01:02:14):

you know,

(01:02:14):

do this and this will happen,

(01:02:16):

this is basically,

(01:02:16):

you know,

(01:02:17):

establish,

(01:02:18):

and this is… Jishnu will like this,

(01:02:19):

establish a process for discovering essentially kind of good and bad ideas.

(01:02:24):

And maybe that's essentially kind of the way forward.

(01:02:26):

I'm not going to give you a guarantee that you'll be successful.

(01:02:29):

But in fact, this process will essentially kind of at least help you shut down bad ideas.

(01:02:33):

There's nothing wrong with actually sort of disinvesting in essentially kind of

(01:02:36):

things that are not working in general.

(01:02:38):

And then I think the other part of this,

(01:02:39):

for the small ‘d’ development economists,

(01:02:42):

I certainly sort of think I'm in that category,

(01:02:44):

is what can you do today,

(01:02:46):

right?

(01:02:46):

So maybe there are the big questions about sort of growth over sort of the next 10 years.

(01:02:51):

But I think it's important to also try and improve the outcomes of people today, right?

(01:02:56):

And so I do think that there should be room under the umbrella for both types of economists.

(01:03:01):

But yeah, I certainly think that there's been a shift.

(01:03:03):

Like in order to make space for the small ‘d’ development economists,

(01:03:06):

I think the big ‘D’ development economists in some ways have had to take a backseat.

(01:03:10):

And, you know, it might be a good time, as Jishnu says, to bring them back to the front of the class.

(01:03:14):

Tobi: Final question for both of you.

(01:03:18):

So this is a bit of a tradition on the podcast.

(01:03:21):

What is the one idea?

(01:03:22):

It may be something you're working on, maybe someone else's idea.

(01:03:27):

Can be anything.

(01:03:29):

But what is that one idea that you would like to see spread everywhere,

(01:03:35):

have a lot more influence,

(01:03:37):

have a lot more people believe in?

(01:03:40):

What is that one idea?

(01:03:42):

I'll start with James.

(01:03:44):

James: Put it this way,

(01:03:45):

you ask this question at a really challenging time where in some ways there's more

(01:03:49):

dark clouds on the horizon and maybe,

(01:03:51):

you know,

(01:03:52):

less room to be very optimistic.

(01:03:55):

But let me just say that I think, you know, this might not be a completely original idea.

(01:04:01):

We need to rethink what investment in any infrastructure means today.

(01:04:08):

I certainly think that markets are ultimately at the centre of driving a lot of

(01:04:12):

progress and prosperity and markets work well when people are very well connected.

(01:04:16):

And we are pretty well connected in terms of communications infrastructure,

(01:04:20):

but we're not as well connected on the hard infrastructure.

(01:04:23):

If I think about the prospects that are happening in the parts of the world that I

(01:04:27):

do work in,

(01:04:28):

I worry that,

(01:04:29):

you know,

(01:04:29):

Jishnu was talking about temperature and pollution.

(01:04:33):

I'm worried also about, you know, whether we have

(01:04:36):

roads that are climate proof, whether we'll have schools and hospitals that are climate proof.

(01:04:43):

And while essentially kind of this idea in some ways raises the cost of doing

(01:04:46):

business in general,

(01:04:47):

that I think we really need to start thinking about how we can climate proof the

(01:04:52):

infrastructure we have and what we already have.

(01:04:54):

And so,

(01:04:55):

you know,

(01:04:55):

I don't think this is wildly kind of original,

(01:04:58):

but I just finished doing some work in Rwanda and

(01:05:02):

a big chunk of that work is affected on every rainy season where roads get washed away.

(01:05:08):

And, you know, communities are essentially going to cut off for a long time.

(01:05:11):

And,

(01:05:11):

you know,

(01:05:11):

we're certainly seeing this around the world,

(01:05:12):

not just in East Africa,

(01:05:14):

in Nepal and in North Carolina,

(01:05:16):

you know,

(01:05:16):

not far from here.

(01:05:17):

And so my concern is that we need to start preparing for a world in which life is

(01:05:21):

going to be much more challenging.

(01:05:23):

Tobi: Your turn, Jishnu.

(01:05:25):

Jishnu: You know, so a while back, I had this conversation with this politician, right?

(01:05:29):

And he said,

(01:05:30):

look,

(01:05:30):

around the early 90s,

(01:05:32):

you know,

(01:05:32):

all of you guys said,

(01:05:34):

bring in the market,

(01:05:35):

start to liberalise and everything will improve for everybody.

(01:05:39):

And he said,

(01:05:39):

basically,

(01:05:40):

what I've seen is that things have improved massively for very rich people,

(01:05:44):

but the poor are still where they are.

(01:05:46):

And in fact, they would be much worse off if the government was not doing all kinds of things.

(01:05:49):

And I think that's roughly right, right?

(01:05:52):

So, you know, I want to go back and say, look,

(01:05:55):

I think we are at times, exactly as James said, that are very challenging.

(01:06:01):

And one more thing which is worth emphasising and worth remembering is we are at a

(01:06:07):

time of exceptional,

(01:06:09):

I don't know whether it's exceptional,

(01:06:10):

but we are at a time of massive change,

(01:06:13):

right?

(01:06:14):

And I think what we keep doing as policymakers and economists is we keep saying, do this, do that.

(01:06:21):

And I think we need to start thinking seriously about what kind of robust processes

(01:06:28):

do we need to put in place so that our populations have,

(01:06:32):

you know,

(01:06:33):

serious democratic and deliberative discussion about what they want to do,

(01:06:37):

where they want to go next.

(01:06:39):

Right.

(01:06:41):

So it could well be that our democratic discussions and all of that throws up,

(01:06:47):

hey,

(01:06:47):

we want Nigerian incomes to double over the next 10 years.

(01:06:52):

But it could also be,

(01:06:53):

Tobi,

(01:06:53):

that that conversation throws up,

(01:06:56):

I'm fine with our incomes going,

(01:06:58):

I'm not fine with it doubling,

(01:07:00):

if what it means is that the rich are now 30 times richer and the poor are 5% richer.

(01:07:07):

which is what, you know, we measure it as doubling.

(01:07:09):

But look, I mean, if you look at India, you look at the US, you know, what was the thing?

(01:07:13):

Real wages haven't changed since 1980, 1985 for the poor, right?

(01:07:18):

I mean, that's crazy to me, right?

(01:07:21):

I mean,

(01:07:21):

a lot of the growth in incomes that we're seeing in India is coming from some rich

(01:07:25):

people basically exploiting the environment.

(01:07:27):

So I want to say, how do you, me, how do all of us work on saying

(01:07:33):

What's the process that we need to have robust conversations about who we want to

(01:07:39):

be and where we want to be 20 years,

(01:07:41):

10 years from now?

(01:07:43):

Do we want to be working like crazy and have more money?

(01:07:46):

Great.

(01:07:47):

Or do we want that medicines are available to everyone?

(01:07:50):

That's also great.

(01:07:52):

We should not stick to an ideological position of markets are good regardless of what they do.

(01:07:58):

We have to stick to this is who we want to be.

(01:08:01):

And if the markets are not working or something else is not working, let's change it.

(01:08:05):

So if there's one idea I want people to take away,

(01:08:07):

look,

(01:08:07):

the power really is in us and we need to get together and say,

(01:08:12):

what are the processes that we want to live by that makes at least our kids have a

(01:08:16):

much better lives than we?

(01:08:19):

You know, that's our aspiration as all parents is that our kids have a better lives than we did, right?

(01:08:24):

And I would urge that we start thinking about what processes do we need to put in

(01:08:28):

place to navigate us through these difficult times.

(01:08:32):

Tobi: Thank you very much to both of you. It's been fantastic having this conversation.

James: Thank you so much, Tobi. Thanks for having us on and for grilling us with these really challenging questions.

Jishnu: Oh, my goodness. I feel like we've been put through the ringer on this one. No, Tobi, this was really a pleasure.

This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.ideasuntrapped.com/subscribe

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In this episode of Ideas Untrapped, I sit down with economist Oliver Kim to explore the complexities of African economic growth and the challenges surrounding industrialisation. We discuss why Africa has struggled to replicate the manufacturing successes of East Asia, touching on issues such as labour costs, political economy, and the global market environment. Oliver also shares his thoughts on the importance of state capacity and regional integration and how to rethink GDP statistics in development research. Oliver Kim is an economic historian and a research fellow at Open Philanthropy. He also writes excellent blog Global Developments.

Transcript

Tobi:Welcome, Oliver, to the show. I've been a fan for a while, and it's fantastic talking to you. So thank you so much for coming on Ideas Untrapped.

My first question to you involves something you wrote a couple of months ago where you talked about African prices, which is always a puzzle that I've been interested in. So, to restate it as simply as possible, we know that manufacturing in Africa has not grown as much, at least relative to other sub-regions in the world. And there are some theories or findings that suggest that it’s because labour cost is too high. And there's a bit of back and forth in the debates about how unique that is to Africa as a continent. So can you shed more light [on that]?

Because you see a lot of comparisons, maybe Ethiopia and Bangladesh…the unit labour cost and how high it is. So, is that really the constraints? What are the nuances based on what you discussed in that blogpost?

Oliver:Yeah. Just to quickly summarise. Africa has kind of missed out on the manufacturing revolution that, for instance, propelled East Asia…so when you think of the East Asian tigers, China, to rapid rates of growth and poverty alleviation. And, i think in some countries, actually, the share of manufacturing value-added or the share of manufacturing employment is the same or lower than where it was in the 1970s immediately after independence. So, from a developmental standpoint, this is a bit of a puzzle and from a poverty alleviation standpoint, it's a tragedy because this is the only sort of way that we know how to lift large numbers of people out of poverty in a rapid sort of fashion. That’s how China did it; that's how earlier, Korea, Taiwan, and Japan did it.

From a prices standpoint, the problem that economists have identified is that labour costs are too high relative to the level of productivity. That's an important qualified statement to make. So most developing countries are poor [and] as a feature of a developing country, one thing that's true is that incomes are relatively low, wages are relatively low, and so labour is relatively cheap. It's also true that if you're a foreign firm deciding where to site a factory, you don't just care about the labour cost. You also care about the productivity of the workforce. And so it works out that what you care about is like the amount of productivity divided by the cost of hiring additional worker.

And on that metric, which is typically measured in something that's called a unit labour cost (the amount that it costs to produce one unit of output), a lot of sub-Saharan African countries turn out looking relatively poor, especially compared to their peers [at] similar sort of income levels.

So there's sort of two dimensions of this problem. One is the productivity side, and then the other is the cost side. On average, it appears basically that African countries have wages that are actually relatively high for their level of development. And so this becomes a further mystery, like why is this the case? One hypothesis that's been put forward in a couple of papers by the folks at the Center for Global Development is that it's because prices are too high. So this is like one step up the causal chain. If prices are high and the goods and services that are to buy cost too much, then you have to pay people a higher wage basically to afford that.

Of course, the sort of factors behind this, I think, are incredibly complex. I think one major, sort of, historical and fundamental feature that I would point to is that historically labour in Africa, sub-Saharan Africa has been relatively scarce. So this is the contrast I guess, with East Asia and potentially South Asia, where population density is incredibly high and labour is constantly in surplus.

So historically, you know, China, East Asia is like one of the most densely populated regions of the world. The opposite is kind of true in Africa. Now the population has grown a lot, but historically you just had actually a lot more land than people. And if you look at the deep history of African sort of polities, a lot of them were trying to economise more on people than on land. So like in East Asia and Western Europe, you know, you had states with very clearly defined boundaries and political control was defined by control over land.

In Africa, there are states, but there are also instances basically where political control was defined more by control over people. And so there was more fluidity in terms of like territorial boundaries. And so control basically of labour, potentially through slavery also, was a way of a political state to assert power. That's a bit of a digression, but historically speaking, you had relatively low population density. I think that's part of the factor into capitalism. why labour was relatively scarce and maybe why wages are low. So in the present day, maybe that's starting to change a little bit. But looking at the sort of deep fundamental factors, it appears that maybe wages are potentially, quote unquote, “too high to enable a sort of African manufacturing revolution.”

Tobi:Yeah, maybe I read that wrong. But one of the things you discussed in that particular essay was the Assam non-linear model or something like that. It was a U-shaped relationship between GDP and price levels, which, again, maybe I'm wrong about this, the conclusion that sort of came out of that, that this might not necessarily be a problem that is unique to Africa. So can you shed more light on that?

Oliver:Yeah. So let me talk about what I talked about in the blog post. So economists have this relationship. It's a purely like empirical one. So if you go out in the world and you observe things, it's called the Balassa-Samuelson relationship, where basically it appears that as countries get richer, prices of things like haircuts and services seem to go up almost more than proportionally, right?

So like, you know, if I go to Switzerland, which is a very rich country, a haircut costs like $30 or something, something ridiculous. Actually, it's probably more than that. It's like $50 or something, 50 Swiss francs versus, you know, if I go to a Kenyosi in Kenya or whatever to go to a barber, that same haircut, which effectively is not that differentiated in terms of quality. Like a haircut is a haircut. Like if I ask for a buzz cut, it's the same thing. It's the same product, but that product in Kenya probably costs a dollar or possibly less. And so this sort of weird differential where richer places seem to have higher prices is known as the Balassa-Samuelson effect. And if you think about like the sort of underlying theoretical mechanism here, basically richer countries have higher productivity. Higher productivity shows up in like higher productivity in let's say like the manufacturing sector or higher tech kind of sectors.

For like service sectors, which everybody needs, right? So everybody needs like barbers, everybody needs janitors, teachers, things that basically don't increase that much in productivity. Even these sectors need to face higher wages in these rich countries in order for them to be able to compete with the manufacturing sector where productivity has gone up a lot, right?

So like people can switch jobs, people can move between different sectors of the economy. And so the price basically of these service sector goods where productivity actually hasn't gone up that much have to sort of keep pace.

And that's how you end up with this phenomenon where - the same haircut, essentially the same quality, costs the same amount across two places with very different incomes. Now, the way that economists typically have thought about this is that there's a linear relationship. So if you drew like a scatterplot of countries by their income levels and their price levels, you'd just get something like a line. That's like the theorised kind of relationship, a linear Balassa-Samuelson relationship. By that logic, if you put African countries on that scatterplot, it looks like basically that their prices are too high.

So they're lying above this line on the scatterplot between GDP and price levels. What I was arguing in this piece is there's some research, in particular a paper from the Journal of International Economics by Hassan, I forget his first name, I think from like 2017 or so, basically arguing that maybe this Balassa-Samuelson relationship is not actually linear. Maybe it's actually nonlinear, right? There's no actually like really strong reason that this thing has to be linear. It's just like it's the easiest model to write down.

And this is like a common flaw amongst economists is that you go with the first thing that's like easiest mathematically to do. And then you forget that it's just a simplification and you start to treat it like a feature of reality. But so he writes out a more complicated model where, you know, as is true in the real world, there's not just like a service sector and a non-service sector, as I laid out just a minute ago. There's agriculture, there's manufacturing, there's services. Countries basically shift between these three things as they vary in their stages of development, right?

Agriculture for a lot of developing countries is actually mostly non-traded. Think of subsistence farmers, people who grow maize or soybeans for their own consumption. And so it's not the same as a big agricultural producer in Europe or whatever that's just trying to sell to the entire world. And so you can think of those agricultural products as more like the services, like those haircuts that I was describing in like a European country. And so it works out if you do the math and you account for basically the movement of labour between these different sectors as an economy develops, you end up with something that looks more like a non-linear Balassa-Samuelson relationship, like a U-shape, right?

So prices may start to go down a little bit as you move from a low level of income to like a medium level of income. And then they start to go up again. And so accounting for this kind of nonlinear Balassa-Samuelson relationship, maybe sub-Saharan African countries don't look like so much of an outlier in a global sense. Maybe this is actually just like a general sort of pattern of development that all countries have gone through, where their prices have started to go down a little bit and then gone up. And so maybe prices are not the reason that African manufacturing has sort of lagged behind.

Tobi:One thing I'm curious about, which I would like you to speculate on a little bit, is how this all relates to food prices. I know that maybe Tom Westland has done a little bit of work here on food prices and divergence in Africa. It's hard to generalise for the entire continent, like you said, but for example, in Nigeria, food inflation is currently 40%. It's been double digits for about a decade. If you further break that down into what, actually, households spend money on, it's mostly food, right? So, like, we have these higher prices, which then feeds into higher wages. What is the relationship to the sort of inability of some African economies to achieve agricultural productivity enough to bring down food prices?

Oliver:Yeah, so this is an incredibly complex issue. I think it plugs into the political economy of a lot of sub-Saharan African states. So the most famous book on this kind of subject is Robert Bates's Markets and States in Tropical Africa. And it's a very slim book, but I think it's a remarkably powerful set of analytic tools for thinking about this stuff. So let's take a step back. Most developing countries, not even just African countries, but most developing countries, what do they have to produce? They have agriculture, right? [In] Most developing countries, most people are farmers.

And immediately after independence, again, not just African countries, but countries in South Asia, countries in East Asia, All of them, they achieved their independence and they started to figure out like, what can we potentially do to start growing? And what sector do you basically have in order to finance development? If you want to import machines, you want to like, you know, foster manufacturing growth. The only sector that you have is basically agriculture, right? And so there's this strong impulse basically to essentially tax agriculture to finance the capital imports and things that you need to foster manufacturing growth.

There's actually a lot of pressure basically to lower the prices that are paid to agricultural producers to finance imports of machines and stuff from richer countries. This process happened not just in sub-Saharan Africa, but again, like in Taiwan and Korea, where basically the state imposed policies that actually had an anti-agricultural bias.

The difference, I think, that Bates argues is that these policies became much more entrenched in sub-Saharan Africa, where basically the state had a lot less sort of penetration into the countryside, where the state was not as beholden, I guess, to the needs and interests of farmers, for instance. And the state basically became captured in the large sense by urban elites who discovered basically that they liked having prices, particularly of food, which as you mentioned [that] for a developing country is the largest portion of the consumption basket, in a lot of places.

And in a trade sense, they also liked having relatively cheap imports from other countries. So for the growing African middle class [and] for the elites, you know, they liked imports of European cars and luxury goods and that kind of stuff. And so that favours an exchange rate that tends to be overvalued to make your imports cheaper. And that actually hurts farmers who are interested potentially in exporting for whom an undervalued exchange rate would actually be the pro-developmental policy.

This is maybe one point of divergence between East Asia and a lot of countries in Sub-Saharan Africa, where, you know, you started from a very similar kind of logic, which is that you should try and take resources, pull resources out of agriculture to fund manufacturing growth so that you can have your own sort of industrial revolution. But those sort of policies that effectively tax agriculture and made it cheaper basically for urban consumers, became entrenched in places like Nigeria and Kenya because the political class and the governing elite became beholden to them in a way that was not true in East Asia. So that was kind of a tangent from your original question, but I think the political economy aspects are worth highlighting here.

Oliver:You’ve mentioned You've mentioned East Asia a couple of times in your answers. It's become the model, the standard when we talk about the economic development. I was telling a friend recently that ever I was telling a friend recently that ever since East Asia, the East Asia phenomenon, basically every country has been trying to make a miracle in terms of development. I mean, 2-3% rate of growth no longer suffices. You have to do 7-10%, at least since China. What was so unique about those set of states Japan, Taiwan ,Korea, Singapore to a lesser extent, Hong Kong? What was so unique about them and that time period that made it possible? Because essentially, i would say, that no country has been able to repeat that level of convergence since .

Oliver:Yeah, unless you happen to be lucky enough to find yourself sitting on a gigantic oil field. Though I guess it's also true that that's not even necessarily good for development. There's a couple of factors that I'd highlight. So the first, I guess, is historical stuff. So East Asia, in some sense, is unusual like Western Europe, in that it has a long history of being organised along state lines. In some senses, like Korea, Japan... and certainly China, these are polities that emerged before the emergence of states in Western Europe. And there's been a lot of research actually trying to understand how these states emerged without a lot of the same interstate warfare that characterised Europe in the medieval and the early modern period, but instead through a process of Confucian learning, of an elite that was based around meritocratic civil service kind of stuff.

Historically, this place is like a little bit unique. And it's unlike, let's say, a lot of Sub-Saharan Africa, where at the time of European colonisation, around 50% of the people were living in sort of polities organised as states. That's not a statement about like, oh, states are better or more developed in any sense. But for the specific problem of if we want to do things like industrial policy or like agricultural policy, get growth to happen, it turns out that having things organised as a state turns out to be a very effective sort of organisational form. Again, to go into the deep history of that a little bit more is this was a rational sort of response by people who were living in Africa at the time, in part because of the relatively low population density. The places actually where you see the emergence of states in Africa around like the Great Lakes region, for instance, or the Ethiopian highlands are places where you had relatively higher population density. So in that sense, it tracks basically the broader sort of global pattern.

Anyway, that's a long digression to say that East Asia is kind of unique in having relatively well-defined strong states. And that kind of already solves a lot of the problems that I think a lot of sub-Saharan African countries are facing, where, you know, essentially a lot of them are creations of European colonialists. You have a whole bunch of people from different tribes, different ethnic backgrounds who don't actually have a whole lot to do with each other and they're lumped together in states that just kind of lack coherence. And so the 60 years since independence have been tragically marred by a lot of the adjudication of these disputes. So, you know, in the worst case, civil war, ethnic cleansing, that kind of stuff. But even in the best cases, a lot of distrust, a lot of competition over rent seeking behaviour, our turn to eat when our president wins election, that kind of stuff.

So at a minimum level, I think states are probably like a necessary precondition for rapid development. The second thing that I would point to in a more near-term sense is that the East Asian states were at a critical sort of boundary in the Cold War, right? So, like, South Korea almost got swallowed up by North Korea. Taiwan was sort of the product of the Chinese nationalists losing the Civil War and for the longest time, actually to this present day, they're worried about getting swallowed up by China. Japan was also similarly worried about communist takeover. And so that sort of enabled a set of policies that are also rather unique. The first one, obviously, is land reform. So immediately after independence for these countries, they conducted large programs of land redistribution. I think politically this also helps. So tying into the state stuff, like, having a broad base of support in the countryside where farmers are part of your sort of governing coalition. And there's an incentive basically to engage in broad based agricultural productivity growth, not necessarily as a result of the redistribution, but because the state has penetration into the countryside and is able to do things like agricultural extensions, spreading fertilisers, high yield varieties and all this kind of stuff.

Yeah. So land reform was like a critical policy that had to happen because across the border, like in North Korea, they have a land reform policy. In China, they have a massive land reform. In fact, because it was so unpopular amongst the peasants, that's why the KMT got kicked out of mainland China. And Japan also had one like in the late 1940s. So, you know, that's just like one very critical example.

Industrial policy, also. The fact that basically a lot of these countries also received a large amounts of American military spending that was directly related to the boundaries of the Cold War. The fact that the United States was fighting these wars, these hot wars, first in Korea and then Vietnam. So it's difficult, I guess, to pinpoint a little bit, but the confluence of these factors - like the existential kind of threat, the fact that if you don't get your development policy right, you will just be taken over [by another country]. In Korea, this was like a very real part of the thinking. It energised things like industrial policy, the fact that we need to create our own domestic steel industry so we can build our own artillery, our own tanks and all this kind of stuff, because we're possibly going to be invaded by the North. Yeah, the boundaries of the Cold War are, I think, an understated component of why East Asia took off.

Tobi:Yeah, so, I mean, it's good you mentioned Studwell, did you?

Oliver:Not yet, but like kind of implicitly.

Oliver:I guess we're going to get there at some point.

So, ever since the publication of that book, How Asia Works, it's sort of become the standardised, informal canon of policy advice in this sort of general sense, perhaps not in the technical sense of what went right with East Asia and what you should do, roughly.

And one country that I think went full Studwell was Ethiopia, with the land reform, the focus on agriculture, the intensive focus on manufacturing, but it hasn't really, really worked out so well. So, to the degree that you know, what was wrong with how Ethiopia just sort of went about going Studwell, to use that phrase?

Oliver:Yeah.

There's a lot of different factors here. And again, I would not call myself an expert on Ethiopia. I've not actually physically been to Ethiopia. I've talked to a lot of Ethiopian students here at Berkeley. So qualify everything that I say with that caveat.

Tobi:Yeah.

Oliver:I mean, it's tragic. I know that this big manufacturing push was already not yielding the expected results before the outbreak of the civil war post COVID. That is just so obviously like a first order fact to point out that, you know, Ethiopia had this horrible civil war a couple of years ago and we're still dealing with the ramifications of that.

It's very difficult, I think, to like try and do broad based rapid economic growth if you just constantly have civil conflicts of this kind. The damage is obvious, I guess, from the pure human cost, from the number of people who’ve died, you know, from the war time kind of destruction. But also like whenever there's a stable sort of post-war kind of settlement, the distrust between the Tigrayans, the Amharas, all these different sort of ethnic groups is definitely going to shape policy. And that's like a common feature, I guess, of a lot of sub-Saharan African countries where there's always competition over spoils rather than thinking about things that could broadly benefit people. And I think that's also partly a rational response. I should also say that even though it wasn't colonised, Ethiopia actually, I think, has some features of a lot of well, it was briefly colonised by the Italians, but nowhere near the sort of penetrating kind of colonial regime. But Ethiopia itself was sort of a product in a response to European colonisation of sub-Saharan Africa, where in literal terms an imperial sort of project that sort of absorbed a lot of surrounding ethnic groups and regions to create buffer zones against European colonisation. So that's the underlying structural reasons for why you have a state that doesn't have a strong majority ethnic group. There's a lot of conflict that's been generated by that.

But even before the Civil War, as I mentioned, the sort of big manufacturing push was not yielding the expected results. There had been pretty impressive, I think, overall aggregate GDP growth under Meles Zenawi, where Ethiopia was achieving something like rates of like 10% GDP growth a year. You can quibble about those numbers, but I think it is probably true that Ethiopia was growing very fast. Most of that, however, was not turning up in the sectors that the state was championing the most, which were the big manufacturing push to very explicitly copy the model of Korea and Taiwan and the East Asian tigers.

Just to list some of the things that the state has done. I mean, the state has like invested in massive industrial parks, which are actually state of the art in terms of the facilities. So you have like the famous Hawassa Industrial Park, it has subsidised electricity for these places. So, you know, a common problem in a lot of sub-Saharan African countries that are trying to pursue manufacturing growth, you know, for instance Nigeria is that power is just simply unreliable or it's too expensive as a manufacturing firm you have to install your own generator that's an incredibly wasteful and costly exercise for everybody to have their own generator. The state has been subsidising electricity in those parks that's building you know the grand renaissance dam this huge sort of project to lower energy costs more broadly.

But even with all these massive explicit and implicit subsidies, the textile sector basically in Ethiopia has just like not been achieving the expected growth One factor that I've kind of identified, it again has to do with these labor costs, where there's just like an incredible amount of turnover, it appears, at these firms. Foreign firms who have sited in like places like the Hawassa Industrial Park, where workers will like turn up for like a couple of days, often their first sort of industrial job so they're coming straight from like farming, and they'll find that they just really don't like it. Or they'll find that conditions are horrible. They're not paid enough for their time. And so they just choose to leave. And I think this creates an incredible amount of churn, basically, where you never actually develop the skills to get better at your job. The managers of the firm aren't able to identify who are the highest performers and potentially promote them. And so it's this very low level equilibrium where you have this constant churn of workers who are not getting paid enough, who are very unhappy, and so the sector just never really grows.

I don't know quite what the policy prescription to that is. One thing I talk about in my blog is like potentially things like trying to institute like a general minimum wage. So if… let's say, the wage is generally set too low, maybe you could raise it to the level where people are like, hey, this job kind of sucks, but I'm getting paid enough to stay around and do it. And maybe that would enable for skill development, would enable for managers to identify the highest performers. But it is like a general problem. And it's a problem that Ethiopia, it appears, has not been able to crack yet. Unlike the East Asian countries, where the manufacturing sector was able to soak up a tremendous amount of labour that was coming in from the countryside. In Ethiopia, despite all these government subsidies, despite all this government effort to try and promote the sector, there just hasn't been a similar movement.

Tobi:I certainly don't mean to pick on Ethiopia or Studwell here. But I mean, just to double down on that question and, you know, emphasise what I'm really getting at. I mean, you can throw in a couple of scholars and public figures here, Justin Hodge, who look at East Asia and, you know, extract a couple of things as policy advices - do industrial policy, state capacity is the big difference, do you have to do land reform which will bring us to your latest paper - because what's certainly been true in the last couple of years, and I can point to your recent work or someone like Nathan Lane too on industrial policy, is that even a lot of what went right with East Asia, there's a lot of nuance to that story than the generalised, simplified model that we've been used to. So is there something wrong with how people are learning from the East Asia experience generally?

Oliver:So what you described, like my paper, Nathan Lane's work, like this is a historical stuff, right? We're looking at what happened in East Asia. But whenever you're talking about development, there's like this additional inductive step. Like, are the conditions that exist in Africa the same as the conditions that were faced by East Asian countries in the 1950s, 60s, 70s? And the answer is like plainly no. The global environment, the global marketplace looks substantially different. So this is, I guess, the third set of factors I would highlight for why there was a divergence between East Asian economic experience and sub-Saharan Africa’s, which is like the environment in which the sub-Saharan African countries are trying to industrialise is potentially just a lot less favourable than that was faced by East Asian countries. And this goes into things like global movements of prices, the relative price between commodities and manufacturers.

During the 19th century, this is work that's been done by Jeffrey Williamson. So [at] the initial stage of globalisation, it was actually not a bad bet as [for a] poor country, [that is] a country on the economic periphery to be a commodities exporter, right? Europe was industrialising at the time, and factories were going up, manufacturing output was going up, manufacturing productivity was going up, and it was driving the relative price of manufactures down. And so if you were like an Indian artisan making a lot of textiles, that was previously the textile hub of the world, this was a tremendous competitive hit, and this was bad for you. If you were an Argentinian cattle farmer and you're producing cattle that fed people who work in the factories and this kind of stuff, that was actually a really good line of business to be in. And so, you know, throughout the latter half of the 19th century, there was this kind of price movement where being a commodities exporter was good, being a manufacturing exporter was relatively bad, particularly if you were doing like non-industrial production in poor countries.

East Asia got incredibly lucky in some sense in that the period where it was trying to develop was very favourable, basically, to manufacturing productivity growth. Europe was basically starting to get richer. You know, it was escaping, I guess, the destruction of the Second World War and the First World War. and so it was recovering, it was growing economically very quickly and you know as you grow quickly you have greater demand for manufacturing goods. At the same time Europe itself was starting to shift potentially more to the services right and so there was an opportunity for places like Taiwan and Korea to start producing things that other markets would want like TVs radios that kind of stuff.

Yeah, the market environment that was faced by East Asia was like pretty favourable. Now, in the present day, the problem is that it appears that those conditions don't exist. In the West, actually, there's been a lot of development in automation that increases the productivity of manufacturing output. That's also true in the places that have claimed the mantle of being the world's factory, Korea and Japan, and certainly China, most of all, where you already have competitors who are able to produce manufacturing goods at a much higher productivity level than if you're a country starting out. And so it's no longer as easy just to rely on the fact that you have relatively low labour costs, like the East Asian countries did in the 1960s or so, to sort of compete in the global marketplace. You actually need productivity as well. And if you're competing against people who use a whole bunch of robots and machines in their production processes, it's just very hard to compete on costs. And so I think there is a sense in which maybe these lessons are not as applicable as we thought, because the sort of global context is just not as favourable to manufacturing growth as it once was.

Tobi:Again, I'm increasingly skeptical and finding it less useful some of what people say, especially when it comes to learning from the East Asian experience, because, oh, yeah, people say stuff like do industrial policy and once you run into the difficulty of doing that, [they say, oh] it's because you don't have the capacity, and okay, so how do I get capacity? Essentially, it's reducible to get a different history, more or less, which is kind of not so different from the institutional people, which is basically just go get yourself a different institution, which essentially means you get yourself a different history.

So I've become less enthusiastic about that sort of arc. Which then brings me to the question, what is the right way to look at successful countries and learn the right lessons that you can then apply to your own context? I know that it's not all different. There are some similarities. For example, I know that a lot of African countries are extremely protectionist in terms of trade policies and shifting a little bit more towards export-oriented sort of trade policies would help. But as an economic historian, how do we learn from history?

Oliver:Yeah, so this is where I would say that the label that I would wear is I'm a development economist, not an economic historian. Like, I do a lot of economic history stuff. My primary interest is like, what can we actually learn to help people today? The historical interest is very interesting. It's intrinsically important. But what's motivating me is, you know, what is actually useful? And I completely take your point. There's a sense, I think, particularly amongst academics, when you peel back the layers of the onion, in the end, it just comes down to, yeah, get a better history. You know, there's just like fundamental factors that are so deep rooted that, you know, basically you can't do anything about it. One answer that I give that's maybe a weird kind of like metacognition kind of point is that let's say you pose this question in 1945 or something. Right. That's not actually that long ago. My grandparents were alive in 1945. I can talk to them and ask them what it was like.

There was no way that they would have thought that South Korea, Japan would be as rich as in some cases richer than France or Germany. Like it was just like inconceivable at that point. I mean, Korea would have a civil war that would kill like 20 percent of the population in five years. And so the cultural factors were broadly the same. The history, you know, up to like 2000 years subtracting like 30 years or so was the same. But the transformation afterwards was just very difficult to predict. So I think there's a sense in which like when we're talking about these sort of factors behind why countries are richer or poorer, we have to remember that we're looking at them from like a very specific point. In 20 or 30 years things could potentially look very different and they can be very different in ways that are difficult to predict.

One example that i like to give a lot is, um, this is like a view that i'm less fond of, like, cultural kind of stuff. Culture surely matters but i think there's like a very strong instinct to want to say that culture is this fixed kind of entity, like these get a better history kind of arguments. It's like this sort of intrinsic quality that is tied to the people and just stays forever. And that's why you're rich or that's why you're poor. In the East Asian case, the answer that's often given by Lee Kuan Yew and others is Confucianism, right?

Lee Kuan Yew became a bit of a celebrity in the 90s or so, just like going around different countries and saying like, hey, the reason that you're not doing well is that you have not absorbed East Asian values of Confucianism, like filial piety, studying very hard for tests, listening to authority figures, having a well-ordered society along these lines. But if you go back 30 years, 20 years or so, scholars, sociologists, sinologists looking at the trajectory of China would have said that Confucianism was a terrible idea, that basically it resulted in states that were unable to adapt to the sort of conditions of modernity. You know, the Qing dynasty was not a great historical success by any means. It completely failed to adapt to the pressures of Western incursions. And so like there's a sense of which I think our descriptions, I guess, of history and culture should be a lot more malleable than I think these get a better history kind of views. The thing that kind of gives me hope is that I think it really would only take one. I know that there's like Mauritius and maybe some other examples, but it would take, I think, only one sub-Saharan African country. I don't know which it would be. Maybe it's Ghana, maybe it's Kenya, maybe it's Nigeria.

But it'll only take one to start demonstrating, I think, this sort of sustainable pattern of growth for that example to kind of spread. That's essentially what happened historically in East Asia. I mean, if you go back even further in terms of the history, the chauvinistic Western view is, you know, modernity was something that was exclusively a property of Westerners, right? Japan proved that very wrong. And that example spread to other countries in the immediate sort of cultural vicinity. I think the same process is definitely possible in Africa. And there's no reason, I think, that it can't happen.

Tobi:So sort of brings me to, I would say my weirdest question yet. I mean, the reason why people talk about development, the reason why someone like me is interested and doing what I do is that I want Nigeria to be rich in my lifetime. It's possible, but maybe not. But certainly that's the hope. Can you imagine a possible future where, to make it as concrete as possible, where 90% of the global population would be around middle income or something we call rich. Like, can the whole world be developed, essentially, is my question?

Oliver:I think so. I don't think there's any structural reason that's holding that back. I'm sympathetic to a lot of like leftist arguments. Like I know there's like core periphery stuff. Like if you're a big fan of like Raul Prebisch, you think that the world is kind of underladen by the fact that, you know, you have like underpaid people in the global south or doing the commodities extraction or whatever to help the rich world.

I'm sympathetic to parts of that thesis in terms of thinking about like why some countries are underdeveloped, particularly from a political economy standpoint, but I don't think in the long run there's any reason that all countries can't enjoy a decent standard of living.

Tobi:As a development economist, which you say is your preferred label, how do you think that development economics and some of the cool research and informative stuff that's going on there can influence policy more because that's sort of like a big, big thing for me because I see more and more governments in Africa becoming so detached from what works at least to a certain degree. So how can development research essentially influence development policy?

Oliver:Yeah, the framing of that question is interesting. You were talking about earlier, maybe before we recorded, that your concern was that African countries, maybe not even just African countries, maybe like developing countries in general, they're not listening to the policy lessons that academics have prepared for their research. But my take, at least coming from someone who was very recently in the heart of the ivory tower, is that academics, even development economists, which in theory should be like the most applied of fields, are not asking questions that are immediately relevant to governments and to policymakers in African countries.

So maybe both can simultaneously be true, like we're kind of like crossing paths past each other. But at least looking at the research production standpoint, when I look at what's published in top journals, often I'm just like, if the composition of development economists looked more like the people who are being studied, would we be producing the set of research? And my hypothesis is probably not.

The framing that you see a lot of development research, particularly coming out of the United States and Europe, is very much in the mindset of I'm a donor, I'm an NGO, I'm an aid agency. What can I do on the margins to make my program better, right? How can I make it more efficient? How can I like, what intervention would work the best? I think that's like a perfectly fine line of work. For instance, my advisor's work, Ted Miguel, he did a lot of stuff in deworming in Kenya. That has helped tens of millions, if not hundreds of millions of people. That is very clearly good to improve. But this is not a critique that's new to me. But broadly speaking, the area that considers the framing of like, if I'm a developing country policymaker, what sort of macro policies, what sort of like broader industrialisation policies can I pursue to sort of foster growth? I think that's a little bit more of a neglected area in terms of academic research. And so, yeah, I guess I would switch the framing a little bit where it's like, the problem I see is also from our end. We need to be producing stuff that's informed more by experiences on the ground, like people who actually know the problems and less about like what we think or what we can convince a grant maker is interesting.

Tobi:What's the one idea that you are most excited about, that you are most enthusiastic about and that you would like to see spread, become more influential? What is that one idea?

Oliver:So this is a bit of an odd one. It's a very nerdy one, but it's like a question that has been bothering me a lot recently. Maybe you can also react to this. It's like GDP is like a number. I recently read like Poor Numbers by Morten Jerven. Have you read this book?

Tobi:Yeah.

Oliver:Yeah, I read it like immediately at the end of my PhD. I mean, I've essentially done 10 years, 12 years of like economic research and like I first heard of this book. Basically the premise, it's almost like a sociology of how GDP is constructed in developing countries, particularly in sub-Saharan Africa. And It's not pretty. Like for those 10 years when I was a researcher in academia, you know, when you go to the UN website, you go to the World Bank, the IMF or whatever, and you download the GDP statistics going back to like 1960, you kind of assume that somebody has done the hard work of like making sure that this is correct. You know, there is actually an army of enumerators out there in Kenya or Nigeria or whatever. They've gone to every store and they've counted every capital good and they've done the math on this stuff. Morten Jerven's book shows us that that's just patently not true. Nigeria features prominently in that book. You know, it's not even clear how many people are living in the country. Population censuses are like an incredibly sort of politically divisive thing. I'm sure you could speak more about that. Various ethnic groups don't want to be counted or maybe they want to be counted more. That determines sort of the allocation of public resources. And so, you know, you don't even have the number of people in the country correct.

And I believe it was like in 2014 or so. This is, I think after the book was published, like Nigeria basically did a revision to how its GDP statistics were calculated. That resulted in a revision that was like something on the order of magnitude of 90%.

Tobi:Yeah. We’ll do another one very soon, ‘cause we’re like the fourth largest economy in Africa now, and I'm sure a lot of people are not cool with that.

Oliver:Yeah, Nigeria like spring vaulted past South Africa to become the largest economy. And like maybe both of those numbers are incorrect. Let's just say that one of them is like as a baseline. That means that at one point your number was 90% wrong. Like I think there's a sense in which like economists have been so focused on things like causal identification, all these crazy statistical stuff, ignoring like the basic question of measurement. If you had a thermometer that was like 90% wrong, like you would not read anything into the fact that your temperature goes up by like two or three degrees. You know, if the air is like 30 degrees, it effectively is meaningless to be making a minute decision. You know, it's not the fault of a lot of these governments. I mean, in some cases it is like maybe they mess with the statistics, maybe they underfund their statistical departments. But it is true that just like it is a hard problem to measure your economy.

There's this anecdote in the book where Morton Jerven goes to the Zambian statistical office and it's like one guy who does both the census and the GDP numbers. And so like that guy was like really well-intentioned, he's probably doing the best that he can. Zambia is like a country of 10, 20 million people and you have one person doing all that work. It's just not conceivable that you could have an accurate sort of statistical product. So getting back to your question, Jerven's book came out, I think everybody like kind of cites it respectfully and they're like, oh, you know, GDP statistics are just not something we should have like a high degree of confidence in, but we just like kind of go on using them anyway. Because what else are we going to do?

Tobi:Yeah. It's just a caveat somewhere.

Oliver:Yeah, yeah. The World Bank did some stuff. There's like a database they have of statistical capacity. So they rate countries from like zero to 100 or something like that based on how good their statistical agency is. But like, again, I spent like 10 years doing development stuff and I just didn't even notice it. So one idea that I've been pushing that I hope to maybe put into a blog post, maybe develop into a formal paper. is like we actually do have a way of kind of describing statistics that are very noisy, which is like, you know, it's election season in the United States, you know, you'll see like Kamala Harris versus Donald Trump polls. But if you're like a sophisticated consumer of this stuff, you always look for the margin of error, right?

Like when a poll is reported, If the margin of error is like 5%, which is very common amongst these political polls, whether Kamala Harris is leading Donald Trump by 47 to 46 or 48 to 47, it's effectively meaningless. There's just too much noise in the underlying measure to include anything from the raw number. I guess one idea that I like to promote is we should do the same thing for GDP statistics. For some reason, economists are willing to treat GDP as this very certain kind of metric without the appropriate degree of skepticism that they sometimes apply to other statistics. And so just having the margin of error printed next to the number, I think, is like a good epistemic reminder to be humble and be like, hey, you know, like these policies that we recommended that we claim boosted aggregate GDP by like point one percent this quarter. Like there's actually no way that you can actually detect that. And so I think that should encourage greater humility amongst economists and policymakers about how much do we actually know about the world and how much can we actually affect it.

Tobi:Not to mouth any kind of defense for Nigeria, but I think since Morten's book came out, there's been some improvement, particularly in measurement, because a lot of it is just the fact that funding statistical measurement is not a political priority. So for a long time, and I doubt it has changed currently…for a long time, the National Statistical Agency is funded by the central bank in Nigeria and not even by the federal government itself. So like Morten recalled in that book, when he came to Nigeria to do research on that book, the Statistical Agency was in the midst of a staff revolt due to poor pay. And the guys that head some of these agencies and try to do the work, they are real heroes because they are trying to basically perform magic with resources that are next to nothing.

I know that, again, the National Bureau of Statistics in Nigeria, the United Nations is heavily involved both in terms of funding and reviewing the methodology and improving the presentation and everything. But you would think that it is something that the government itself should be heavily invested in rather than foreign agency or a donor agency or something. So a lot of it is politics, really, because in the end, governments really do not make decisions based on these numbers. Hence it's not really a priority to get accurate measurements.

So, but I mean, hopefully things are improving, but it's not without controversy. The most recent one in Nigeria, for example, is that the World Bank and the ILO recently changed the methodology for unemployment. And Nigeria, again, just like the GDP thing, went from being 33% unemployment rate to 5% overnight. Right? So, we started having these technical subcategories like underemployment and informal employment, you know, and things like that. So it's politics, really. But i like your idea and we'll try our best to help you spread it as much as possible.

Oliver:All right. Sounds good.

Tobi:Yeah, so thank you so much, Oliver, for doing this. It's been fun.

Oliver:Thank you, Tobi, yeah it's been fun

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In the episode, Tobi talks to Dmitry Grozoubinski about the politics and complexities of global trade, emphasizing the tension between free trade and protectionism. Dmitry explains how trade policy decisions involve difficult choices that impact both producers and consumers, using Nigeria's food inflation as an example. They explore the balance between national interests and global commitments, highlighting how protectionist policies are often rooted in political concerns rather than economic efficiency. The conversation also touches on the challenges of multilateral trade agreements like the WTO and AfCFTA.

Dmitry served as an Australian diplomat and trade negotiator at the World Trade Organisation and beyond. He has negotiated complex agreements in Geneva, at WTO and UN Ministerial Conferences in Kenya, and as part of the MH17 task force in Kyiv, Ukraine.

Before joining the Department of Foreign Affairs and Trade, he was a lecturer and tutor at the Monash Graduate School of Business and with the Australian trade consultancy TradeWorthy. He is the lead trainer of ExplainTrade and a Visiting Professor at the University of Strathclyde’s School of Law.

Transcript

Tobi: The complexity of trade agreements, the bargaining, the negotiation, and everything that surrounds the politics of trade generally does not get covered so much. It's always about the economics of it. And that's what I love about what you do, your project, your book, and everything. So my first question to you is that I know you wrote this basically from the perspective of global trade, and with everything that has been happening, I would say, basically, since the Trump presidency, which, like, brought trade into the headlines, particularly with the US-China “trade war”, quote unquote. And, of course, COVID is what we see with supply chains, decoupling, and so forth. But, I would also say to you that in development, the sub-field of economics that we call development, which is what we try to cover here on the show, trade is also a huge deal.

I'll give you a bit of a background. In Nigeria, currently, one of the biggest policy issues is the government trying to decide whether or not to allow the importation of food, basically rice, wheat, and all this other basic stuff. Primarily because food inflation is way above 40%. There's basically a cost of living crisis that has been going on for a few years. People are hungry, people are starving, people are angry because their incomes can no longer even feed them, you know? And so it generates this intense debate because on the other side of that, you have the producer class - the farmers and various lobby groups and political interests who say that, “oh, you really can't import, you're going to turn the country to a dumping ground, we're going to de-industrialise and so many other things.”

So one practical question I'll start with you is, if I were a politician, for example, and you know, with the title of your book, let's say that I am an honest politician. Let's assume that I'm an honest politician and I'm asking you that, Dmitry, how do I make this decision? What practical advice would you give me when considering trade policies generally? How do I make trade policy?

Dmitry:

I think that's a really good question, and I think it kind of goes to the heart of what trade policy is. Anytime you're doing trade policy, you're making choices, and they're often hard choices. You just laid it out perfectly there. You have farmers and other producers of food in Nigeria that are benefiting from very high prices. And you have consumers that are effectively suffering because a substantial part of their weekly budget is going to food, and more than was going before. You mentioned inflation at 40%. That is hugely unsustainable. So as a politician, when you are talking about the choice of bringing in more food, the first thing to do is you have to be honest. And you have to say that, yes, if you allow more food into Nigeria, you will hurt the interests of producers.

One reason I wrote the book is that politicians will often try to gloss over this and pretend it's some kind of win-win. They'll talk about competition. They'll talk about greater efficiencies. And that's all true to an extent. But in the short term, if currently you're locking out foreign rice, which is considerably cheaper than Nigerian rice, and you allow that rice in, you are going to hurt Nigerian rice producers. There's absolutely no way around it. So the first thing is to be honest about that choice you're making. The second point is to be honest about what you're trying to do versus what you're not trying to do.

So one of the ways that this particular debate often gets twisted into an uncomfortable alley is people will start talking about the notion of food security. So they'll say it's important that Nigeria be able to feed itself. And if we allow foreign food in, that will degrade our ability to be self-sufficient on food, right? To my mind, that's a way of basically misleading the public. It's very, very, very, very few countries are food secure in the sense that if trade were cut off tomorrow, they would produce enough food domestically to feed everyone in the country. Countries like the United Kingdom import something like 65% of their food. Why? Because it's far more efficient that way. And global trade supplies what people need. The amount of work it would take to convert the United Kingdom, for example, into being able to feed itself would mean you have to stop doing everything else in the country and prices would go through the roof. So it's important to be realistic about that.

It's also, I think, really important to say we live in an era of climate change. And one of the real problems we are going to face moving forward is that extreme weather events are going to become more common. So you are going to have parts of let's focus just on Africa, you are going to have in coming years parts of Africa that are in drought or flood, while parts of Africa are having a phenomenal crop. And those parts will shift around over and over. Our ability to feed people consistently moving forward is going to rely on us being able to move food from the places that are having a really good year to places that are having a really bad year. And I think any politician who is trying to say that if we just keep the walls around like the tariff walls, the barriers to importing food high enough, Nigeria will be able to feed itself forever every year without sky-high inflation, I think maybe is skipping over just the reality of where we live.

Tobi:

So, as you know, in places like Washington and the like, which gives advice to poorer countries on how to make policy and what will make them rich, you know that for about three decades, the orthodoxy has more or less been free trade. You know, you need to be more open. You need to allow more trade. You need to allow more goods into your country. Protectionism doesn't work. Which economically seems to be true, but right now, you have some of the richest countries in the world who have been advocates of open trade regimes, actually more or less going back to the mercantilist protectionist policies of the past. Which I think you sort of touched upon, especially the history of this in the second chapter of your book. So can you just give me a brief rundown on some of the shifts that we've gone through historically? And, like, what moves the needle on the dominant thoughts on trade policy?

Dmitry:

Sure. So when economists talk about free trade being the optimal path forward, what they're actually saying is, if you don't have tariffs, if you don't have trade barriers, we can maximise the efficient use of resources. So the free market will sort of allow and everyone will produce things in the most efficient way. And so overall, as a planet, we will be maximising our labor and our resources. And that's the benefit of that. They also suggest that having competition in your market pushes your own producers to work harder and having free trade can attract more capital. So inflows of capital from abroad that can make investments in your country. With the confidence that if they build a factory in Nigeria, if you've got free trade, if you've locked that in with treaties, they know that that factory will always be able to get the inputs it needs from abroad and always be able to sell whatever it produces to buyers outside of Nigeria. So that makes Nigeria a more attractive investment destination, for example.

So that's kind of the logic for a long time. And you mentioned Washington, Brussels, you know, the big economies generally tended to push that line and tended to believe it. Now, I would say straight away, it's important to note that they didn't universally believe it. So, for example, Europe is like, yeah, free trade's great unless you want to sell us certain agricultural commodities. So if you want to sell beef to Europe, suddenly free trade is not so great. And they protect their beef farmers or their lamb farmers or even their wheat and sugar producers. Ditto, America loves free trade when it comes to certain things. But if you try to sell America a light truck, you're paying a 25% tariff at the border. It's virtually impossible to sell certain kinds of services into the U.S. If you want to get a visa into the U.S., you sometimes have to do a job, you sometimes have to wait two years for an interview at a U.S. embassy. So even the rich countries that were preaching free trade were preaching free trade asterisk.

So what they were basically saying is, we believe that this is the optimal way to arrange the global economy, except on the things that we care about, the things that we're really sensitive on, where we think what's important isn't efficiency, but keeping the French farmer employed or protecting the US insurance market. What we're seeing now is that that asterisk is growing. So the US, Europe, China, all of these major players are increasingly saying free trade is great unless we have a national security concern. Free trade is great except when we want to rebuild the factories in the US Rust Belt. Free trade is great unless we want to create an instrument where you can't bully us with trade, so we're going to set up the EU anti-coercion instrument. So all of these kind of asterisks are being piled on top of what they used to be before.

Tobi:

One thing that often challenges observers, and I would imagine policymakers and politicians included, is the balance between, say, national interest, which again is becoming more prominent when it comes to trade policies, and global commitments, especially membership of world trade organisations, bilateral trade agreements, and other forms of multilateral agreements. And I want to get, especially from your experience advising and consulting on trade, what are the challenges or the headaches, the difficulties that leaders often encounter trying to balance between national interests, like, oh, we want to protect certain companies who are national champions, we want to protect certain key industries, and being signatories to a much wider multilateral, even bilateral agreements? How do you balance such contradictions sometimes?

Dmitry:

So the whole multilateral trading system, the WTO, all of it is built on the exact tension that you're talking about. You mentioned sort of balancing the national interest versus being part of the WTO. The WTO fundamentally only works as long as all of its members broadly believe that those two are the same thing—that ultimately what you're doing when you join any kind of trade agreement or really any kind of international agreement is what you're really saying is, "I am going to sign away my ability to do certain things." So I'm going to say I will swear off doing certain kinds of policies in exchange for you doing the same. And that's not because you never want to do those policies. You know you might want to do them in the future. But overall, you think the benefit of being in a world where no one's using those policies outweighs the short-term benefits of using those policies.

I compare it to like an arms ban treaty that bans chemical weapons on the battlefield. Chemical weapons are tempting to use on the battlefield because they can help you achieve a certain objective that might be really effective at what they do. They're horrific. But countries have come together and decided that the benefits of no one using chemical weapons and our battlefields not being full of chemical weapon residue outweighs any of the tactical advantages we might get ourselves from using chemical weapons. We prefer the confidence of a chemical weapon-free world to the benefits of having chemical weapons.

Trade agreements work the same way. You're always signing away the ability to use some policies you find tempting in exchange for that kind of global stability. So the tension tends to come because we are encouraged to be very short-term in our politics. And the benefits tend to be pretty narrowly focused and acute. So a specific industry is saying, "You have to protect me against foreign rice farmers." And that's something you can do today. The benefits of the global trading system and that kind of predictability are much, much broader, but much more diffuse. Everyone benefits from predictability. You get more investment. You get more trade flows. Prices overall are lower. That's all very good. But it doesn't have that acute politics of a particular industry that wants protection and will throw you a party if you give it to them.

So what political leaders are constantly fighting is the temptation to do something in the short term that weakens the system in the aggregate. And one of the few balances we have against that is the sense that if you do something like that, you're going to get retaliated against and other countries will hit you back.

Tobi:

I think one of the reasons why your book is well-timed is that it comes at a time when we are fundamentally learning that trade policy is inherently political, right? So a way to, like, further extend the last question for me is… sometimes I find it surprising that a lot of trade policies or trade agreements or even I would say maybe intellectual consensuses that have formed over time around a particular subject have political, intensely political origins and not economic or positive-sum motivations. So maybe you can provide me with a few examples from history of how politics have come to shape the conversation. An example I have in mind is recently the Biden tariff on electric vehicles from China. Most of the people, smart people, I should say, who have defended that policy would always say something along the lines of national security. America really needs to reindustrialise its core, you know, this and that. Because it's so obvious when you point out that if you want to transition to cleaner energies, if you really want to fight global warming, then slamming tariffs on electric vehicles makes absolutely no sense. But at the end of the day, people easily just recede to political arguments that would hardly pass water a couple of years ago. So I find that just contradictory, confusing. Help me out. I'm drowning here.

Dmitry:

I wish I could. I wish I could make it all make sense. The only thing I could do is first say—and this is a point that I hammer in the book over and over to the point where I'm worried I'm boring people—is that the big issues in trade have always been politics first, second, third, and then economics somewhere around, like, 26th. If you look at any major trade issue, it almost always comes down to, like, highly politicised questions. And there are really lots of examples on this.

So, for example, Japan, which generally has a reasonably liberalised open trade regime, has insanely high tariffs on rice, like hundreds of percent. And there is absolutely no economic reason for that. Rice farming is a tiny, tiny percentage of the Japanese economy. You know, Japan would be fine as a country without rice. But the traditional way of growing rice in Japan is very politically iconic. It's significant. They have a strong lobby. And so Japan, even while sort of preaching free trade, makes it incredibly difficult to sell rice to Japan in order to protect these small group of farmers.

Another story I like to tell is that when Australia did its free trade agreement with China, China is by far Australia's largest trading partner, hugely, hugely significant. And we finished the free trade agreement. It takes many years to finally get done. We sort of announce it to the public. We take it to parliament and everybody, the media, the opposition party, the entire national conversation becomes about this one tiny provision buried somewhere deep in the services chapter that creates a tiny visa subclass for like 100 Chinese workers a year to come work on gas projects in the middle of Australia. 100 people. 100 visas. But that sort of captures the national imagination. It becomes politicis ed. It becomes symbolic. And that's like the only thing we talked about for weeks on this trade agreement.

So we laser-focused on this issue that was hugely politically significant. But in economic terms, it was so small that it wouldn't have registered on any statistics. Like legitimately, if you looked at Australian nationwide statistics, a 100 workers working on a gas project somewhere outside Alice Springs is not going to even turn up on statistics. So this has always been the case. It is everywhere. And so I think what we're seeing now is just a continuation of that.

One thing I think we are seeing more and more of is politicians trying to distort the choices that they're making. You brought up electric vehicles. I think electric vehicles are one example. Solar panels are the example that absolutely gets me. Because there is no way we do anything about climate change without a transition to much cleaner energy. And right now, China is overwhelmingly the largest producer of solar panels. They are doing that through subsidies, and they are dumping these solar panels on the world market. We need to have an honest conversation about the trade-offs involved in taking those solar panels. Are we comfortable with allowing Chinese government money to create this giant industry, to create this dominant position in world markets if it means we get lots and lots of cheap solar panels? It's a hard choice to make, but it's a real choice, and we need to be honest about it.

So to kind of not answer your question properly because I can't think of any way to make you feel better about all this, it's that in some ways, what we had before—so I'm talking about before Trump 15 years ago—the trade conversations were mostly happening below the radar. There was mostly a consensus in the West about how trade policy should work. Trade very rarely made the news. You know, maybe with a big trade agreement, like the one when the US and EU tried to do, maybe around the Seattle round of the WTO, but mostly it was sort of hidden away in a corner and there was no public discussion about it. And now at the very least, it's in the headlines, and we're having conversations about it. And that is an improvement, even if some of those conversations aren't necessarily helpful.

Tobi:

My two-part follow-up question to that would be that regardless of one's disagreement or misgivings, the consensus around how these conversations are happening and how they influence policy changes seems like it's here to stay. I mean, like we talked about before we started recording, Trump might be winning another election and it's going to be another rollercoaster ride. So, I mean, in a common-sense kind of way, hoping that that prevails in actual policymaking, how would you suggest that countries balance the trade-off that may or may not exist between their economic interests and strategic imperatives like national security, trying to build up your defence base or be industrialised, and so many others that are intensely political and won't go away? How do you suggest the politicians or the advisors find a balance? Relatedly, especially in poorer countries, how do they find this balance without resorting to the kind of hurtful protectionism that we've seen with some countries over the years? So those are my questions.

Dmitry:

I think the only way forward is to be really specific and concrete about what you are trying to achieve. Because I think the danger that we're seeing now is that you have politicians identify a very high-level and nebulous objective. So you say like national security or to, you know, defend ourselves against China at some point in the future. And then they create that very, very high-level objective. They don't define what exactly they're picturing in their heads, like what they want the country to be able to do in that regard. And then that opens the door to justifying just about anything they want to do in any area.

So if I say, well, hypothetically, I am worried about the rise of China and I'm worried about having to fight a war with China and my industrial production in that event. Because, like, oh, what if we need to suddenly make a lot of tanks and bullets? If you've kind of set your objective that nebulously, then any time any factory owner comes to you and says, I want you to intervene in the market to help me, you can retroactively justify that. Because you can go, well, this factory is in trouble. If we go to war with China, we're going to need factories. It's important that we save this factory. And so you've kind of opened the door to politicians doing what is easy or tempting or popular on any given moment by not concretely defining your objective.

But I think there's a lot you can constructively do, even in ways that are sort of protectionist, that's fine, if you've narrowly defined your objective. So if you say, I would like to further strengthen Nigeria's IT sector, right? Like that's what you've defined as your objective. You can look at the barriers, the difficulties that the Nigerian IT sector is experiencing, and work out if there are places where a government intervention, including a protectionist one, might really help. And you've got like, I want to boost the Nigerian IT sector. My goal is to create 50,000 new IT jobs within the next three years. And I want us to have a really good ecosystem for entrepreneurial Nigerians who want to build apps. What would that take? What do I need to do? You've defined your objective. You've defined what victory looks like. And then if you say, OK, one of the things I really need to do to make that happen is to make it harder for Nigerians to use apps hosted in other places so that they're more inclined to use Nigerian apps. You can do that. And then two years later, you can see if it worked. We can judge the policy based on like, we wanted to create 50,000 jobs. We want to create lots of new apps. We took this step. It cost us something. It made life more annoying for Nigerians who wanted to use, like, Canva. But do we now have a Nigerian Canva alternative that's good, that people like, that's selling to the world?

So if you concretely define the objectives, are able to identify how what you're doing will deliver those objectives, and then finally have a way of testing afterwards if it worked, you can have a really mature conversation with the public about this is what we want to do. This is how we want to use the levers of government where trade policy is concerned to make your lives better in these ways. And then the public can sort of decide if the trade-offs are worth it. That's what has to be the mature policy discussion that needs to be taking place between the public and leaders, because otherwise you can just kind of justify anything if you say, well, I'm just doing this to create, you know, for prosperity or whatever.

Tobi:

I want to circle back to something you mentioned at the start, which is about winners and losers with regards to trade policies. Of course, there are always losers. I'll first seek a philosophical commitment from you, which is that on what side of the divide do you fall when it comes to wins and losses from trade policies?

Dmitry:

So where I tend to come from is that the kind of winners and losers framework can be really heartless in the sense that if I'm walking down the street and I decide I want to go for a coffee and I go into one coffee shop instead of the other, that is like a winner and a loser. Someone is going to earn my four dollars for my flat white and someone isn't. But that other company is going to be fine. So there's a winner and losers in that scenario, but it's not a big deal. Whereas, let's say you have a small town in Nigeria that's basically grown up around a factory. Let's say that factory makes shoes. And because of international competition, that shoe factory closes.

From an economic standpoint, like pure economic theory, you're like, well, kind of, OK, that's good because now Nigerians on the whole will get slightly cheaper or more better value shoes from abroad. And these guys can be freed up to do something else more efficient. But that's not how anything works, right? A linchpin factory closes in a town. You've got huge rates of unemployment. All of the businesses that feed into that factory are now in trouble. The doctor who treats the workers, they can no longer afford to pay her. So she moves to the city and now the town doesn't have as many doctors. So there's like a cascading effect. And a 53-year-old factory worker who makes shoes probably isn't going to immediately pivot to making TikTok videos for money. You know, they're not going to become a web developer overnight. So we need to be aware of just how bad it can be when trade creates losers. That doesn't mean you have to try to prevent it ever having any losers. But I think we have to be really, really sensitive to what happens when we create losers. And we need to have a plan for how we are going to help those that, frankly, capitalism rolls over.

Tobi:

I think you sort of answered my pushback because what I was going to say was that sometimes in reality, it can be difficult to tell a priori who the losers are going to be. I might be the trade minister, you know, staying in my fancy office in the capital and not aware that this little town somewhere in central Nigeria depends so much on the shoe factory until after we are seeing the effects. Maybe I get to hear it in the news or something. My question then would be that what are the right sensibilities that policymakers need to have as a general rule when dealing with wins and losses from trade policies?

Dmitry:

One of the things that trade ministries really struggle with is exactly what you're describing, which is in order to understand what the consequences of a trade policy decision are going to be, you really kind of need firm-level and local data. If you're just looking at national statistics, you get a very, very stratospheric picture. So one really common example is that the entire UK fishing industry, so absolutely everyone involved in fishing in the UK, contributes less to UK GDP than the company Games Workshop that makes Warhammer figurines. So if you're looking at national-level statistics, you're like, well, one of those is more significant than the other. But if UK fishing were to disappear overnight, that would be tens of thousands of jobs, dozens of coastal communities that would be devastated. And so if all you're doing is sitting in a capital looking at those high-level statistics, you're going to miss these acute pain points.

So one of the biggest challenges is how do you create a consultation system where the ministry and capital is talking to local authorities, talking to kind of mayors, talking to business associations that are spread all across the country and going, what would happen if we did this? Sort of what would be the consequences? Who would the winners and losers be in your local area? And what do we need to think about? What do we need to keep in mind? That's really, really important. I kind of go back to the example used right at the very start about the current debate that Nigeria is going through on importing food or not in the face of food inflation. And I think that's a really good winners and losers story, because whatever choice you make, you can sort of think through who the winners and losers are going to be.

So if you decide to open up your markets, the world price of rice and grain is published. You can have a look. You can examine how much of a hit that's going to be to farmers' incomes. There's no unknowns in that equation. So we can probably figure that out. Then you can decide, OK, if we let in more food, who are the farmers that are likely to be put out of business or significantly hurt, and what can we do to help them? Well, then on the flip side, if you decide not to let that food in, again, you've got statistics on how much does the average Nigerian spend on food? What is the current rate of inflation? Who in our society, if we keep these barriers up, is going to need help making ends meet and being able to afford to feed their family if we keep food prices where they are and we don't let food in? And how do we deploy the resources of the government to help them?

Tobi:

One of the things that I'm most fascinated about is countries that were previously poor a few decades ago, who are today global giant exporters of certain technologies or goods or commodities. So how would you advise a country that is trying to develop a globally competitive export sector in general? Because the consensus in development economics is that exports help your economy, exports help you grow, create jobs, your industries are upgraded, you're able to import technology and upgrade via all that. So how would you advise countries? What policies would you advise countries to focus on that are trying to build from scratch a globally competitive export sector, especially at the firm level? Because we tend to focus on countries, but it's actual firms that are making these goods and exporting these services, you know, and there are international regulations and standards to comply with. So how would you advise countries to do that?

Dmitry:

Really big question. And obviously every country has its own local challenges. But let me try to give you like a big-picture answer. And I respect your audience to know that I'm painting with a really broad brush. So the fundamental issue is you want to build a competitive export sector. Almost certainly that requires investment because unless you are—maybe if you're like growing saffron, you don't need that much investment. But almost anything else you're going to make, you're going to grow, you're going to export, requires capital and investment in order to do.

Capital looks at opportunities, but they're also really sensitive to risk. So, the question then becomes for governments, how do you send a de-risking signal to a potential investor? An investor is looking at your country, thinking about building a factory there. What are the risks that they're thinking about? Increasingly, factories are modular and can go pretty much anywhere. It's not like it used to be where you have to build them only in certain places. Theoretically, a factory can go almost anywhere. Then the question for that investor becomes, firstly, will that factory be able to consistently get what it needs to operate?

What do factories typically need? Well, you need workers who are capable of working at a modern factory. So that means your education system has to be producing good, talented workers. Second, it needs power. So the power grid needs to be reliable. Third, it needs predictability of your trading regime. So it needs to know that that factory will be able to import the parts and the components it needs from abroad reliably and be able to export reliably. Fourth, it needs to know that the infrastructure is there for it to be able to get its stuff in and out of the country. Fifth, it needs to know that your legal and regulatory regime is robust and predictable and that they won't run into legal challenges.

Now, that's really big picture. There are ways that individual governments have been phenomenally successful at ticking all of those boxes in microcosm ways. One concept that's really taking off all over the world is creating special economic zones. So you designate a part of your country, literally like a couple of square kilometres, and you say, this is going to be the special economic zone, and I'm going to focus on attracting investment and production here. And then inside that zone, you create better regulatory conditions. You create better tax conditions. You then deliberately build infrastructure to that zone because you know that's where the factories are going to be. So you can save on rather than trying to sort of do stuff everywhere, you just build like a really good railroad just to that zone.

When you think about the regulatory compliance challenges that a lot of businesses, especially in the developing world, are worried about, what they're actually worried about is the countries we want to sell to are going to increasingly create new regulations on how green stuff has to be, how carbon neutral stuff has to be, how slave labor-free it has to be, all of these kind of new standards and rules. The challenge for most developing countries isn't in meeting those regulations. It's in proving that you've met them because it's not enough to be carbon neutral. The customs official at the port of Rotterdam has to accept that you're carbon neutral.

And one thing that special economic zones allow you to do is that you then set up the trust to say a laboratory that tests your meat products for all of the things that your buyers are worried about, you set it up in one place. And because it's servicing the entire special economic zone with lots of businesses inside it, that makes commercial sense rather than trying to build one all around the country. So one way that you can think about this is by saying, OK, it's going to take too long to raise the entire country up to the level where it ticks all six of those boxes for potential investors. But we can start building individual areas that tick all of those boxes and use those to lift the rest of the country up.

Tobi:

I love the answer so much, especially the latter part. And speaking on regulatory standards and the like, a couple of years ago, and this was after years of debate, African countries finally signed up to what they call the Africa Free Continental Trade Agreement. I'm not sure if you're aware of that. So it has faced difficulties. So I would say it hasn't lived up to its promise. And part of the challenge is that it has been really difficult to scale up or harmonise the regulatory and the standardisation, that is, both legal and logistical and all the other things has been really, really challenging to replicate that across all the signatory countries.

But as we saw with Europe, that in itself can then become a challenge, you know, because you can have farmers in England angry that Brussels is making the rules, or people in France complaining that German goods are unfairly competitive because Germany suppresses industrial wages, or you have Greeks complaining that their tourism sectors cannot compete with Turkey because the euro is overvalued. So my point is, what are the benefits and risks of single market type of trade agreements, and how can you make best use of them, and how can you like, you know, slam on the brakes so that it doesn't break stuff domestically?

Dmitry:

So the dream of the AfCFTA is pooling all of the unique strengths of different African countries together to make a much more competitive whole. If you think about the strength of the US economy, one of the things that makes the US so economically powerful is that you can combine and build something across five different US states. And then you get lower wages because you're manufacturing it outside of Detroit, but you get to bring in capital from New York. You get to bring in design from California. You get to bring in raw materials from the Midwest. And you can do all of that because there are no internal borders to cross within the US. You just load up your trucks with the materials and you drive them across and it's all seamless. And then it goes to a port and leaves, right?

That's kind of the advantage. And that makes the US a lot more economically powerful than the 50 individual states would be on their own. And that's kind of the dream of the AFCFTA too, right? This idea that you'll be able to combine stuff that was made in Nairobi and then sent to Nigeria for further processing and then maybe shipped out of the infrastructure in the ports in South Africa, right? And at the moment, that is a huge, huge bureaucratic challenge. The WTO once screened a documentary where a television crew basically followed a truck driver driving a shipment of flowers from Central Africa-West and eventually to Europe and just photographed all of the paperwork that driver needed to cross each of the individual internal African borders. And it ended up almost being a second truck worth of paper because every single border required a different version of the form that he needed to carry. Because every country had its own export and import declaration, and every country had its own plant health declaration.

All of that makes it much, much harder to manufacture Africa-wide and build a competitive product. That's the advantage. Obviously, there's some benefits to local consumers as well, bringing down prices. The disadvantage is the inability to kind of compete with other African countries on your regulatory regime. Everything becomes a lot slower and more rigid because if you have to design a new regulation, but in order for it to come up, be real, you have to agree it with every other African country in the context of the AfCFTA, you can't be agile and dynamic anymore. Nigeria can't go, I am going to attract more investment than Uganda by having a looser regulatory regime around something. So you lose that ability to compete internally, which can be good and bad.

And as you say, it does tend to generate its own political antagonism, because what you were describing in what all politicians in Europe talk about is the fact that anything bad that happens is the fault of Brussels. Anything good that happens is them. So the system like that builds up its own opposition because it creates the incentive to blame all of the problems on the AfCFTA while claiming all of the good things that happen for yourself. And over time, that builds up resentment and political opposition to the project.

Tobi:

Recently, I was reading in the news something about the Director General of the WTO warning that we must not return to the protectionist policies of the past. I mean, the whole leadership of the WTO, in my opinion, can sometimes cut a hapless figure. Because here you are, sometimes it seems like the wheels are really falling off global trade, and you have the premier institution of global trade basically toothless to do anything about it. But again, when you then talk to countries or you hear politicians from individual countries speak, you turn around and blame the WTO, the inability to enforce certain rules, which then creates this unfairly competitive environment, you know, maybe some accusations that have been levied against China, for example, the China shock.

So my question to you would be, what are your suggestions on how to fix WTO, or do we need an entirely new framework for the governance of global trade?

Dmitry:

So my best advice is to think about what the WTO is set up to do versus what it's not set up to do. I think your diagnosis is 100% right. You're seeing a shift towards other priorities away from just liberalising trade. You see major players doing things like the European Carbon Border Adjustment Mechanism, the US's IRA, their big kind of investment, sort of, green energy transition bill that has a lot of subsidies. So you have all of these really, really big things that governments are doing. And expecting the WTO to stop them is crazy. If the European Parliament has just passed the biggest climate deal it's ever going to do, it's not going to reverse it just because someone in Geneva complains about it or because someone takes a dispute with the WTO. So the wrong way to think about the WTO is in preventing all of this. The WTO has to explain what are the dangers and what are the trade-offs, and that's important. But the WTO, I think, also has a really significant role to play in shaping the implementation.

So let me give you like a really concrete example. The way that the EU's carbon border adjustment mechanism is going to be implemented or is implemented is incredibly complicated and has lots of different potential kind of externalities that might be hurting, for example, African firms in a way that the EU never intended. The WTO is actually a really good place for African countries to come and say, hey, EU, the specific way you're doing the CBAM is hurting my companies in this specific way, and we have an idea for how you could fix it. Not by reversing CBAM, but by changing a little bit the way it works. It could be just something as simple as the verification requirements, the forms, the procedures.

And the WTO, because of the way it's set up, because there's procedures, there's committees, there's experts, there's a process to follow, is a fantastic place for us not to prevent deterioration of the trading order and other priorities being pursued, but to shape them in a positive way, to mitigate unintended consequences and kind of add some oil to the machinery of whatever the global trading system is turning into.

Tobi:

So my final question to you, Dmitry, is this, and again, this is a bit of a tradition on the podcast. What is the one idea, just one, that you would like to see spread everywhere, that you would like people to be excited about, that you would like to be more influential? Just one idea. It can be your idea. It can be borrowed. It can be from any source. What is that one idea?

Dmitry:

I think one of the coolest programs I have ever seen is working visas for young people. A lot of rich countries have this between themselves. And what they say is basically if you are under sometimes 35, sometimes 30, you can come over and work in our country for a year or two years. And it's not immigration. You come over, you work. And it is such an amazing way of bringing like the world together, bringing new cultures into other cultures. The people come back with incredible experiences. You know, they come back and they start businesses back home. They bring ideas. And it's so amazingly powerful for spreading ideas, spreading cultures, spreading conversations. It's like stimulating economies, but without brain draining poorer countries. One idea I would love to spread is just the idea of letting young people all over the world spend some time in a hassle-free kind of visa manner, working wherever they want to work, doing the jobs that they want to do, just so that we have a world where more people have experienced what it's really like to live in another culture, and more people have the experience of working with entrepreneurial, exciting young people from all over the world, rather than just their backyard. So that is one idea I would love to see spread, love to see take off. And I think it would genuinely make the world a more pleasant place to be alive in.

Tobi:

Yeah, yeah. And we will do our best to help you spread that idea. My guest today has been Dmitry Grozoubinski. You should check out his wonderful book, Why Politicians Lie About Trade and What to Do About It. I want to thank Dmitry for coming to the show. It's been fascinating talking to you.

Dmitry:

Thanks so much, Tobi.

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Manuel Hinds shared his experience reforming El Salvador's economy post-civil war, highlighting the importance of stabilising the fiscal situation, reducing tariffs, and privatising inefficient public companies to introduce competition. He emphasised the necessity of cutting the central bank's direct financing to the government to curb inflation. He suggested that investing in human capital and education is crucial for long-term economic growth. Hinds also discussed the need for practical and disciplined policy implementation, cautioning against reliance on populist promises and advocating for a pragmatic, reality-based approach to economic management.

Manuel Hinds has served as minister of the economy (in 1979) and of finance (in 1995-1999) in El Salvador, as division chief at the World Bank (in the 1980s and early 1990s), working with more than thirty countries, and as the Whitney H. Shepardson fellow at the Council on Foreign Relations in New York (in 2004-2005).

Transcript

Tobi:

Let me get a little background into your period during the reform in El Salvador. I know you spearheaded the reform of the economy, the currency regime, and a lot of things. What was the situation like when you came into the picture? What were the problems, and how did you approach it, especially on the political economy side, you know, getting the buy-in of the elites or entrenched interests who might be opposed to the reforms?

Manuel:

El Salvador, when I came into the picture, I came into the picture in two stages. First, I was working with the World Bank, and then I went back to El Salvador and started as a consultant to the board of directors of the Central Bank. It was just one meeting a week, and that was it. Later, I came in as the Minister of Finance.

The situation was this: El Salvador had been in a civil war. We are a small country, 6 million inhabitants, but the civil war was very bloody. We had 80,000 deaths and the country was, for 10 years, in this terrible division. But then, you know, the people became tired of the war and all the population made it clear that they wanted peace. And then with the help of several friendly countries and the United Nations, we had a peace accord in which there was no winner in the war; the winner was the people. We reformed the constitution and we had free elections. And then, the country started on the right foot, i’d say, because everybody in the different political parties were willing to go the extra mile so that things could be done very well.

In El Salvador, the period of the president is five years. I came in the second, after the peace accords. The peace accords were in 1992 and I came to the government in 1995, January 1995. El Salvador was very similar to many Latin American countries, and actually many African countries as well. We had a lot of protection. The protective tariffs went up to 100 and something. We had Central American common market, but that was a very small market still. And also we had a problem with the pensions. We were accumulating a lot of liabilities for the government without enough income. And also we had very ineffective public companies.

So when I came in, the president invited me to give him a presentation of what I thought we should do. And when I made the presentation, he said, "Well, I'm prepared to do this, but if you are the minister of finance." So he put me in a corner, you know, and then I said, OK, I'm going to do it.

And then we started with number one: we had to stabilise the country, which meant that we have to stabilise fiscally the country because we have been spending a lot, particularly, but not only, in the war, the war effort. So when I came in, I had the advantage that we could reduce substantially expenditures just by reducing the army. So the first one was we were up because the inflation at the time was something like 28%. It was between 20 and 30%. It had started to go down in the first period after the war. So when I came in, inflation was probably 20 to 25%.

Also we had very high import tariffs. We had the problem of the pensions. And also this was a time when the communications were starting to have a revolution. This was 1994. So you could already see that this new technological revolution was really connected with communications. And we still didn't have internet. We still didn't have good communications. So we had to do something about it. And also we had very expensive electricity. So I made proposals for each of these things.

In the case of inflation, the problem that we had was that the government had very high deficits and then the central bank would finance them. Because the inflation rate was high, then the interest rates were extremely high. The rates of interest were something on the order of 20 to 25 percent. Since the people didn't trust the currency, it was almost impossible to get mortgages from the banking system and long-term credit for investment. So the government had to spend a lot on subsidies and providing money so that the banks use that money to finance long-term.

When I came in, I was telling you that the inflation was coming down and two years after I was there, inflation was 2%. 2 or 3 percent. So inflation was not the problem, but the rate of interest remained very high, 20 percent. The problem was that people said, "Well, these people, they are not going to devalue the currency, but the next government may devalue the currency because this was what many people in Latin America were doing at the time." So I propose to dollarise, I propose to reduce the tariffs, the import tariffs, also the reform of the pensions, which rather than having a pay-as-you-go, we will have individual accounts and people will save for their own pension in an account under their name. And also the privatization of electricity and communications, the telephone company. But we propose to privatize under competition. You are very young, probably, you never lived in that time when electricity and communications were natural monopolies. And everybody said, "Well, it's impossible to have competition in these sectors because the investments are too high. And if everybody invests in telephone lines, then it will be a waste."

But we said, "No, we are going to introduce competition in the market" because already there were ways in which we could have competition, even with the landlines. But also the mobile telephones were coming. So we issued a law of competition in those sectors. And we privatized these companies in two or three companies, different companies. And also we opened for anybody who could get into these businesses. Mainly in communications, very fast, we had something like 40 different companies with cellular phones. We had this system in which company A could use the lines of company B paying at all. And we did the same with electricity. So this was a success.

Also, the pension funds were created and they started saving a lot and we reduced the protection. This was the most difficult of all the things, because the companies become used to being protected and they don't want international competition. So it became a political problem, really, and we were afraid that we wouldn't be able to pass the new law through the National Assembly. And then the president told me, maybe we are doing too many things. Let's choose three or four and we concentrate on that. And of course, the reduction of protection has to be one of them. We had to increase the value of the tax because we were going to reduce protection and we were going to reduce the income of the government and we were going to need some more revenues and then we increase…and that was also a difficult thing to pass.

Then we dropped dollarisation and all the other things we finished, what we had proposed. Then dollarisation was done by the next government. The country dollarized in 2001. I was no longer the Minister of Finance, but the new president called me just to do that. So I worked with the government just to do the dollarisation with the new government. Dollarisation is not the only way in which you can stabilise or reduce interest rates, but it's a very cheap way of doing it. And it has worked very well. Many people said, if you dollarise, in the first world crisis, you will go out. Because you won't be able to have a monetary policy to survive. And then, you know, in 2008, we had the world crisis. And then in 2020, we had COVID. And actually, El Salvador fared extremely well, better than all our neighbours, because the market controls the supply of money very efficiently.

In 2008, a Marxist government came on board, and they didn't like the dollar for obvious reasons. They asked the IMF to make an assessment of dollarisation. And the IMF made the assessment and they said, well, El Salvador has reduced a dead weight in the economy, which is the currency risk. If you eliminate the currency risk, you can win easily 1% of GDP. So it's a very cheap way of doing it and you reduce the working load on the government because El Salvador doesn't need to worry about the exchange rate or about inflation. It comes automatically, the market does it, so it's very good.

I remember I mentioned this in my plan, but this has not been done in El Salvador. Already in that time, 1994, the world was coming into the knowledge economy. It wasn’t really clear, but now it's crystal clear. The new economy in the world is organized around knowledge. And you can see that in everything. When I was talking about this in 1992, 93, 94, the world's most powerful companies were industrial companies. They have chimneys, they got tremendous industrial production, they produce cars or electric equipment and so on. The largest was General Motors, and they were very noisy companies. Now the largest companies in the world look like universities. It's Apple, for example. Microsoft. All these companies, they produce nothing but knowledge. That's the only thing that they produce, because Apple, they don't produce anything physical. They subcontract that. They outsource the production of the computers and other things. They only produce software, designs, and that's where the big value added is.

So like the industrial revolution, when you have a technological revolution that is very good for us the developing countries, because you can jump without having to go through all the things that you needed to be industrial. Of course it is not easy, you have to invest a lot, but rather than investing in many things, you have to invest in your own people.

When I grew up, people said to have education and health and housing is the social sectors. But before having the social problems we need to produce and we are going to produce this with companies, manufacturing cars and planes or whatever. And then when we become rich, then we are going to spend money on health, education, and housing, and really, now it’s the other way around. Because if you don't have educated people, you cannot grow. What are the countries or the regions that are growing faster in the world? Well, you have Silicon Valley. Silicon Valley, they have Stanford University right there. And also they have many other, San Jose State University, Berkeley, and so on and that feeds these companies with the inputs they need. And the input they need is people, good engineers, good scientists. If I could tell you one thing only, I can say invest in your own people. Invest in education, invest in health, because that will allow them to become more productive and then the country will become rich.

Tobi;

There's so much packed into your answer that I'll have to untangle them one by one, because I feel you are uniquely positioned to untangle some of the questions that I have. You’ve been a researcher, you've been a foreign expert with your work with the World Bank, you've been a senior cabinet member and reformer in your own country, El Salvador. So I would like to start with inflation, right? In my own observation, poor countries in the context of the macro economy stumble periodically and struggle with three crises, which for me are inflation, exchange rates, and debt.

To start with inflation, for example, in Nigeria, we also have double-digit inflation. It's 33% now, food inflation is 40%. It's causing a cost-of-living crisis in the country. And the government through the central bank is struggling to bring this under control, which we have been doing for the past eight, nine years, right? But what I want to ask you is that to the degree that you can generalise from your own direct experience and knowledge, what are the common causes of inflation in poor countries?

And I ask this because there is a lot of mischievous debates when you're trying to talk about inflation, particularly determining whether it is a monetary phenomenon or a non-monetary phenomenon. I feel like people who are addicted or amenable to government spending will tell you, "Oh, it's non-monetary and that Milton Friedman was wrong." And they paint the other side as neoliberal, orthodoxy, textbook economics. So I would like you to help me tease out what are the nuances in the inflation phenomenon in low-income countries.

Manuel;

Yes, well, we can go from the more general to the particular, maybe. Because the problem that you mentioned is the basis of underdevelopment and this is something that Africa shares with Latin America. Do you remember this guy called Sisyphus? Sisyphus was this guy who did something that the gods didn't like, and then they condemned him to push a boulder up a hill. And when he reached the top of the hill, the boulder would come down to the valley again, and then he had to go back and push it back up. And if you look in Latin America and also in Asia, from time to time, you had a good government who come here and stabilise the economy, stabilise the country, the interest rates go down and then you think now we are going in the real path of progress. And then suddenly there is a new populist that comes in and starts promising lots of things to the people. And then they borrow money to spend a lot in the government in things that are not really developmental. And then after a few years, the country is again in the same situation.

Tobi;

Precisely.

Manuel;

In Latin America, you could see the worst case, this happens all over Latin America. But the most dramatic case is Argentina. Argentina in the early 20th century was the seventh richest country in the world. They were very, very, very rich. Because of this thing that they started having high inflation because of populism. You know, people coming, the politicians come and they promise things and get elected, and then they waste the money, and then you start having problems of the problem that you have in Nigeria. Nigeria, compared with Argentina, is moderate. The inflation rate in Nigeria is 40[%], you told me. In Argentina today, it's 300[%].

Tobi;

Yeah. True.

Manuel;

And then because of these things, because of this continuous… this Sisyphus thing, they stabilise, then they destabilise and so on. Argentina now is number 66. Rather than being seventh, now it's the 66th. Because they have spent a century just trying to stabilise the economy.

I think that at the very end, if you analyse the problem, people have the governments they deserve. If they elect populist people, then you have destabilisation. You have there [in Nigeria] a problem of education, exactly like in Latin America, but it is a certain kind of education for that problem. The education is the self-assurance that you can do it without needing a miracle and then “we are going to work hard for one generation. The developed countries, they work for one generation or two generations and we are going to really build a new country.” And the other one is, “no, there is this guy who says he is going to solve all the problems and that this will make us rich.” You know that Latin America has 200 years of independence, 200 years. And in 200 years, we are back in the same position, relative position to Europe that we had in the early 19th century. And Argentina went from rich to poor and Latin America remained poor.

This is an education in common sense, okay? People have to come to the realization that miracles do not happen. That even when they tell you, “well, there is the Japanese miracle,” but that's because the Japanese had educated the population a lot before. And the same in Korea. So what we have to do is we have to invest in the people like Singapore. Singapore was much poorer than Nigeria. It was much poorer than El Salvador also. But they invested in education, in common sense, in saying, OK, we are going to work and then we will become rich. And we are not going to expect a miracle, because expecting miracles, you see what has happened. We are in the same position as 200 years ago.

The question is, why is [it] that countries create so much money? They create so much money because they want to spend, they want to go into very big fiscal deficits and to pay for them, they print money. - MH

So that's the first problem that you mentioned. And that is the basic problem, Tobi, I think that if you solve that one, then you will start seeing solutions for the other things. Because people themselves will find the solutions to the other problems. The other problem is, is inflation a monetary problem or is it a fiscal problem? I think it all depends on what is the angle that you are looking at. I think that inflation is definitely a monetary problem. The question is, why is [it] that countries create so much money? They create so much money because they want to spend, they want to go into very big fiscal deficits and to pay for them, they print money.

In El Salvador, many people believe that we reduce inflation because we dollarised. And that's not true. Inflation came down because we forbade the central bank to finance anybody. A new law for the central bank said the central bank cannot lend to the government ever. Period. And it cannot lend to the banks except in the case of financial crisis. Only in those circumstances. And then the inflation went down, the inflation went down from 20 something, almost 30 percent to 2 percent within three years or something like that (three or four years). But of course, you need the discipline to really not lend into the government. So I was the minister of finance and I could not borrow money from the central bank. So the only possibility I had to do that was to reduce the deficit and also borrow money abroad. And of course, when you borrow money abroad, you are subject to a certain discipline, you know, because you have to convince other people. When you want to finance the government just with the central bank, then the minister of finance just takes the phone and calls the president of the central bank and [says] sell me so much billion. But when you have to go to the international markets or to the World Bank, or to the African Development Bank, you have to justify why you need the money, how you are going to pay, and so on. That introduces discipline to the government. So I think it's very important to separate the monetary and the fiscal, so that you cannot use the authority of the government to force the central bank to give you money. And you can attain that in two ways. One is to have a strong law and applying the law. Or you just outsource the supply of money to the government of the United States, to the Federal Reserve, in the case of dollarisation. Or you could adopt the Euro. But the point is, cut that link. It's like a drug addict. The solution is not to give them drugs, period. That’s it!

Tobi;

That's so deep and apt because, again, with the Nigeria example, we had eight years of unrestricted monetary finance by the central bank, more or less just printing money and borrowing the government to the extent that the existing law, which places a cap on how much monetary financing can be done, was broken several times. Which leads me to my next question to you is that, so you can pass a law, but how does the subject of central bank independence and the politics of it play in here? Because laws can be broken if the political leadership is highly motivated to do so.

Manuel;

The thing is, I am 78 years old. I have worked as an economist for, I don't know, 50 years. And I can tell you, if there is one lesson, there is no perfect system. There is no automatic system. It's people. If you buy a car, and it could be maybe a Ford, you buy a Ford, which is not very expensive, a small Ford. And then you give maintenance to this car and you take care of it, you don't drive it in dangerous circumstances and so on. That car could last for decades. But you can buy a Rolls Royce, and if you go and you crash it ten times, you drive it on the beach and then you go into the ocean with it and the saline water comes in and so on. You will destroy the Rolls-Royce. And it is not because the Rolls-Royce is a bad car, it's because you are abusing the car. And that is what happens. You can have a good central bank and a good government in which you establish a rule, as we had in El Salvador. We had a law saying the government cannot lend money to the government. And we met that, you know. We met that condition. It would never again happen. We were one of the worst risks in Latin America, even if we never defaulted. El Salvador is one of the few developing countries which has never defaulted. But we had a very bad risk ranking. Five years after the war, we became investment-grade. So we could borrow at very low interest rates and so on because we were meeting the conditions we ourselves had established and people respected us. But now, 30 years later, inflation is very low because we are dollarised and the rates of interest for the private sector are very low. But for the government it's 16% because they have been borrowing like crazy in the international markets. And it is because the new government, it's the Sisyphus story, they found that the country had a very good possibility of borrowing money and they borrow and borrow and borrow and they are compromising the stability of the country.

So that's why we go full circle. If we vote into power a populist government which will spend money like crazy, then we will go back. There's no other way. So I think that what you do, for example, is a very good thing. You have your podcast, you are instructing the people so that they can learn. In Latin America, we have a literary style called magic realism. You are familiar with that or not?

Tobi;

Yes.

Manuel;

Yes, magic realism. And then we have been infected with magic realism in economics, which is that you think that you can float in the air, that you can levitate and so on. People have to understand you cannot levitate, you cannot borrow because you will have to pay for this money.

But now I don't know, Tobi, what is happening in the world, because look at the United States, uh?

Tobi;

Yeah, it’s crazy.

Manuel;

They are going down the drain. The same as Nigeria, the same as El Salvador. It's incredible. It's really incredible. I think that at some moment we have to hit rock bottom and say, no, no, no. We have to start over and start seriously and so on.

Tobi;

I hope so.

Let me talk to you a bit about exchange rates. Another thing that poorer countries or low-income countries or what we call developing countries struggle with is this exchange rate problem. In Nigeria, for example, the source, the main source of foreign exchange, which is oil, has collapsed due to incredible corruption, lack of productivity and investment in that sector, years of neglect. The law that was supposed to reform the governance of the sector was held in the parliamentary system for almost 20 years, and the version that got eventually passed was an inefficient one, evidently.

Now, poor countries run into this exchange rate crisis when they run out of dollars, basically, and what you hear is that, oh, you need to diversify your economy in order to bring in more dollars, you need to export more because then you start rationing, the system becomes corrupt, you introduce a peg, suddenly the black market in currency becomes thriving. What are the common sensical ways to manage currency risks? I would emphasise that besides dollarisation, I'm a big fan of the dollarisation idea, but it's just that, for example, in Nigeria, it will be almost like a non-starter. For example, we have a law, I know laws can be changed, but the constitution of Nigeria bans any other currency being used for transactions besides the Naira. Even though that is the law, but in reality, people do transactions in dollars and different currencies all the time because the local currency itself can be so volatile and unreliable as a store of value. So besides dollarisation, how can poor countries manage currency risks? Like in the mood of this conversation, what are the common sense insights that we are missing?

Manuel;

You can do what we did, because we dollarised after stabilising the country. When the inflation was already 2%, then we dollarised. One thing was not the consequence of the other. It was that we dollarised to reduce the interest rates, to reduce the risk. But then a new government came into power when the war was still going. And then with an economy in war, the central bank had done exactly the same things that you are talking [about]. They control the exchange rate. They had strict exchange controls. If you were an exporter, you had to deliver all the dollars to the central bank. If you were an importer, you needed a special license to import. Then there was this black market, and there was incredible corruption. Everything that you described to me, that was happening in El Salvador. So this government, the first thing they did was to say, "We are eliminating all the exchange rate controls." Flatly. That if you want dollars, buy dollars. If you want to take your dollars out of the country, take them out of the country. We are not going to intervene. This goes to the private sector. And then you know what happened? Before that, the money was leaving the country. Whenever you had an opportunity, you took the money out. When the government said, "You want to take it? Take it out." And then money started coming in.

Tobi, it is like I invite you to two parties. In one party, you go there and you can leave whenever you want. And in that one, you can bring your own whiskey. And in the other one, you can come in, but you cannot leave. Once you enter into the party, you cannot leave the party. Which of the two will you go to? If you tell the people you cannot take your money out, people will not bring their money in. We proved that in El Salvador. And there was a war, Tobi. So the problem of the scarcity of dollars stopped just by saying, "If you want to bring dollars, bring them. If you want to take them out, take them out." And then, in net terms, the dollars started coming in. Because people say, "If I'm going to invest, I will try, I will bring dollars. And if I want to take the money out, I can take the money out. And if I want to have interest rates paid abroad or whatever, I will be able to do that." So the first thing, I would liberate the market. And the second one is the other rule I gave you, because we reduce inflation without dollarisation. What we did was we forbade the central bank to lend money to the government. Period. And we complied with the law. That was it.

Because, for example, Argentina has done things like this, but they don't comply with the law. It's the same as not having a law. It is worse. It is actually worse because then you are destroying the rule of law. So it's very simple. For me, the political economy of development is very complex, it's very interesting. It has to do with education. It has to do with opening ways to the world but keeping the economy stable with the inflation rate low and without problems getting dollars is very simple. You don't need an economist for that. Anybody can do it. You call a driver and say, "The only thing that you are going to do is not allowing the central bank to lend money to the government." Period. And then if he does that, he could be a barber, he could be a dancer or whatever, and he will stabilise the country.

Tobi;

Still about reforms, and it goes back to your first answer, which is that as a policymaker, you have to make some very hard decisions, some tough decisions. Reform packages have to be sequenced and well coordinated. So how do you make the trade-offs if you are trying to stabilize a country and get it out of an economic crisis and facing all these problems like you did in El Salvador, a currency crisis, high interest rates, high inflation, high fiscal deficits. What are the quick wins, the first two, three things that you can do?

Manuel;

That's a good question because you say, what are the first ones? Because it's a process. What I would advise, go for the low-hanging fruit, the things that are easier to do. Because if you succeed in doing that, then people will trust you and then you will be able to do the more difficult ones. So in that sense, I think that the simplest thing, simplest, I'm not saying easiest, will be to stabilise the economy. Because it's a simple thing to do. But then look at what is happening in Argentina. You have to do it in a way that you don't destroy the country while stabilising the economy. Because if you just stop printing money or just reduce the fiscal deficit to zero and then it happens that you cut education expenses or you cut the money for the hospitals, as it is happening in Argentina, then you are killing yourself. You are taking a medicine that will kill you in the long run. So what you have to do, I think, is to structure a very good plan so that you can reduce printing money but you don't have to cut all the expenditures immediately. You can go down in expenditures choosing not the most important things. But also you mentioned corruption, there is a lot of money that goes with corruption. So give yourself time, let's say, two or three years to reduce the expenditures in a way that will not reduce the rate of growth of the GDP by reducing corruption, by improving the efficiency of government expenditures. I'm sure that you can probably cut your budget by 50% without really affecting the growth of the country because the resources are being wasted, because there is corruption, and these kinds of things. But you cannot do that in one go because you have to understand how the government is working and then you reduce the waste. So you need some financing during those two or three years and then borrow. Borrow abroad. Borrow abroad, not inside the country. Do not create currency. And then you are going to get money to do that if you present a very good plan. If you show that you have done your homework and then you have calculated how you are going to reduce the expenditures and so on, then you can do it. And I think that is the first thing. Also, you can easily liberalise the exchange rate and the foreign exchange markets. You say, "Well, the central bank is not going to intervene." The price of the currency will be set by the market and you can take the money out if you want. Do it. The currency will not go out. It will come in. You will see.

Tobi;

You talked about having a good plan and one that reflects having done your homework. Which then brings me to my next question. Earlier, you talked about investing in people and human capital generally. And sometimes I do wonder about the human capital in government itself, even at the most senior level. So I would ask you, what are the qualities, intellectual and psychological qualities, that make a good policymaker?

Manuel;

You know, I could bet, Tobi, that you have good people in Nigeria.

Tobi;

Of course.

Manuel;

The thing is how you are going to identify them and get them. But I agree with you that it is fundamental to bring the best people to work in the government, best people in terms of education, in terms of common sense, and in terms of being honest, not corrupt. I'm sure, because for all the waste and for everything that happens, I'm sure that you have very good engineers, oil engineers. You have very good... it's a big country. You must have good people and then bring those people to the government because you don't need to change everybody. You have to change the key people, the people who are going to manage the government, the big policies and so on. And then they will introduce discipline in their own ministries and state-owned companies and so on. You don’t have to change everybody. I'm sure there are many people there who are very good engineers, but they are not producing because the bosses are corrupt or something like that. People have to understand that you cannot arrange all this in one go. The important thing is to start growing consistently, like Singapore.

Tobi;

There's so much I would have loved to talk to you [about], but maybe sometimes we'll find some time particularly on sovereignty and globalisation and your excellent book with Benn Steil. But before I let you go, a couple of quickfire questions. Economics, the field of economics, is getting a bad rap everywhere these days. What has your own experience as an economist, especially in areas of policymaking and the influence of economics on policy generally, what has your own experience been? What are the good and the bad of the influence of economics and policy? And also relatedly, did your earlier education and career as an industrial engineer make you a better economist in any way?

Manuel;

Yes, well, of course, economic theory is very important. It's basic. But the most important thing is to be pragmatic. I am an economist and I am an industrial engineer. Engineering puts you in close touch with reality. If you are going to be a good economist, I think in one way or another, it could be engineering, it could be some other thing, but you have to keep yourself close to reality. That's number one. And number two, never believe that you know everything. Because, for example, I worked with the Soviet Union. I remember many people from the West were coming to the Soviet Union to give advice. And before they left Washington, they knew what they were going to tell the Russians, before knowing Russia. I always found that absurd. You have to approach your work with humility, you know, because normally, what I have found is people themselves give you the solutions. If you know how to ask questions, if you explain these things, if you work with them, then you will find solutions that are workable. You don't want to have economists that come here from any other country to apply the solutions they have applied over there, just like that. Because every government, every country has a difference. You have your own nature, the way things work. And then there are things that you do better than your neighbours also. So if you really know a country, you can produce much better solutions.

Tobi;

Final question. And again, this is a bit of a tradition on the podcast. What's the one idea that you would like to see spread everywhere? It may be your idea. It may be from someone else. It may be from something you've read. But what is that one idea that you would like to see spread everywhere, have a lot of influence, and get people excited?

Manuel;

The best thing that you can do is invest in your own people. Invest in their education, their health, because human capital is not the product of growth. Growth is the product of human capital. The thing that you have to do is educate your people.

Tobi;

Thank you very much, Manuel.

Manuel;

It's been a pleasure.

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Tiago Santos joins Tobi on this episode of the podcast to discuss Parliamentarianism. Tiago believes that if African countries had adopted parliamentary systems during their democratization wave, they would have likely seen better development outcomes, citing the success of Botswana and the economic growth seen in parliamentary countries. He also highlights four main flaws in presidential systems according to political scientist Juan Linz: lack of clarity in authority, rigidity, winner-takes-all nature, and personalism. These issues often lead to ineffective governance, coups, and excessive polarization, which hinder development and political stability. Tiago further argues that better governance structures, like those provided by parliamentary systems, are crucial for economic development. He emphasizes that parliamentary systems lead to greater political stability and more inclusive decision-making, essential for fostering long-term growth and escaping the "Malthusian Trap."

Tiago Ribeiro dos Santos has been a Brazilian career diplomat since 2007. He has a law degree from Pontifícia Universidade Católica in Rio de Janeiro, a professional degree from Instituto Rio Branco (Brazil’s national diplomatic academy), and a master’s degree from the University of Chicago Harris School of Public Policy. He is the author of the excellent bookWhy Not Parliamentarianism.

None of the opinions in the interview reflect the views of any institution he has been associated with - and you can find the full transcript of the conversation below.

Transcript

Tobi;

You're, I would say, a strong advocate of parliamentarianism. I wouldn't call myself a strong advocate, but I'm fairly biased towards your point of view and became even more convinced when I read your book. Particularly in Africa, a couple of countries went through long periods of military dictatorship. And around 20, 25 years ago, there came another wave of widespread democratisation on the continent. What happened was, maybe due to the influence of American foreign policy or some other global forces, a lot of these countries opted for the American-style presidential system. And in my own observation, maybe I'm wrong empirically, a lot of these countries, my country, Nigeria included, struggled with the workings of this presidential system, such that there had been constant agitation for a kind of return to the parliamentary system that Nigeria had immediately after independence. My question to you then is that, are you willing to say or assert that perhaps if a bunch of these countries around 20, 25 years ago had opted for parliamentary system, would they have done better development-wise?

Tiago;

I don't think anybody can say for sure, but I'm convinced that they would probably, very likely, had done better. With respect to Africa, I think, yes, there is a strong influence from the American model because it's obviously a very successful country. So it's very easy to model after them. But I think that there is something else also in the choice of presidentialism by African countries. I've read a paper by James Robinson and Ragnar Torvik that argues that there is a tendency for endogenous presidentialism, which is that exactly because in presidentialism the leader has more chances to exert their powers without much resistance. So back in the 60s, a bunch of countries in Africa, I think most of them, had a parliamentary constitution, not only Nigeria, but many other countries had a parliamentary constitution and basically all of them switched to presidentialism at some point. If you look at Botswana, the economic performance that they had since the 1960s is very impressive. I wish Brazil had the rate of growth that Botswana has been experiencing consistently. So looking at the countries in Africa that have adopted parliamentary constitution, I think that it would be the case, yes, that had these countries adopted a parliamentary constitution back when they democratised again, they would probably have done better.

Tobi;

I mean, Nigeria is so loud. that the word restructuring, which is a shorthand for reconstituting the political system, is so common in political parlance and, you know, we kept shouting restructuring, restructuring, and it never really comes to pass.

But given the ubiquity and the allure of presidentialism, at what point, particularly historically, did you become convinced enough to write this book about the superiority of parliamentary systems?

Tiago;

It wasn't something that particularly interested me during the first 40 years of my life, before writing the book. So I wrote a book on the economic effects of the Brazilian Constitution. So the idea was to make this research and check every article of the Constitution, what economic effects we could expect to have in Brazil with my then boss, Otaviano Canuto, in the Brazilian constituency in the Board of Directors of the World Bank. And one of the things that I started researching on was exactly the difference between presidentialism and parliamentarianism. And I started to find some striking results. This was too big to go into the article, so we don't mention it in the article that we published. We mentioned other aspects of the Brazilian constitution, but then I couldn't stop researching this. And I was always also checking myself, trying to push my good economist friends. I was trying to also get comments from many people that have thought about this problem very well and to check that I wasn't thinking something that was completely out of base. And I was increasingly convinced because of the feedback that I got, the continuation of my research, it was then when I combined all the elements that I think are in favour of parliamentarianism that if we just look at countries that are parliamentary or countries that are presidential, you see that parliamentary countries perform better in just about any indicator.

If you look at the history, if you look at the informal theory, if you look at formal theory from economics, if you look at the evidence that people try to do with studies that are not just correlational, but that introduced good statistical controls for things, If you look at complementary evidence from companies - so companies can adopt a parliamentary model, which is having a board of directors and this board of directors can control the CEO. And no company elects a CEO by the shareholders directly. And this CEO will have a checks and balances relationship with the board of directors. This figure doesn't exist. And I think the market is in a very good position to choose the best arrangement. And finally, the council management system in the U.S. that I learned when I was doing this research is a system that is very similar to parliamentarianism. And cities that adopt the council management system perform much better than cities that adopt a strong mayor system, which is similar to the presidential system.

Tobi;

So what are the key flaws that you mention in the book? Perhaps there's more now since you wrote the book. What are the key flaws in presidentialism that you think a parliamentary system addresses effectively?

Tiago;

We were discussing before you started recording. I don't try to be original in my book. I try only to convey the knowledge that's already there. And in this, the most influential thinker is by far Juan Linz, a political scientist. And I think that he has the best frame for this. And he talks about four main flaws in presidentialism that parliamentarians doesn't suffer from. So these flaws are in presidential countries, you don't have a clarity of where the authority lies. So what happens in the end is if you like the policy that Congress is trying to push, then you will stand on the side of Congress and if you like the policy that the president is trying to push, then you will stand on the side of the president. And there will be lots of undermining of initiatives by both the Congress and the president. They won't agree on many things and it will be difficult to have a coherent proposal. Daniel Diermeier has an article on this, on how parliamentary systems are more cohesive.

So the second thing I think is a big problem, also from Juan Linz, is the rigidity. So if a country is presidential and the president is working badly, there's nothing we can do. We just have to wait for the mandate to end. And if this is bad enough, if some sectors of society perceive this to be bad enough, you have often coups that derive from a perception that there's no way that the president can stay in place. And then a majority of the powerful actors in a society will install a coup. So that's why the prominence to coups in presidentialism is so much greater than in parliamentarianism.

Then you have a winner-take-all situation. So if you win the presidency, you have so much power that you will be able to implement so many things and you have almost complete control over so much of government. Whereas if you are the losing side of a presidential election, then you are out of government completely. So there's too much at stake. And this incentivises the kind of polarisation that we see in many presidential countries, a type of politics that is very visceral, that is very combative. That's not the kind of politics that we would hope for. And lastly, it's personalism. The presidential system focuses way too much on the figure of one person instead of different institutions in society, different sectors and different voices. And it's often the case that in many presidential countries, people don't love the candidate that they see. They would never support that candidate if not for the reason that they hate the other candidate that will have so much power. And then they try to minimize the flaws that they would never accept in a normal situation on the candidate they support. And this leads to a race to the bottom sometimes. So the personalism is a disastrous characteristic of presidentialism, too. So I think the Linz framework is still the best description.

Tobi;

Yeah. Two common pushbacks that I get when I try to discuss parliamentarian systems whether amongst friends and other people so i want you to help me respond to them is that first is the issue of capture of the political system. So most presidential system have what we call term limits. In Nigeria, in the U.S., and some other places, you say, oh, a president can only serve two fixed terms concurrently. And after that, it becomes unconstitutional. Even though some countries, their president have successfully overturned constitutional time limits to become de facto dictators. But, I mean, let's leave those aside. Whereas in parliamentary system, it's possible to have the same party, the same ruling coalition in government sometimes for decades, right? So what is the nuance between something like presidential term limits in the presidential system and the prospect of having the same, basically, the same government in power for decades? How do those two systems compare in that regard?

And the second pushback I get is stability. The recent case that comes to mind is the Netherlands, for example. They had an election recently where a controversial candidate and party basically won the election. But at the end of the day, it became impossible to form a government, which is what you don't get in a presidential system. The system is such that there is the emergence of a clear winner who then forms a government and then proceeds to govern. Whereas in some parliamentary systems, in some cases, you can have this persistent chaos for a while, like in the UK now where they've had at least three prime ministers in about six years. So those two push back, how do you respond?

Tiago;

With respect to the first, I think there's a strong consensus in political science that term limits actually are a negative quality for an institutional system, because if you recall in the book, I discuss a model by Persson and Tabellini, two economists that studied this question. And they are the only model that I know of. For the only model that thinks that presidentialism is superior to parliamentarianism, one of the most important characteristics is that there are no term limits. Because the idea is that if there are term limits, then a president will try to grab everything that he can before he loses power. Or try to stay in power forever by demolishing the democracy completely. Because he knows that he will never get a chance to be in power once again.

Whereas in the parliamentary system, there is no ending to what he can do. He can stay in Congress, in Parliament, for as long as the people want him there or her there. So what I would say is that even though there are some countries where you see that happening, that some parties stay in power for decades, they are pretty rare. It's not a very common situation in parliamentarianism. And one thing that I stress in the book is that you cannot expect there to be a guarantee that it will be better, you just have to have an expectation that it will be better. So you have Japan, you have Botswana, they are countries that have parties that stay in power for long. You see that even though these parties stayed in power for long, there was not that much repression of the opposition. And in many cases, at some point, the opposition did win an election.

Whereas in presidentialism, you also have cases where parties have remained in power for very long, like in Mexico. So this particular problem that you point to, I don't think presidentialism solves. And the other thing is that sometimes for the opposition to gain power, they subvert completely the regime. They change the constitution. They get into power by force. So even though there was a change in power, it wasn't a desirable one. So for that, I think one of the advantages of parliamentarianism is exactly that it doesn't need to have term limits because any presidential country will have term limits, at least on the president. Because if you do not have term limits on the president, the chances that they will stay in power, be reelected indefinitely, and thereby destroying the democracy are very high.

So since it was invented, presidentialism, you have that problem. With respect to stability, I think that we need to look to what kind of stability that we want. So I think that presidentialism has an illusory stability often. Because you have the very clear legal mandate for the president and the president has a very clear legal mandate to name whoever he wants to government. And of course, one person will always be able to name a cabinet. You have the illusion that there is a functioning government. But this functioning government will be very often completely disconnected from the true forces of society that want to move in a different direction. Whereas in parliamentary governments when there is disconnect, when there is this fight, it becomes apparent and sometimes you have shuffling of cabinets, very frequent. Sometimes they are not frequent at all. You can have Angela Merkel in Germany that stayed in power for some 20 years, and then she left like nothing happened. It was a very smooth transition. And so parliamentary has this flexibility. If something is working, then they stay in power for very long. If something is not working, they don't stay in power.

And you mentioned the Netherlands. I don't know about the Dutch situation right now, but I recall that Belgium also was without a government for a while. And when we say without a government, we really mean without a cabinet. It's not that there is no government in Belgium. They're still doing all the things. There's still police, there's still courts, there's still schools. So I think that if there is not enough consensus in a society, then not having a cabinet pushing for policies might be a good thing. And if you look at the Netherlands right now, I don't think it's chaos, right? I think it works very well, as Belgium did, still worked very well, even when it didn't have a cabinet. If you look at the Netherlands is one of the most successful societies in history and is still one of the most successful societies right now. So I would never describe their situation as chaos. So what I would say is that, well, if we have to deal with situations where there's no cabinets, then fine. I'm not as bothered by that as I am by a lack of basic sanitation or a lack of economic growth or a lack of health services or a lack of safety in streets, that sort of thing, which presidential countries have much less than the Netherlands.

Tobi;

I would like to stretch that point a little bit. So perhaps it's a good thing that the Netherlands has a parliamentary system and that they are in their current equilibrium because the party that won the election and the individual vying to be prime minister is controversial, is internationally disliked and has some positions that are quite disagreeable. But it's also easy to imagine the opposite. where his party his platform his ideas and his policies might actually turn out to be excellent for the country and for the region and perhaps influential enough for the world but here you are in a system that prevents that person from getting to power. So i'm trying to gauge how earlier, many three systems respond to the good leader, bad leader argument because some would say one of the strengths of the presidential system is if you're lucky enough to get a good leader, he or she can then use all that power, all that legitimacy to then drive transformation and growth and all the good things to the maximum and transform the country within a few years.

What's your response to that?

Tiago;

First of all, I don't think countries have been lucky enough that we would still bet on that. If we look at the history of presidential systems, the evidence shows very clearly that this hope for a very good leader, it's like playing the lotto, I think. The chances are very small. And I think that even if you had a person that had all the vision and the capacity to implement very good policies, if he doesn't command enough support in his society, there will be sabotaging, there will be opposition, there will be people that have capacity to interfere with society, trying to undermine his efforts. Even with this great leader, you wouldn't have the great outcomes that one would expect. So I think the crucial thing, and I think it's central to democracy, is exactly that there is a wide consensus. The thing is that presidential elections do not create wide consensus. They create two rival candidates, two rival sides, and then at the end of the day, one of them wins. And this goes to late[r] part [of the book], which stressed the importance of consensus, the capacity to take into consideration the interests of different sectors of society at once. So this is why I still like parliamentarianism better.

Tobi;

So for the benefits of people that haven't read the book, I'll go through perhaps a few more questions that you should explicate on before I go into what actually interests me, which is how you then relate your argument on parliamentary systems to development or economic development more broadly. So one thing I also want you to clear up is you talked about corporate governance and how they are better under parliamentary system. Can you elaborate on that a bit?

Tiago;

So corporate governance, we usually think of governments and companies as completely different walks of life, completely different situations. But in fact, they are not. So governance is not a word that came about by chance. It does come from the same principles. And when you look at how boards make decisions, they use something called parliamentary procedure. They use some books like Robert's Rules of Order, which is taken by, I think it was a colonel, it was someone in the military that was very frustrated by how meetings were being used and then he used exactly the sort of decision that was being taken in the United States Congress to take these decisions. And we see, I forgot the name of the author right now, but this book, Shareholder Democracies, he explains how the modern public company takes a lot of how it's governed from the evolution of government, particularly because there was a time that the modern company was started in England.

And there was a time when you would need to have authorisation by the government to create one of them. And then the board members would be often people from government as well. So there was this very intense relationship and this very intense exchange of methods of approaches to problems. And then they had tried many things, many approaches, boards with lots of members, boards with very few members and all sorts of ideas until they ended up with the model that is replicated in basically every public company that we have now, which is the shareholders elect a board of directors, the number may vary, and this board will choose the management of the company, particularly the CEO, which will be kind of like the prime minister, but maybe different from the UK, because in the UK, the prime minister must be from parliament. But in the Netherlands, for example, it doesn't have to. But the board elects the CEO and then they can fire the CEO at any time as well. So this is something that allows for a much more efficient handling of the affairs of the company than the situation where you would have the shareholders elect the CEO themselves. I wrote to one of these authors about this parallel, and he thought it was perfectly applicable… “And yes, yes, I completely understand what you're saying about the presidentialism.” He couldn't think that it had ever been tried by any company, the exact presidential system. One thing that was tried is the shareholders choosing some people in management already. And this didn't work. So I think that this is very strong evidence for that because markets, they have the greatest incentive to perfect their governance systems.

Tobi;

What is the attenuation bias and how does this bias feed into our common understanding of presidential and parliamentary systems?

Tiago;

So attenuation bias is something that I put in there because when I was discussing this during the process of writing the book, I got a lot of pushback by people. And recently I also had one pushback by people saying, well, but it's hard to classify countries in presidential or parliamentary forms because there are many types of intermediate situations. So you have semi-presidential countries in Africa. We have lots of semi-presidential countries where the president has power, but the prime minister does have power too. So there is this combination where not everyone agrees about which countries should be considered parliamentary or presidential. And also many other political scientists first need to decide if a country is a democracy or not and then classify it as presidential or parliamentary, because they say if it's not a democracy, then it doesn't matter what the Constitution says. The dictatorship can do anything it wants. The Constitution doesn't have any bite.

I disagree with that view. I think that constitutions matter even in situations where you don't have a full democracy. But in any case, people would be saying that this would make the results in terms of stability, political stability, in terms of economic growth, less strong. And then I argue the exact opposite, which is the attenuation bias is the mathematical fact that when you have noise in the explanatory variable, the effect that you see will be smaller than the real effect. Whereas if you have noise in the explained variable, the dependent variable, there's less precision, but the size of the effect is in expectation the same as the real effect. So what I argue is that, yes, there are debates about what countries are parliamentary, what countries are presidential. And if this is hard to classify, then we should expect the effects to be even larger. Many people criticize academics and scholars that raise the issue of attenuation bias because people often raise the issue of attenuation bias even before they convincingly demonstrate that there is a relationship in the first place. But I think that at the point where I make the point about attenuation bias in the page that I make that, I think that I was able to demonstrate that the relationship does exist. So if it does exist and we do have difficulty classifying countries in parliamentary or presidential, then we should have attenuation bias and we should expect the effects to be even larger.

Tobi;

I would say how your research, your writing, your argument does relate to economic development, or maybe development for shorthand, is what I found most interesting in your book and most relevant to my passion. Because I don't know if you caught this yesterday, Jishnu Das, I don't know if I'm saying that correctly, wrote an essay titled, let me quickly check, "Did Development Economics Lose Its Moral Compass?" Yeah, you're not making similar arguments, but how I see them connected is the fact that development, the field or the development industry has more or less given up on governance. And now everybody is obsessed with whatever tiny interventions you can make that get people from $1.90 to $2.90, and then we can sing hallelujah that we've ended poverty. Whereas I, and I imagine yourself and some other people that we both admire, like Lant Pritchett, are interested in changes that we can make in Nigeria, in Chad, in Ethiopia, that can get those countries to middle-income status and possibly greater than that. So how do you see the relationship between economic development and the system of governance or the political system generally? How does this tie in your head when you were writing the book?

Tiago;

Okay, so I think that in theory, we should expect this to happen. When we look at the institutional school of economics, they say that the central aspect for growth is institutions. So you go back to Douglas North, you go to Acemoglu and Roderick and those people, and Douglas North in particular. Not all institutionalism put the emphasis that North puts on parliament and he puts because he sees that as protecting property rights, specifically. And I think he goes for too narrow an approach. But if you look at the consensus that there is around institutions being central to economic development, and the consensus that there is in political science that parliamentarism is central for political stability, and if you just connect the dots and say, well, political stability must be important for institutions to work well, right? If you just connect these dots and think that also, if institutions are key and a country doesn't even have political stability, will it have capacity, which is something that Pritchett talks about too, about state capacity for many other things. So if it isn't even able to have stability, will it have the capacity for development to be promoted? And I think not.

And then, going back to Pritchett once again, one thing that I talk about in the book is the Pritchett test. I learned this from Paul Romer in a blog post. He mentions that urbanization passes the Pritchett test. And this is a series of requirements that don't seem to be very stringent, but that Pritchett proposes that any policy that you say will have development should pass this test. And this was relating to the frustration that you were talking about that you have and that I share. And I think that he is the person that talks about this best, which is we are promoting very modest, very unambitious proposals that we don't think would possibly have an effect. And then the test is this. In a cross-sectional comparison of levels, do countries that are more developed have more X? And this is easy. I showed this in the beginning of the book, that parliamentarism does have many more developed countries than presidentialism. There are much fewer presidential countries that are rich or developing in any way.

And then he goes in a cross-sectional comparison of growth rates. Do countries that have rapid growth also tend to experience a rapid increase in standards of living? And I present evidence that we do have that. In my blog, I have a post on how parliamentarism passes the Pritchett test. When we look at the few countries for which we have long historical records, do the ones that become much more developed also acquire much more access? And then we see, this is very interesting, that it's exactly in the two countries that first parliamentarize in Europe that we see the end of the Malthusian Trap, the escape from the Malthusian Trap. So it's the Netherlands and the UK, in England. And then this parliamentarianism spreads around Europe and then Europe itself becomes much richer. A very parliamentary tradition establishes in the U.S., so we tend to think of the U.S. as much less parliamentary than it really is. And you have Canada, you have Australia, you have New Zealand, they are countries that for more than 200 years have had this sort of constitution and also have done very well.

And lastly, if we look for countries that switch from a regime of slow economic development to a regime of rapid development, we see a prior shift. So this is for us to think of this just conceptually. And then we have some studies that show a very strong connection of growth and parliamentarianism. So we have Gehring and other authors from 2009 that shows stronger growth in parliamentarianism. And we have one specific study by Richard McManus and Ozkan from 2019 that shows much stronger growth in parliamentary countries from 0.6 to 1.2 percentage points per year, which is huge. And it would explain a country being developed. If a country did grow 1.2 percentage points per year in its per capita GDP, it would become developed over time, of course, but it would be enough. So that's why I think that the connection between parliamentarianism and development is very strong.

Tobi;

I guess what I'm trying to get a sense of from you, you're a career diplomat, you've been in some of the rooms where some of these decisions are made, what has become so broken about development in general that we've stopped being ambitious in the sense that trying to change your political system can actually get you more benefits development-wise than whatever tiny little cash transfer you're doing in whatever village in Kenya or Nigeria or… how did development become so unambitious?

Because one of the points you touched on in the book is this fallacy of having tried everything, you know, and, oh, so this is what we have… because the state of particularly development economics for me, the state of things are so terrible in my view. The so-called evidence landscape has become so broad that you can find evidence for anything. For example, if I'm the president or the chairman of a local government in Nigeria and I choose to not fix the road, for example, or choose not to build a power station, I would rather take a fraction of that money and do a cash transfer program. I will find evidence and possibly researchers that will tell me that that is a good thing. So how did development become unambitious from your vantage point?

Tiago;

I think that's hard. That's something that I will speak with, but without as much conviction as the other things that I'm saying here. But I think there are some different processes going on. One is the idea that there have been some, we haven't tried everything, but we have tried some things. And these things, these specific things that we've tried, the big push theory and some other things like that, did not work out as expected. And then there was this too quick giving up on trying other things. I think there is a fear of being perceived as a failure on part of policymakers, so they would rather be unambitious than being perceived as a failure. And I think that has been married to an academic predilection for precision. So academics are more preoccupied by doing the randomised trial and getting the precise estimate of the effect of something. And then they only care about it being significant in the statistical sense and not on the practical sense. “Oh, this is statistically significant. It makes a difference. Then let's do this.” So I think that these two tendencies have worked.

And lastly, one thing that hopefully I'm not being too centered in parliamentarianism, I think that the fact that we have forgotten key benefits of parliamentarianism has made us look basically anywhere else instead of here and this has consequences because I think that a society that does not have the correct, the best institutions for it to develop will have a very hard time and then any policy that is tried will be perceived as a failure because they don't have the conditions that allow the society to really develop.

Tobi;

I don't want to dump all my frustration about development on you. So let me move on from that.

So practically speaking, now, suppose you get a few elites, leaders in your country that are ambitious and courageous enough to want to make a change from a dysfunctional presidential system to the parliamentary one. What are the useful key elements steps that can be started without tearing their political system apart? Because a lot of the fear also comes from not causing too much political turmoil or alienate an influential group that can then go ahead and form chaos in society. So what are the useful first steps you can take towards parliamentary governance?

Tiago;

So I talk a little about in the book what one can do. And as I said on the last part, these are things that I'm not as sure as I am that parliamentarianism is better. On the how we implement it, I have much more doubts, but I still have some suggestions. And I think that we should try to make the proposal of parliamentarianism similar to the proposal for democracy. Because when you ask for more democracy in a country, it's very rare that anybody will push back. “Oh, this will rock the boat here. Our country doesn't have a strong tradition of democracy, so we should just keep without tradition.” These are not arguments that are accepted by someone that's promoting democracy. They say, “no, no, this is a better situation because this will be able to really convey it the will of the people, so it's not a matter of tradition or not.” So what I would do is try to make this conversation within academic circles, with journalists, with policy makers, and that type of person, because I think the things that do get implemented, they are downstream from these people. I don't know if you read the Stefan Dercon book, Gambling on Development?

Tobi;

Yes, he was also a guest.

Tiago;

He was a guest too?

Tobi;

Yeah.

Tiago;

Oh, that's great. I’m in very good company. So he talks about the importance of an elite bargain for a country to find development. In this sense, I would mention the book to convey the importance of trying to convey this through the elite. I don't think it's as disruptive as we make it to be, because if you think about it, think the issue with presidentialism, the winner-take-all. In the winner-take-all, it means that for a presidential candidate that loses the election, it might very well be the case that losing the election has more negative consequences for them than actually switching to the parliamentary system. So he will expect to have a better participation in the political system of his country if they switch than if he loses the election. And I think this is very true. And I see politicians in many countries are favorable to parliamentarianism. In my country, I see that the politicians are the easiest class to convince. I think that because they live it, they know how dysfunctional presidentialism is, and because they perceive that they would themselves benefit. So they are the easiest class. I think that the journalists and the academics in many of these countries are much harder to convince.

In Brazil, it's definitely the case that this happens. So even though there is this strong consensus regarding the superiority of parliamentarianism in political science in the US and in Europe. In Brazil, we don't see anything like that. The political scientists in Brazil are very skeptical of Linz and other authors and there's specifically a Brazilian scholar that's very influential that tries to undermine Linz's arguments. I think that he doesn't do it satisfactorily. But this is how I would do it. And then, I don't know, I think that we should try to do the things that we do for other causes that we see. So climate change, what do people do for climate change when they try to fight climate change? They create think tanks, they create campaigns online, that sort of thing. That's what I miss.

Tobi;

So, I mean, if you look at the world today, especially the trend in global politics with the rise of populism, nationalism, trade wars, the state of global governance generally at institutions like the UN and the prospects of cooperation between the EU, the US, China, Russia, and what is called multi-polarity generally, do you think that parliamentary systems put global diplomacy on a better, steady footing?

Tiago;

I definitely do, yes. And this makes me sound like, oh, I think it's a panacea. It's a problem solver for all things. And anticipating that, I would argue that it's actually presidentialism, personalism is really bad. And when something is really bad, it can harm you in every area of your life. So parliamentarianism solves the problems that presidentialism causes. And with respect to diplomacy, we see that the democratic peace theory is one of the most, I think, the single most established empirical fact in international relations, that democracies don't fight each other. And there are some attempts at trying to make this look not as solid as it is, but it's widely perceived as the most important empirical fact in international relations. And if we think that parliamentarism is so central for democracy, for the democracy level, for democracy duration, then I think that it becomes very clear that parliamentarism will have this effect.

And I think of a book written by Chris Blattman, a professor at UChicago [University of Chicago], Why We Fight. And then he explains the few reasons why countries will fight, because he argues very convincingly that conflict is much rarer than we try to make it to be because the news cycle is so prone to publishing on conflict. But conflict is rare. And then there are several failures that are related to countries fighting. And many of them relate to a country being presidential. So one of the failures is that the government does not reflect enough the will of the people. So the utility function, more or less, the interests that the government is taking into account is not the interests of the population as a whole. So it may make sense for the government to fight a war, even though it will be disastrous for it’s own people. And parliamentarianism is supposed to better convey the interests of the people of a country into government much better than presidentialism does. So this is just one example. And just a better functioning government also will help in diplomacy.

Tobi;

I'm curious, as a way of steel manning your argument, what is the one critique of parliamentary systems that you find persuasive?

Tiago;

Many people ask me that. I have a hard time thinking of something. So the one thing I really think is that it's very counterintuitive. It's something that people just have a very hard time accepting that might be true. People would like to have a good leader and they would like presidentialism to work. So it's very unpopular. It's very hard to convince people that this is indeed the case. I think that it's a lot like, I don't know, like markets in general. I think that people are suspicious of markets in general when they shouldn't be. And I think that parliamentarianism has this flaw. But on a performance level, I really can't think of anything. I know this makes me look like more of a radical than not. But I've looked for it and I couldn't find it.

Tobi;

Final question. This is also a bit of a tradition on the podcast. By the way, you're not allowed to say parliamentarianism. What's the one idea that you would like to see spread everywhere? It might be your idea. It might be from something else. It might be from someone else. What's that one idea you like to see spread around the world? You like to see people get passionate about?

Tiago;

Opening borders. That's one thing that I think would have a huge effect.

Tobi;

So you're very much a card-carrying member of the open borders movement.

Tiago;

I am. I think that, yes, as I said, I'm a fan of Pritchett and others too, Bryan Caplan, Alex Nowrsteh. There are many people, Michael Clemens, there are many people that are working on this. The economic effects of opening borders would be just transformative, double GDP, according to the Clemens estimate. And that would happen exactly by helping the people that are the poorest. So it would also have a great distribution effect. So I think that it's a policy that I would definitely like to see being more discussed on high levels.

Tobi;

Thank you so much, Tiago Ribeiro Santos, for talking to me. It's been wonderful.

Tiago;

I thank you, Tobi, for the opportunity to talk about these ideas and congratulations on your work. And let's hope for more ambitious developing ideas.

Tobi;

Yeah, thank you.

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In this episode, Tobi talks to David Pilling, Africa editor for the Financial Times. They discussed his book "The Growth Delusion", exploring the significance and limitations of economic growth, particularly in poor countries. David challenges the conventional reliance on GDP to measure economic success, proposing a more nuanced approach that considers wealth distribution, environmental impacts, and overall well-being. He argues for a balanced view that recognises the necessity of growth for development while advocating for policies that prioritise human and environmental health. The conversation also touches on broader development issues in Africa, including the misuse of resources and the political challenges hindering effective governance and equitable progress.

The transcript of the conversation is below, and many thanks to David for coming on the podcast.

Tobi;

This is Ideas Untrapped podcast, of course, and my guest today doesn't need much of an introduction, anybody who reads the Financial Times knows David Pilling. He is currently the Africa editor of the Financial Times newspaper, he used to be the former Asia editor of the newspaper, and he has written many fantastic columns and essays covering a wide range of subjects. And recently he's been writing a lot about Africa, especially stories on development and other related matters. It's a pleasure to welcome David Pilling today.

Welcome, David.

David;

Thank you so much. It's a pleasure to be here.

Tobi;

I want to talk about your book for a bit and one question that keeps popping into my mind as I kept reading, that was a couple of months back last year, the general tone of the book, which is called The Growth Illusion was, you know, one of skepticism, right?Also, the impression that jumps at me from reading your economics-focused stories about Africa is that growth is important. So has your work in Africa forced you a bit to reconsider some of the positions you take in the book?

David;

Yes and no. I mean, the book never said growth isn't important. It is called The Growth Delusion. It's true. And that is a, you know, deliberately, I suppose, provocative title to some extent modelled after The God Delusion by Richard Dawkins. So it was a kind of an echo of that. So, yes, you're right. It was a sceptical title and journalists ought to be sceptical. And what I was doing was I was prodding at the concept of growth, what it is that we measure, how we measure an economy's success.

What I was not saying is that growth is not important. And I think growth is particularly important for poor countries. You know, we can put richer countries aside for one second, but in a poor country where there are not enough resources for people to have what Amartya Sen, the Nobel winning economist, calls sort of what we now know as agency, really. You know, choices over their lives, where they live, what work they do. And those choices can be denied by very simple things. Lack of food, lack of a roof over your head, lack of work, lack of safety and security. Unless those things are satisfied, then I believe that people aren't able to live their full potential. And for that, you need an economy that's firing at a certain level. In other words, you need to go from an economy that isn't firing to one that is. Then, of course, many other things need to happen, including the wealth that is therefore generated to be, you know, relatively equitably shared, for people have to have access to economic opportunities.

But my book was never saying, you know, growth is bad. We need degrowth, which I know is a trend of thought out there. But my book, despite the title, was really looking at other things, which I'm happy to go into if you'd like more of a discussion. But just to make it clear, I was absolutely not saying that if you have an economy where people lack what I would consider the absolute sort of basic minimum to live a fulfilled life, you know, those economies absolutely need to grow and they need to grow fast as the experience of Asia shows with the rapid growth in places like China, which has transformed hundreds of millions of people's lives and opportunities.

Just occurs to me that what just happened, you know, the power going out is in a sense a tiny example of what I'm talking about. You know, there you are making a podcast that you want to be a world class podcast and it's interrupted. I mean, in the end, it's not such a big deal and we are able to carry on. But it's just a little window into, you know, if Nigeria had a decent power system. then you and millions, in fact, tens of millions of other people would have much easier lives, would have much higher productivity, would be able to worry about other stuff. I mean worry in a good way. And, you know, we could call a better power station growth or a better power system, if you want. The money, the resources, the expertise, the systems to produce a good power system for all Nigerians so that all Nigerians can just rely on it and forget about the lights ever going out will make an enormous difference to people's lives. We can call that growth. And so I'm not against growth. I'm for growth.

Tobi;

Especially for the benefit of listeners who haven't read the book that perhaps I didn't frame that first question very well. The book not in any way suggested that growth is bad. And, of course, I urge everyone to read. It's a fantastic book. So what I'm trying to get at is there seems to be a big debate, even in the subfield of development in economics, about the appropriate measure for growth. The measure that best captures what makes a difference in people's lives, what people value, and you do a little bit of that also in the book, particularly in your discussion around GDP. So please just walk me through the history of the GDP, your critique of it, where it falls short, and what are the things, what are the other dimensions of well-being that it doesn't capture, and why is the field or policy reluctant to expand what we mean by growth?

David;

Yes. Okay. That's this very big subject when I wrote 250 pages on it. But let me try to encapsulate a few things. So GDP was invented, if I remember right, invented is probably the right word, in the 1930s, 40s by a guy called Simon Kuznets. And the aim, in a sense, was trying to encapsulate what was happening to an economy. And as hard as it is to believe before the invention of GDP, which really sort of measures all the products and services that an economy produces in a given period, before that invention, a single number to encapsulate what an economy is doing, there was no such number. So you could say, well, things feel good, people have work, the stock market is going up, there seems to be a lot of delivery of coal or whatever.

But there was no single number that said, you know, GDP is this and it grew by this. So the first thing to acknowledge, I think, is that this is a very clever number and it's an important number. And if you only have one number, it maybe is even the best one. Although somebody said in Mozambique, a finance minister, that he used to watch the May Day Parade and he judged the quality of people's shoes. And if people were wearing decent shoes, then he thought things were getting better. And if they weren't, he thought things were getting worse. But clearly, that's a very crude measure. So GDP, I'm saying, is not a bad measure, but it misses an awful lot and it distorts an awful lot. Let me give you a few examples. So the first thing to know about what we call growth, what we call GDP, is that it's a measure of what you might call flow. It measures what an economy produces, let's say, every year. It doesn't tell you anything about the wealth, which is the assets of that economy.

So let's take Nigeria as you're in Nigeria. If you take oil, which is an asset, and you take it out of the ground, you can turn that into GDP, into a flow of wealth. But eventually that oil is going to run out. So if you keep just taking out oil, selling it, spending it, take it out, sell it, spend it, eventually you've got no oil and you've got no money. And you could argue that maybe that's in part what Nigeria has been doing. The best thing to do with wealth like natural capital as it's called, is you turn that into other forms of capital. So you turn it into productive capital, which means infrastructure. So you'd build with those billions of dollars that have come out of the ground in Nigeria, a world class health system, world class transport, world class airports, world class universities, and you'd build human capital. Some of the same things with healthy, well-educated people who can then go on when your oil has run out and do many other things.

Now, it doesn't take a genius to work out that Nigeria hasn't done particularly well in that. Of course, there are brilliantly educated Nigerians and there are some lucky Nigerians in the elites that have access to good healthcare and good education, but often outside the system, sometimes indeed outside Nigeria. But what I would argue that Nigeria and many other countries have failed to do is to move that wealth into different sorts of wealth that will produce GDP again going forward. Because otherwise what your GDP has measured is a kind of a one shot. We took oil, we sold it, it's gone. So that's the first important thing about GDP is it's a flow, it's not the wealth.

Let me give you another example, and this moves into the environment. If you have a forest from the perspective of GDP, the absolute best thing you can do with that forest is chop it down as quickly possible and turn it into something else like a table. Turn your wood into a table or burn it or do something to produce energy or goods that you can sell and forget the forest. The forest is worth zero as far as GDP is concerned. But of course, the forest has its own value and once the forest is gone, it's gone. And our measures of economic progress take no account at all of the environment around us that I would argue has been a perverse incentive that has enabled us to think that we're doing extremely well producing all this growth, all this economic activity, but forgetting that there's a cost to that, which is the environment that we've been ransacking and polluting and degradating. And that can come back to bite us as we're seeing in global heating and in all sorts of other ways. Let me go to just a third thing and then I'll stop. So you can produce GDP and for all its limitations, it does tell you an awful lot. If you're growing at 10% a year, your economy is doing well, as China found out. China grew at 10% a year for 30 years, more or less and it transformed China from a poor country to a middle income one. However, how you distribute that income is also very important. There's a joke that economists tell, which I think is in the book, about Bill Gates, who walks into a bar. On average, everybody in the bar is a billionaire. But of course, the averages don't tell you anything. So you could have very fast growth in an economy.

Let's take Equatorial Guinea [which] grew very fast on the back of oil but most of the population continues to live in poverty. There's really been no attempt to spread that wealth. So no attempt to reinvest that wealth in the health and education that will produce more wealth, like science and development and all of that that will produce more wealth going forward. And also very little attempt to spread it equitably. So again, GDP doesn't tell you really much about that. And so these are three, I would say, fundamental limitations and fundamental different ways that we need to think about, you know, what is it that we're producing? If you say an economy is growing at 10% a year or 0% a year, what lies underneath those numbers? And what are they telling us about how people are living in those countries and the opportunities they have, which after all is the objective of growth. We don't want growth for its own sake, that's pointless. What we ought to want, I think, is to improve people's lives and opportunities. That's what we should be really measuring. And growth tells you part of the story, GDP tells you part of the story, but certainly not the whole thing.

Tobi;

These are important things you've raised. It's an important critique. I would not say that a lot of people who work on policy or who study these things are not aware of some of these things and the illusion of averages around GDP and what it captures, what it doesn't. My question then is, isn't this more of a critique of the politics or should I say the priority of the political class of a particular country as opposed to a critique of the measure itself, because the limitations are well known and how it falls short is known. So if you then persist with this measure that you know does not quite capture the wealth of the country, does not tell you anything about how income is distributed in the country, it does not tell you how much you are destroying the environment, and thus possibly future growth of the country, isn't that then a political problem?

David;

Yes, a very astute observation. Martin Wolf, a very sort of gifted, a brilliant, actually, economist at the FT, in a sense thinks my book is nonsense. I mean, I don't think he would go quite that far, but he would say, look, the problem isn't the measure. The problem is what you do with it. And to some extent, I absolutely agree with that. However, I do think that what you measure in a sense is what you get. If you set up, you know, we want the economy to grow by X amount, let's say, and you're going to be judged by that politically and to some extent you'll miss out on the other things, let's say the impact on carbon emissions, which clearly we have missed for 150 years. I mean, it's not as though we've managed to do both at the same time. We have missed this.

Now, in the end, you're absolutely right. It's a political decision. But I think if you took a political decision that we're going to do things slightly differently, you would probably want to measure different things as well. A lot of these things are measured, actually. If you go to the Office of Statistics in Britain, you'll find that they measure a ton of what I'm talking about. So I'm not after alternative measures or fancy indexes or whatever. In a sense, I'm after slightly different political priorities. So in a rich country, for example, I mean, even in a poor country, it doesn't really matter. You know one thing you might target is life expectancy. Not just life expectancy, I would argue, but healthy life expectancy.

So you might say, look, we think that it's reasonable in a country of our wealth and prosperity for people to live on average, and clearly it's going to be an average, 75 healthy years. And sure, the last couple of years, they're going to be unhealthy. That's just nature. And that's just what happens. But we're going to aim for 75 healthy years. And if that became your political target, lots of other things might change. You might start pumping more money into your health sector. You might start thinking more about primary health care, about preventative medicine, all sorts of things. Because you've tilted what you're measuring and your priorities, as it were, you then begin to tilt how you organise this.

And again, look at Nigeria. I'm bringing it back to Nigeria. If you take the GDP per capita of Nigeria and the GDP per capita of Ghana, I know this is a tetchy, tetchy subject to compare these two countries.

Tobi;

Go ahead.

David;

You know, I think I'm right in saying that the life expectancy of Nigerians on average is 11 years lower than Ghana. So I would say, well, what on earth is happening there? What does that tell you about the priorities of successive Nigerian governments? Now, it's obviously true, tweaking your measure here and there is not going to solve that. I think the life expectancy on average is 54. A lot of that will be because of very high child mortality. So a lot of kids not making it until the age of five. So, you know, you could have a government that says, right, by the end of our term, we're going to raise that to 60 as a start. A big country like Nigeria with all this oil wealth, this incredible talent pool, and anybody who goes to Nigeria knows that, you know, with doctors and nurses who, unfortunately, are all around the world helping other people. We can pull ourselves together and push life expectancy, let's say, to 60 as a starting point, not as a final point. And you could see then government policies shifting potentially in that direction.

So you can kind of see that measurements can lead to policy changes. Maybe they just focus the mind or maybe they're just a shared ambition. The public and the politicians who have entered into a contract, which is what an election is, “we’ll vote for you on the basis that you'll try and do A, B and C. If we don't like you, we'll kick you out.” That's kind of a highly crude definition of democracy. So you can see, potentially, you might say I'm being idealist or unrealistic, or maybe I am, but you can see how that could work as a guiding principle. So how you leave the confines of GDP to push another priority right up your list of what you're going to do politically, and then you're judged against that. That's where politics and measurement kind of meets.

Tobi;

With due respect to my Ghanaian brothers and sisters, there might also be a little bit of statistics going on there because the life expectancy in some parts of Nigeria may actually be higher than Ghana because Nigeria is quite a big area. But your answer, let me pull you into another debate from that answer, which is income versus, should I say, the rest of other measures of well-being. As you've written about, you're familiar with the SDGs and the predecessor - Millennium Development Goals. And I've had guests on the show, maybe someone like Andrew Nevin, who would say that poor countries can do better with alternative measures like what you have on the SDGs, zero hunger, this and that, as opposed to the annual churning out of GDP statistics.

But a different class of economists or thinkers will tell you that what really makes a difference is for the income of the population to grow and that higher income is highly correlated with all of these things that you say, including life expectancy. If you have more money, you will be able to eat better, afford better quality care, and your life expectancy will go up. It also pulls into what some in the economic subdiscipline and some global charities have been doing, which is interventions - deworming, cash transfers, bed nets, and so many ways that they measure that. But again, some economists will insist that, yes, you can do that and it's not a bad thing to do. But if you have the policies that are able, like you mentioned the example of China and some other countries that have been able to transform radically in just decades, South Korea is a fantastic example, then all this other things that we use as a critique of economic statistics become irrelevant once the majority of the population are able to increase their average income. So what's your reaction to that?

David;

Well, I agree with when you were saying there's some economists. So the second half. So if you have to choose between however many SDGs there are, all these different multiple complicated targets versus let's increase the income of each of our people. I'm definitely on the latter side. And in that sense, income, I think, is absolutely key. You'll find a curve when people go from a couple of thousand dollars per capita income towards 15,000, 20,000, things get better along that curve. Of course, you can blow it. You can have terrible policies. But assuming that you have reasonable policies and reasonably equitable distribution of that income, then there's a pretty good correlation. And you're absolutely right. You will move up that curve. Your health will get better. Your opportunities will get better. Your education will get better. Probably you'll have fewer kids. You'll put more money into each of those kids. They'll do better, et cetera, et cetera. And you'll get into an upward spiral. And in that sense, you're absolutely right. Yeah, then, you know, your bed nets become irrelevant because you've got middle income, educated people who know what they need to do and besides, you probably don't have stagnant pools of water. And besides, you probably have enough money to have a mosquito eradication thing. And, you know, a well-organised policy, which is producing that kind of growth is likely to, in a sense, be kind of self-fulfilling.

So absolutely. In that sense, I don't have a beef at all with income as a measure of the potential to improve people's lives. And I think I can hold the two ideas in my head simultaneously. I think I can prod the measure of GDP, particularly, I would argue, or wealthier countries, as well as saying it's probably the best measure, particularly as you go from the poverty, let's say, of a country like, it's invidious in a sense to name countries, but let's say Democratic Republic of Congo, you know, up through middle income, you know, your kind of Malaysias or whatever, there you'll find that rising income. And I keep saying, reasonably, equitably shared among the population, which is important, of course, then that will have your number one transformative effect. I have no argument with that at all.

Tobi;

Maybe I've been, I don't know, unfair to you by putting your book in the context of poorer countries, because certainly that wasn't the primary cohort of the analysis of the book. So, I mean, you talked about healthcare. You cited the American example, which was such a big, big, big talking point until Obamacare, and it still continues to be. For example, if you compare the American healthcare system with the Canadian healthcare system, and I know so many public policy analysts and other forms of thinkers look at Canada and say, oh, that's what we should be when they talk about America. But there are lots of Canadians and other people from countries with fantastic healthcare system who wants to move to America, who would move to the United States in an instant. So, again, does that tell you that a lot of these things that we worry about is not what people care about on average?

David;

Well, this is a very different question, I think. I mean, look, the American health care system, I would call inefficient, unequal and at its best, excellent. And it can be all of those things. So if you're a wealthy American or if you're an American with good health insurance, you probably have among the best health care systems in the world. The problem is if you're not wealthy, you don't have good insurance, then you have a pretty average, even a bad health system. The Canadian health system is probably more equal and certainly more efficient. The Americans also spend too much money for what they get. So they spend, I think, 20% of a very big GDP per capita on healthcare or of their entire GDP on healthcare. And that's quite inefficient. A lot of that is kind of litigation, it's profits, it's insurance and all of that. So it works for a good proportion of the population. As I say, if you're middle class, upper middle class, you probably have the best or among the best health care systems in the world. And that will figure in all sorts of things. Healthy life expectancy, for example, a very crude measure, but worth looking at. But if you're not in that category of people, then you probably have a pretty average health care experience.

And again, averages can tell you something. You know, life expectancy in the US has dropped for 20 years. Tiny, tiny, tiny amount. But what's going on? The economy has been growing, you know, with a few bumps, but it has been growing. There are wealth being created and yet that's not transferring into better life expectancy. You know, there are things like the whole OxyContin issue, et cetera, that begin to explain that. There's what people call lives of despair [Deaths of Despair], you know, suicide and people who just feel pushed out of the middle class. So it's affecting a subset of the American population, but that's enough to kind of bring the average down. So I think you have an unequal system. And that's how I would compare it with the Canadian system. I'm not familiar with the Canadian system at all, but I can imagine it's sort of like a UK style, free at the point of service, roughly like that. And the UK system has all sorts of huge problems. But again, if you have a health emergency, it's probably going to be a pretty good system. It's less good at dealing with sort of preempting health problems and preventing health problems. But again, I think this is possibly leading a little bit off the subject of GDP, but that's how I would explain the differences in different health systems.

Tobi;

Yeah, so my question then is, but a lot of people still want to move to countries where they think they can get rich really fast, where they think their skills can be better compensated and more often than not, that is usually the United States, despite the inefficiencies and inequalities of the health care system at the lower end. So, now does that mean that people do not know what they want or they value growing their personal income better than a lot of these other things that we talk about?

David;

I mean, America is still the biggest economy in the world, measured in dollar terms, not in PPP terms. So it's the biggest economy in the world. It's clearly very dynamic. If you're in tech or IT or AI, this world leading technology, world leading universities. You know, if you're making it in America, you're making it pretty big. And immigrants tend to be people who are ambitious. They're driven. That's why they picked up and left their country and gone somewhere else. You know, America can seem quite attractive. You kind of think if I'm going to roll the dice somewhere, I'll roll it in America. Now, if you're American, social mobility actually is not as good as it has been in the past. And it's not as good as in some European countries. That's quite a counterintuitive. But I've read a number of papers and data to suggest that. But still, you've got a big, powerful, high-tech economy that kind of sucks up labor, that's bounced back much quicker from the global financial crisis, that's bounced back quicker from COVID than most other equivalent economies.

You know, if you're thinking, where am I going to go? Where have I got my best chance of making it? You know, it's not irrational to think, well, America's big enough for me, you know? So I don't see the two in contradiction. I don't think people are saying, I'm going to go to America because on balance, it has the most rational healthcare system that's the best use of resources. People don't think like that. They think like, where am I going to go, fit in, have a chance? So I would say that's what attracts people to the US.

Tobi;

Yeah. Let's talk about the environment a bit. I don't know if I have the right phrase here, but it seems to me, as recently demonstrated by the recent spat on BBC between the host and the president of Guyana, by some countries, again, on the poorer end of the global wealth spectrum sort of fighting for their right to pollute, i would call it, Which is that you cannot tell us now to care about the environment, sustainability, low-carbon green economy, when you've had 150 years to basically do what you want, which sort of then got us into this problem. I don't necessarily agree with that argument and I do think that there's no part of the world that is insulated from some of the big, terrible changes we are going to see from global warming. But what's your reaction generally to that argument?

David;

OK, well, I do have some sympathy with that argument, but again, like most things that are worth talking about, it's complicated. So let's just start with a few basic facts. And, you know, I've never really written about the environment as a core subject, although I have written about it quite a lot both from Asia and increasingly actually from Africa. So bear that in mind. But let's take the per capita carbon emissions of Uganda. When I last looked, I think there was 0.1 tonnes per capita per year. And compare that with America which I think is 20 tons per capita per year. Now, if you say to a Ugandan, you have to be really careful because the world's on the brink of catastrophe so you guys need to cut your carbon emissions. I would agree with people who say, well, that's nonsense. I'm not cutting my carbon emissions. What Uganda needs to do, I would argue quite strongly, is to increase its carbon emissions.

Now, of course, that doesn't mean to say Uganda's ideal path of development is to copy in its entirety everything that went on in the West, which would be massive, crazy pollution with coal-fired power stations and whatever destruction of the environment, followed by a kind of, oh, my God, what have we done moment, drawing back and then are trying to kind of address the problems. Often, by the way, outsourcing your pollution to some other poor country. But anyway, I'm not saying that that is the path to go. But I am saying that from per capita carbon emissions of 0.1 tonnes, then yes, the only way is up for a bit. Because I don't believe that you're going to be able to get out of poverty without increasing those carbon emissions a bit.

Albeit that we have solar power, we have wind power, we have all of this. And clearly one doesn't need to emulate the old fossil fuel model in its entirety. But I think that it's reasonable to assume that, say, in Mali, where per capita people use the same as British people use to boil their kettle. So that's the power consumption in Mali, what we in Britain use to make our tea, basically. And you're saying to a Malian, sorry, that's all you've got. Now, that I think is totally unfair and is unsustainable politically and rightly so. So I think that the Malis and the Ugandas of this world will have to increase their carbon emissions a bit as they become wealthier.

But as soon as possible and wherever possible, they ought to embrace new technologies, green technologies, which in some cases will be cheaper and more efficient anyway. But, you know, we still don't really know, for example, how to make cement using green technologies. It's there or thereabouts, I believe, but it's not really proven technology at scale. And we can't say to Uganda, sorry, you missed out on concrete. You know, that one that one passed you by. Clearly this is ridiculous and unsustainable. So I do have sympathy with the view.

Of course, you can abuse that view. You can say, you know, you polluted for 150 years. Therefore, we're going to just carry on recklessly as normal. Let's take the conversation back to Nigeria. There is a conversation in Nigeria, you know, how dare you tell us that we can't use our oil and gas? Now, I have some sympathy with that, but the corollary and the additional argument is we need to electrify. We need to bring power to 600 million people in Africa and to a 100 million people in Nigeria who don't have power. I completely agree. But I would say, what have you been doing the last 30 or 40 years? The oil's been pouring out of the ground the last 30, 40 years, and that did not translate into electricity for all Nigerians as it should have done.

So it doesn't follow that if you're allowed to follow this fossil fuel path, that all will be right with the world. Policies need to be intelligent. And intelligence means to the extent that you do use fossil fuels, you must use them efficiently and for the benefit of your people. And where possible, you stop using fossil fuels, you embrace new technology. South Africa has a ton of coal, for example, but it also has among the best solar and wind potential in the world. Its problem in transitioning, and of course, as you'll probably know, South Africa is having trouble keeping the lights on. Its problem in transitioning from coal to solar and wind has not been primarily a technical problem. It's been primarily a political problem with people trying to protect the coal industry. That is a mistake. But I don't think you can say to the Ugandans of this world, sorry, you missed the boat. We don't really know how you're going to prosper in this new green world, but good luck. I think that does not wash. So in that sense, I have sympathy with the Guyanas and the Malis and the Ugandas of this world, yeah.

Tobi;

But not Nigeria.

David;

But clearly, you know, you need governments that use their oil wealth better. I don't think you would find a Nigerian that would disagree.

Tobi;

I agree with you. Again, I'm not trying to frame this as a direct consequence of your work or what you've written, just trying to expand the scope a little bit. So I want to get your sense about where you think policy should go in trying to strike a balance. Because as you know, a lot of African countries are in financial distress from sovereign debts. The domestic investment environment is not that great so even if you want to keep insisting that, oh, we're gonna pollute we're going to do this we're going to do that, if the global investment appetite for fossil fuel continues to dwindle as policy in the West is forcing companies to divest, you might not have a choice, even if you want to pollute at the end of the day, because nobody would be willing to invest in that in the next 20 or 30 years. So my question to you then is that how do you think that the policy environment, especially around all these global gatherings and perhaps even some more pragmatic measures can strike the better balance between these two views.

David;

Okay. Well, again, a complicated question, but definitely one worth asking. There are a few things going on there. The first thing I'd say is that finance just sort of cutting off all carbon, all fossil fuels is almost certainly unfair. And the idea that gas, for example, could be a transition fuel is one worth considering. But there's a big caveat here. And the caveat is the following, really. I don't really believe that there are many governments in Africa that have a serious plan for development. I mean, that's quite a big, harsh thing to say. But, you know, you had Stefan Dercon on your program. Gambling on Development was the name of his book. You know, if you're going to use fossil fuels to improve the lives of your people, fine. But where is that being done? Maybe in Senegal, maybe in Ghana. You look around the continent and you struggle to find these success stories where people are saying, no, no, no, world, we're not listening to you, we're going to use our fossil fuels because right now we're in this fantastic phase of growth and development, and, you know, if you cut off our fossil fuels, you're going to stymie that. You've got a lot of countries that are hardly at the starting line, I would say. And again, that sounds quite harsh. But, you know, you take Ghana, which is a relatively successful African economy. But Ghana had the same GDP per capita. This is oft used. In fact, I think it has had a higher GDP per capita. But probably these measures are imperfect, as we’d suggested at the beginning of our discussion. But somehow it was not dissimilar from South Korea.

South Korea is now 20 or 30 times as rich as Ghana in per capita terms. South Korea has done something that Ghana never did. And Ghana is a relative success story. So South Korea has certainly done something that Democratic Republic of Congo or Niger or Angola or Liberia or Zambia have never done. It's managed to take off economically. Yes, using fossil fuels. Now what we're being told is, you know, you can't use fossil fuels. But I'm also asking, where is the plan for development? Where is that big transforming development happening on the continent? That's what's necessary. That's what I want to see. But you have to kind of look quite hard to find it. And you're going to be finding the kind of the beginnings of it. Let's say in Ghana, in Senegal, you know, maybe in Rwanda, maybe in Ethiopia before it blew up politically. But you do have to look quite hard to find it. So yes, the world's saying fossil fuels, you can't have them. We're not going to finance them. That's potentially a big obstacle to growth and development. But just as big an obstacle to growth and development is governments that don't seem to be there in the fight to produce growth and development. And I think this gets back to politics. There are too many governments who get to power And their reason for getting to power is to extract, extract wealth for, you know, themselves, their families, their regions, maybe, if you're lucky, but not for the whole country.

Tobi;

It's an interesting observation. I'm going to ask you a speculative question and trust me, I don't want to put you in any kind of trouble. So, I mean, if you look at a set of countries that I call the tragic trio, which is the three biggest economies on the African continent, Egypt, Nigeria, South Africa, it's a useful comparison to me because they sort of went through a major transition in terms of power right around the same time. Nigeria it was 2015 when we had the first opposition leader coming to power since democratic governance started in 1999. South Africa, I think, was 2014. And I think Egypt was around the same period. If you look at that decade for all these three economies, what you see, it's not a pretty picture, unemployment is quite high. Youth unemployment particularly is through the roof. All three economies are chronically indebted. Inflation and the general macroeconomic policy environment is just a terrible mess. So I'm asking you, as someone who has been on the ground a couple of times in some of these countries, what do you think from an outsider's perspective, has gone seriously wrong with the political class in countries that can actually pull their weight on the continent if they are doing better.

David;

Sure. You mentioned, obviously, the three biggest economies on the continent. Now, first thing I should say is I can't really talk about Egypt because I don't cover it. For whatever reason, the Financial Times' definition of Africa is sub-Saharan Africa. So I cannot really talk with any legitimacy about it. But Nigeria and South Africa, you know, I've been to, I don't know, 20 times each. I've thought about them both quite hard, I suppose. And I would first say that they're just very, very different cases. The overriding factor of South Africa was the apartheid regime and the liberation from this horrendous apartheid policy, which deliberately impoverished a section of the population, the non-white section of the population, particularly the black majority. And extricating South Africa out of that is proving extraordinarily difficult. And South Africa is failing at that. And I could go into that in much more detail if you want. Nigeria, I think, is a whole different case. Nigeria never really had, well, it didn't have an apartheid system. It had a colonial oppressor: Britain; colonial occupier: Britain; then Britain left. But Nigeria doesn't have the terrible racial legacies of apartheid that South Africa suffers from.

In that sense, I actually think Nigeria starts from a better position than South Africa, albeit that South Africa had much more sophisticated some kind of world-class industries, manufacturing base, etc. Still, I would argue that the politics in South Africa is so complicated that Nigeria weirdly starts in a better place. However, one of the things that I think has gone wrong in Nigeria, and again, I don't think there'd be many Nigerians that would disagree with me, is that you discovered oil and lots of it. So you discovered oil and lots of it, but weirdly not enough. So if you take a Qatar or a Kuwait, one of these rich Gulf states, they have huge quantities of oil and very few people. So it doesn't take a kind of genius government to be able to spread that wealth kind of around, you know, to bring in foreign labor if required, et cetera.

Nigeria has a lot of oil, but not enough oil for 200 million people. If you gave all that oil wealth to each of 200 million people, you wouldn't have very much, which creates an incentive to try and get your hands on it. So it creates a perverse incentive, I would say, and the resource curse sort of starts there and did start there. And so the point of government becomes to share oil wealth, get your hands on the oil wealth, share it, share it among the political class, keep out everybody else and use your political influence to get as much of that oil wealth as possible. One obvious sort of result of that is the highly logical thing to do if you have oil is you begin to move up the value-added chain. This is what you should do if you're trying to develop any economy. So what do you do with oil? Well, you turn it into petroleum products, into the fuel you put in your car, to heating, electricity, all of this stuff. And again, you don't need me to tell you that Nigeria has not done this. It has refineries that have not worked. Now, of course, you have the Dangote Refinery, And there's a lot of hope, some hope anyway, attached to the Dangote refinery.

But in the past, what the Nigerian elite, and I can only blame the elite because they've been the ones in charge, what they've done is they've taken that oil, they've sent it abroad for somebody else to add all the value, and then they've bought it back, spending all the money that you've earned from the oil in the first place to somebody else because they've got a refinery. I mean, this is crazy, crazy policy and crazy politics. And this, I think, has been the curse of Nigeria that has informed much else. Of course, there have been many, many other problems, some of which go all the way back to colonialism and the colonial legacy. The fact that Nigeria was kind of jammed together by Britain, that it's a nation state if you draw it on a map, but it struggles to be one in reality.

And you could argue that Nigeria has been successful in creating this kind of feeling that there is such a thing as Nigeria, that we're all in it together. But you can also say that the elites, those who reach and by that, I guess I mean those who reach political power and those who enable them to reach political power, they have not really treated Nigeria as a nation because otherwise there wouldn't be 10 million kids out of school. There wouldn't be these massive disparities between different states, some with very much better health outcomes, et cetera, some with much lower levels of people in school, some with much better infrastructure, some with much worse infrastructure. That wouldn't exist to the same extent if your elites had treated the country as a real state and the purpose of the oil being to fuel that state and to fuel its development. That has not been what's happened. You've had an elite that has, in a sense, followed a colonialist model, which is to extract wealth and sometimes to send it abroad, which is why a lot of people go for their health and their education abroad, because they haven't bothered building it to the extent that they ought to have done in Nigeria itself. So these are very different stories. They may lead to the same or similar positions. You started by asking about why these three big economies have not fulfilled their potential, let's say, to put it kindly. So I think the reasons are quite different, particularly in the case of Nigeria and South Africa. But your end point is similar, if not exactly the same.

Tobi;

I want you to talk a little bit about South Africa, and especially in the last 10 years, what has gone, maybe that's not fair, but what has gone really, really wrong? I mean, to paraphrase someone I listened to during the lecture, I'd rather not say his name, is that South African elites care more about making the elite structure blacker than making South Africans wealthier. How should you think that conforms to reality?

David;

Well, that is a controversial statement. I mean, I think the ANC has become increasingly a kind of a black South African party. And it's to some extent losing some of that kind of rainbow nation, colourblind, non-racialism that was kind of, in a sense, so inspiring in 1994. So there's a couple of ways of answering that question. I mean, you said the last 10 years have been bad. I mean, I know that some people think the following: It's been 30 years since apartheid they kind of compare it to a football match - first 15 years, first half, pretty good. Second half, pretty disastrous. Lots of own goals. And that's one way of looking at it. The cutoff point is Zuma. So you have Mandela, you have Mbeki, sort of technocrat, reasonable growth that's growing at 5%. You do have a commodities boom, it's true. Then the financial crisis hits and Mbeki is dislodged by his own party, only a year before he was due to leave anyway, but still dislodged. Zuma's put in and Zuma starts the process of state capture and the real kind of erosion of some of the institutions that South Africa had maintained for those first 15 years. So that's one way of looking at it.

I think there's another really sort of, in a sense, more interesting way of looking at it, which I first read, again, in a Martin Wolf column. And he talked about the concept, which was originally applied to Brazil, actually, of Belindia. And Belindia is a combination of Belgium and India, a small, in this case, white economy. It doesn't really matter what the colors are, but a small white economy surrounded by much, much poorer black economy. That's what South Africa looked like in 1994. It had been deliberately engineered by a white racist system. So that's what you got. The question is, what policies do you have to deal with that? Because you've got two economies.

If you think about the trouble that Europe had when Europe joined and you were trying to set interest rates across Europe for different economies, for Spain and Germany, let's say. Now you've got Belgium and India. What policies do you put in place to maximise the potential of both of those? Because one of the things that you obviously try to do is you basically raid Belgium. You redistribute from Belgium to India, which is what's been done. And that's, I think, perfectly fair and a perfectly rational thing to do. You redistribute from the wealthy part of your economy to the less wealthy part of the economy. But that's not all you can do, because if that's all you can do, then eventually you're going to just impoverish Belgium and you're just going to have an impoverished country. So you can't do that. You've got to somehow turn India into Belgium. And it's not really clear how you devise policies that can do that.

You know, if you're India, it's much easier. You're a poor country and you trade, in a sense, off your poverty like China did. You know, China moved people from the countryside in China into factories in the cities. So it transformed inefficient farmers into increasingly efficient players in the global supply chains. But it did that via low wages. It's not really possible in South Africa because of the political inheritance that it's had. So one of the policies, for example, that the ANC tried was black empowerment. Which is, again, rational and completely understandable. They wanted to create a black middle class and people like Cyril Ramaphosa, who was put on various boards and given shares in various companies. He became very wealthy through that. And a black middle class was created. But you can also see how there are problems there. One is that this can lead to corruption. You know, you get those opportunities based on who you know and who you know means knowing the ANC. So you can see how that reinforces or could reinforce bad politics and cronyism. And indeed, that is exactly what's happened, unfortunately.

And second, you can see how it can lead to inefficiencies. So a well-known example was that, you know, even the airline needed to buy its planes. you know, Boeings, et cetera, through a black empowerment business. So, of course, no planes are made in South Africa. So the only way of doing that is a black company is set up to buy planes and then they sell them to South African airways with a markup 10 or 20 percent. So immediately you have an airline that's 10 or 20 percent less efficient. And that's kind of mirrored in the rest of the economy. So in trying to adjust to the hundreds of years of historical injustices that you've had, you kind of fall into policies that are going to be counterproductive and make your economy inefficient. Having said that, the ANC has also just failed flat out, right, in some policies that it also have got right. The biggest of all being education. Under apartheid, you had an education system that was deliberately tailored to keep black people poor and to limit their education so that they could work in the mines and work as domestics in people's houses. A vile system.

That was the starting point. It ought to have been really easy to improve that by leaps and bounds. And South Africa has actually put quite a lot of money into its education system. But for one reason or another, some of which I don't fully understand, to be honest, it's failed. And the education system for most people is failing. And so it's failing to transform people's opportunities via education, which would be not a simple, not a salvo either, not a panacea, but certainly it ought to be a very important part of the ANC's armory in transforming that society. And it's failed.

Tobi;

That's deep. And I agree it's a complex problem. I mean, They have an election also this year, and in Nigeria we had ours last year. From the field currently and how the political dynamics is evolving, what do you think is the hope of turning some of this around, at least for the people?

David;

Sure. Well, there are a few things. I mean, like you often say with development, well, I wouldn't start from here. I mean, it's not a particularly good place to start from. That Belindia image, I think, is quite powerful. And you can't just wish that away. That's history. That's going to take a long time to overcome. What is going to happen in this election, what is likely to happen, is that for the first time, the ANC's majority, i.e. its 50% plus of the vote, is going to be challenged. So last time it got 57.5. In previous iterations under Mbeki, for example, it got, I think, in the high 60s, certainly in the mid 60s. So the ANC sort of was dominating politics. Now, I think disillusion with the state of the country is such that that majority will be challenged. So it's possible, it's not definite, but it is possible that the ANC will fall below 50%. That opens up all sorts of possibilities, some of them more promising and some of them less promising.

So if the ANC does very, very badly, let's say it gets 40%, I think this is unlikely, but possible, then it's It may go into coalition with a party like the Economic Freedom Fighters, Julius Malema, who's a breakaway, sort of a radical breakaway. They want to nationalise the commanding heights of the economy to expropriate a lot of the land without compensation, maybe nationalise the central bank and then sort of change central bank policy so that it's much more in favour of growth distribution than in sort of tackling inflation. Now, you know, maybe this will all go brilliantly well, but experience and history tells you that that's not likely to go very well, that project, and could impoverish South Africa further. So the loss of the ANC majority, while important and necessary, I think also sort of opens up the country to danger.

I think much more likely is the ANC will get in the mid 40s or high 40s and therefore will go into coalition with some of the smaller parties. And this, I think, is where the hope lies. So you have a number of smaller parties, some of which are pretty terrible, but some of which are really good. There's a party called RISE Mzanzi, for example. A former journalist, Songeso Zibi, has formed this party. A lot of people really think that this is a good guy, progressive, forward-thinking, not attached to the ANC, not attached to the DA, which is the right-of-centre kind of party that has tended to be a very white party and therefore is really not electable in the country as a whole. So I'm not saying that RISE Mzanzi is the great hope of South Africa. I'm not saying that at all. I don't really know that much about them. What I am saying is that you can see how the breakdown of this ANC monopoly could lead to new ideas, some of which will be bad and some of which could be much more hopeful and progressive. And, you know, come the next election in five years' time, you could see some of those parties that have established themselves now growing their support base and maybe changing the policies of South Africa for the better.

But I do think that the ANC, you know, as amazing a movement as it was and as necessary a movement as it was to overthrow apartheid, after 30 years of unchallenged power, it's hardly surprising, is a sort of a pale shadow of its former self. And it'd be difficult for it to reform within without losing power, or at least having its power seriously challenged.

Tobi;

For the sake of the millions of South Africans whose lives depend on their government getting things right, I hope they do. My final question before I let you go, David. So I'm going to ask you one big question and maybe a couple of two or three more rapid fire questions. And this is a bit of a tradition on the show, which is talk to me about one big idea. It may be yours, it may be an idea of someone else, but just one idea that you are excited about, that you love very much and that you would like the world to be excited about as well. Possibly could change the world.

David;

That is a… you should have warned me about that question type. So my mind's going blank. The thing I'm thinking about is so far from what we've been discussing that I don't know that it's relevant. I mean, let me name two things and they're quite different. What is very well established, but I think very important, and I'm not trying to be trendy here, but I think the idea that if you concentrate on giving women opportunity in society that a lot follows is very promising in development.

If you look around, women kind of hold families together, their kids' health and education, they are the guardians of that. If they're empowered, given opportunities, I think huge amounts can follow. And if you want to kind of a way of unlocking growth and development, you could do a lot worse than thinking, what are we doing for women at all levels of society? This doesn't mean women in boardrooms or women in this. Of course, it means that, too. But it means policies that enable women to take control of their finances, take control of their bodies, take control of their education, take control of their destiny. If you get that right, I think an awful lot follows.

Second, totally different and something I hardly know anything about, but I keep hearing about it. It's something called eDNA. This is a way of measuring biodiversity. As far as I understand it, you take a measurement from water or soil and rather than counting the number of animals or trying to count, you know, the number of bacteria or worms or whatever it is, you kind of have a baseline of the biodiversity of an area.

And given that baseline, you can then work out, are we improving this area or are we degrading it? And it may be the kind of the GDP of the environment, let's say, a one shot measure that enables you to say, let's leave this country, this wetland, this region, this forest in a better state for the next generation than we found it. I think that could be a very powerful idea.

Tobi;

Charter cities, which is something you've written about, are something with a big potential for change, especially in the context of Africa. Do you find it promising or a fad?

David;

I'm highly skeptical. You can see where it comes from. You know, Shenzhen in southern China, you could say it was a charter city. You could say Singapore kind of acted like a charter city, Hong Kong. If that's what you mean by a charter city, then maybe. But look, if you have policies that are good, then you should roll them out to the whole country. Why should they be in some isolated little part? I don't see why you need to start from scratch. You could say, yes, we could experiment. We could try Charter City A, Charter City B, Charter City C, see which does better and then roll that out to the country as a whole. Fine. Okay. But the idea that you can get around government, you know, outsource public goods to the private sector, start totally from scratch. I am quite skeptical of that idea. I find it intriguing and I've written about it in a way that may not necessarily show my skepticism. But if you ask me, do I think it's a great hope or a fad? I lean towards the faddish end of the spectrum.

Tobi;

Senegal, Nigeria or Ghana, who has the best jollof rice?

David;

Yeah, if you make me answer that, then I'll never be allowed back in Nigeria again. So the best jollof rice I've probably ever had was in Lagos, actually. Not meaning that there's not fantastic jello fries in the other two countries, but the best one that I happened to have had was in Lagos. Kind of spicy, pretty good.

Tobi;

Okay. Generally, from your travels across Africa, where to you has the best food scenes, the best restaurants, best coffee shops?

David;

South Africa is an obvious example that has good food. I like some of the food I came across in Madagascar, in Antananarivo. And in West Africa, I'm going to say Lagos and Accra draw, just to be diplomatic. But there are certainly some very cool places in both. And I've noticed that, I mean, clearly in Lagos, Some things happened in the last few years because there's been a kind of a mushrooming of places, some of them very high end, which, you know, have limited use for me. But, you know, there is clearly some interesting stuff happening.

Tobi;

Finally, Labour or the Tories, who do you think will win the next UK general elections?

David;

Labour.

Tobi;

Thank you, David Pilling. It has been a pleasure to have you on Ideas Untrapped.

David;

Thanks, Tobi. I really enjoyed it.



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In this podcast episode, Tobi interviews Rasheed Griffith - who is the CEO of The Caribbean Progress Institute, and host of The Rasheed Griffith Show explores the adaptability and policy implementation in smaller countries compared to larger ones, noting that smaller nations can change more swiftly due to simpler institutional structures. Rasheed contrasts this with larger countries like China and India, where changes, although rapid, are often driven by cultural homogeneity and authoritarian governance, which may not be desirable in Western democracies. The discussion also touches on the impact of leadership and institutional capacity on economic development, emphasizing that the quality of governance often outweighs the mere structure of political systems in influencing a country's developmental trajectory.

You can listen to episodes of Rasheed's brilliant podcast (The Rasheed Griffith Show) here. You can also subscribe to the Carribean Progress Institute newsletter here, where you can read many interesting and important writings.

Transcript

Tobi;

Welcome to the show, Rasheed.

It's great to talk to you.

I want to start with something that you mentioned in our first conversation, which has stayed with me. I haven't been able to stop thinking about it since, which is that small countries are somewhat more amenable to change than big countries. You know, when we talk about ideas and policies and economic development,

I just want you to expand on that a bit. I know I'm paraphrasing, but I want you to expand on that a bit.

Why do you suppose that is?

Rasheed;

Small countries have less people to influence politically, economically, socially. So ideas can spread faster and ideas can spread deeper in small countries. So for example, if you have a country like Nigeria, you have over 200 million people, you have vast, vast institutions that are captured or incentivized in very radically complex ways.

Compare that to a country like Saint Lucia that has 180,000 people. Very small institutions, very small number of schools, very small number of just social actors.

For the difficulty of idea spread and idea capture, it's a lot less in a very small place, and yet these are still essentially independent sovereign UN vote countries that have as much rights in that league as Nigeria.

You know, Walmart...Walmart in the US has more employees than all of Saint Lucia has population. Or even Saint Vincent, or even Trinidad, Walmart has more employees.

So, when you talk about turning the ship of these small countries, it's a lot less complicated than trying to influence Nigeria or Ethiopia or the US or Canada.

Tobi;

I want to square that a bit with what we saw in China in the last 40 years.

China is obviously a very large country and some people would say that it went through a process of rapid change, I mean, after the 1978 reforms. How did a country like China and to some extent what we are seeing in India recently, do you think that having, even if you're a big country, having a homogenous culture, language, ethnic population, does that also help speed up the process of change.

China, obviously, communism being the central guiding ideology and of course, majority of the population is Han Chinese. And we're seeing Modi, you know, rally around Hinduism as the national identity of the country. So, how does homogeneity play in here? And you see some pretty screwed up small countries, you know, Haiti…

What are the constraints and what are the catalysts?

Rasheed;

So China is obviously a good example, but China didn't just transform itself via ideas. It transformed itself via a dictatorship. And I think most people would not want that trade-off. You know you go to Shanghai, [which] I've been to many times, you go to Shanghai and you say “it's so great here, the transportation is fantastic the skyline is amazing, all this happened in 30 years” but then the problem is this; the way [and] how it's done, the effects, the results are quite spectacular but for most people in Western countries, you are not willing socially, morally, to make that trade-off even if the trains are so nice. Because you don't want to have the authoritarian system that China has.

So, you know, you can describe China as communist and of course the party structure is very Leninist communist structure [but] of course how the economic stuff operates is very open in terms of price mechanisms that you typically find in other capitalist operation. But, you know, don't make no mistake, this was a very harsh trade-off that the Chinese people did not have a chance to make particularly because they had a very authoritarian, still has a very authoritarian party.

And I would also say that a lot of the transformation of China that has happened it wasn't particularly directed by the party. People always use Deng Xiaoping as the start point for the opening up policy. But when you look at the proper historical literature, he really just allowed the people to do what they were starting to do already.

The market reforms were a very bottom up process. So it wasn't like they kickstarted the actual change themselves. As usual, it's a market system that happened first. So, again, I don't think in Western countries that have a history of democracy, a history of institutions, history of social liberties would want the kind of trade-offs needed that China used to rapidly push in one direction.

Now, India is tricky because India, of course, had a lot of growth, but India has very weak institutions. You know, when you are there on the ground, there is a massive difference between India and China, even states like Bangalore, for example, or New Delhi.

It is still quite a developing country because there's so much development, the numbers kind of look good but in my opinion no unit, no particular place itself can be called developed yet and a lot of the really massive growth in India… again, its government has not really been very good at capacity building, although at some measurements of state capacity India still runs very high for some strange reason but it is always a bottom-up process in India. However, depends on where you go in India, again, there are some parts that are still very far, far behind and some parts that are very, you know, far forward.

Again, same in China. You go to Western China, it's as poor as it was 50 years ago. Because those are big places, very big populations, it's very difficult to look at macro measurements as like default indicators, whereas if you go from Shanghai to even like Jiling, it's a very, very, very difference in economic proportionalities.

Tobi;

Yeah.

It brings me to this question of democracy versus autocracy in the context of economic development. As you know, a lot of African countries, especially around 20, 25 years ago, after a very long history of military coups and dictatorships, started democratising, you know. And if I use Nigeria as an example, the challenge and why there seem to be a pining for autocracy, especially if you look across and, you know, compare what East Asia was able to do, there seem to be no continuity.

For example, in Nigeria, the way I describe Nigeria is bad ideas are immortal, but good ideas have no continuity, right? So what is the nuance, precisely, in this democracy versus autocracy debate when you want to kickstart development and sustain it, you know, and try to reach for high income?

Rasheed;

See, it really depends on what people mean when they say democracy, because oftentimes I get the sense people really mean just voting and competitive elections.

Is that what you mean by democracy or they mean something deeper?

Tobi;

Well, that's a good distinction because I think loosely we use democracy basically to mean that, okay, you have cyclical elections, you have a constitution that grants people relative freedom, on paper, in practice might actually be very different. You have a somewhat independent judiciary and there is separation of powers.

So that's how I would describe what I'm talking about.

Rasheed;

I see that's tricky, right? Because England does not have separate powers. It doesn't have a separate judiciary. People still call it democratic. So it's a complicated question there.

Also they don't even have an actual constitution either.

Tobi;

Yeah, they don't. I'm fascinated by how that works, by the way, but i'll say maybe from the 2000s upward, most new states or newly democratising states have gone for the American-style presidential system, you know, and i feel like that is part of the struggle with a lot of states especially in Africa. For example in Nigeria, after independence it was a parliamentary system of government then there was the war and the coups and then during the second republic we kind of went the way of the American presidential system and then there's always this constant debate about: do we really have a federal system, how do we handle things like state independence, how do you balance minority rights versus rule of majority, right?

Now, for states that have opted for this American federal system, you know, without having the same history and the same institutions, they seem to struggle. And I'm trying to understand why.

Rasheed;

So the basic premise on which you structure your electoral process is not enough to govern a country. And new states tend, by definition obviously, don't really have a history of institutional capacity behind the electoral process. And many states probably of course in African states, also even Latin American states to be honest, they never actually stabilise on a particular path of institutional growth, capacity building, and so on. So you can look at Nigeria, Burkina Faso, you can even look at Peru or look at Guatemala and Nicaragua, these countries have very constant states of flux all the time. And, you know, a lot of that is obviously a remnant of how the independence movement happened and what happened after independence and things were essentially kind of, you know… the the way how the state itself was set up, the initial premises, obviously caused a lot of problems going forward but it's [a] difficult question because in my mind the literal category of electoral process you have isn't really that important.

The important thing is who are actually working in the governance mechanisms.

What kind of people are working in the public sector?

What kind of trainings do they have?

What are their histories?

How much power do they have to actually form ideas and make choices and so on?

Those things are the more critical things in governance, not the electoral process per se.

Well, yes, we need to have an electoral process that is fair, but so what?

I mentioned in England, they don't have a separate court, really, up until 10 years ago in 2013.

The parliament and legislature are the same thing, they don't really have that either, the separation…so you don't need, even in theory, to have these things all separate. But the difference is that in England the institutions that govern so you manage your finance and treasury so on, they have very high capacity people and they are allowed to make decisions and the people in charge follow the decisions that they make because they have these reviews they have these regulations that affect how you make choices in governance. Where[as] in new countries, they don't have these things, they don't have these systems of stability. I don't know how one creates these things because these are such old states, we really have no idea how these things form themselves. You could say, yeah, if there was one very strong impactful leader who happens to be governing very well, then yeah, let's pass forward. You know, we all use the Singapore example but that's a minefield full of history. There's nothing you can do to create the conditions to make that happen.

You can say also maybe Rwanda, maybe, is another example - Kagame - of this, but again, before Kagame, there's no way to a priori determine if a particular strong leader will actually be a good governor. You can't decide those things a priori you kind of have to go with the luck of the choices. So I don't have a good answer to you because I think no one has a good answer to that question.

How do you build institutional capacity in countries that don't have it and have never had it that well is probably the most important question in development economics that no one actually tries to think about that much or at least outside of very niche academic circles.

Tobi;

Another thing that comes to my mind is the people question - speaking about the policies themselves, I know you can't separate it from the people, but a lot of policies especially around economic governance is more towards socialism and leftist ideas… I can say for Nigeria and of course a lot of African states.

So my question then is, did colonialism, for example, or the history of exploitation, especially in countries that have a history of such, did it make capitalism a bit of a tough sell?

You know, because during the Cold War and before that, the fight for independence and the liberation of these states was supported by the communist bloc and there was a lot of knowledge transfer, there was a lot of personnel transfer within that period. Was that why we still have this persistence in terms of socialist ideas which are clearly not working but are very very difficult to get rid of. Nigeria is going through a period of extremely high inflation and macroeconomic distress right now, and what you still hear from the people that are responsible for policies are still the same ideas that we have tried that have failed.

A Lot of Statism, A Lot of Protectionism.

Why do these ideas have such persistence?

Is it history?

Rasheed;

So history is a very, very big part of it.

So you pointed out that the decolonial movement, a lot of the ideas were anti-colonial powers.

That was the basic premise. England, France did this, therefore we need to do X, something different. And at the same time, as you mentioned, at the time, a lot of the Soviet bloc, East bloc at the time, were communists, very pure communists. Then that kind of influence also went towards their anti-imperialism, which was again, anti-Western.

So everything kind of fused into one thing.

I don't know, really, how much you can call it anti-capitalist, I think it's most anti-imperialism and by default it means anti-Western institutions and I'm trying to sort of grouped in capitalism as the exploitation, you know, is clearly not a very strong argument of course but that's what they did and the same thing happened in Caribbean, same thing happened in Latin America and it still persists the same way also in Latin America, also in Caribbean, also Africa.

And the persistence is really a matter of ideology. You can't really think outside your own ideology if you don't have any interest in thinking outside your own ideology. So [the] leadership who come up [is] all Marxist training, all socialist training, very anti-imperialism, those kind of things, and they don't have any instinct to think about alternatives that they would never try.

But in Tanzania, after Nyerere, the next president, I think it's Mwinyi, I don't remember his name properly unfortunately, he was much more pro-market.

And why was that?

I don't know, actually.

It can't be education. He had the same, essentially, education notice as Nyerere, and Nyerere was a shrugging, you know, socialist believer.

So what was the difference between those two people?

I don't know that much about it.

But he had an instinct that was much more pro-market, pro-capitalist, pro-freedom, where he really transformed […] policies in Tanzania. And his son is now the president of Zanzibar and again [with] that same instinct of openness and more free market liberal policies. So you see that now play out in Zanzibar.

So you have an instance where the two leaderships, one family, has had a massive impact on these policies.

But why do they have these different views?

It's hard to say.

Why does Kagame, for example, have the view of more liberal policies while having also very strong, strong, state arms on security and so on. Economically, he has more liberal policies. He doesn't have any distinct, highly distinct educational backgrounds, not much, but instinct-wise, he is very liberal.

Why is that?

These are the kind of questions I think people don't really grapple with. Because it's not a theoretical issue. It's a leadership problem. So why do leaders that should come up in African states, but again, same for Latin America, same thing in Caribbean. Like, why don't more of the people who have more liberal instincts go to vie for leadership in countries like these where we live?

I don't know.

But that's the key point.

That's the key change.

The people that have an instinct of liberalism must lead the countries.

Tobi;

Sticking with the colonial question, as someone who work with ideas, I really want to know what is the persuasive framing for this debate around exploitation and growth, right?

You have this movement, not just individuals, who are absolutely convinced that not just modern economic growth that started with the industrial revolution was built on slavery, but that the extension of that or the correspondence of that period with colonialism was the instrumental thing. It's a bit similar to the 1619 project in the history of capitalism in America. And this group of people, sometimes very loud, are absolutely convinced that they are right.

And they use history as their evidence.

Do you want to deny that X happened?

Of course it did.

How then can you say that it was this exploitation that gave these people prosperity and obviously retarded us?

What is the place of better balance in that debate? And what do you think is the persuasive framing to make people understand that exploitation by itself is not what gives you productivity? You can't really exploit your way to TFP growth.

Rasheed;

These are two different questions.

The first part is the historical thing.

Now, the historical problem is very challenging because the people who are based on the idea that the colonial exploitation is the thing that made the West rich and the thing that made Africa poor versus people like me or, I guess, you that have the view that, no, that was not the base reason. The problem is coming to a centre point is that we exist in two different planets, unfortunately. Because history happened. It's in the living past but how you interpret history is the really important aspect of it.

So you say, oh, they use history. They don't use history. They use interpretations of history. And it’s similar on our side as well.

But the problem is that it's very difficult to get someone to drop their interpretation of history for a different interpretation of history when they have emotional resonance towards their own interpretation.

It's very difficult.

In some cases, perhaps even impossible. If you have a very strong view on this topic, it's very difficult for people to change your view because it's not actually based on fact it's based on interpretation. Because, again, ideology is almost like a religious view at that point in time but it's not actual quote-unquote fact. Now people, the general audiences, don't have as much strong view as someone who has a firm ideological commitment on the view and that is usually people you need to target.

Because they don't really know the names, they don't really have any dates, they don't understand the actual contours of the argument, they just come up hearing something all the time and those are people that have a better chance of changing their mind on things. And especially in Africa, especially in the Caribbean, this argument about historical exploitation of colonial capitalism is the reason why the country is poor is extremely persistent in a very perverted way and I feel in some ways the governments that currently exist…

I think some of them do really believe that's true but I also think many especially in the Caribbean where I'm from use it as an absolution. They don't want to really put any hard work to get things done so they admit this argument and say hey it's not our fault it's 200 years ago fault. Therefore, that’s why we can’t get anything done properly now.

So they kind of absolve themselves of responsibility in the present by using history, bad history, as a clutch. At least, in the Caribbean I know that’s true and Africa also, I can’t really say definitively. So that's the big issue.

Now, on the other side, in terms of the present and what has changed or and what has not? Again, if particular leaderships don't have an instinct of liberal change, i don't know if there's any education you can do, particularly speaking, to change their minds about how things should be done. Especially also [somebody] who have so much power, so i think it's very difficult in that situation that's why I'm saying when it comes to changing big countries it's so hard because the entrenchment is so deep that where do you pull levers to get things done? Who's actually in charge of this particular thing? You don't know.

In small countries you know exactly who's in charge of what, from when, and who they know, why they know it, and so on. So the tapestry which you can go about plotting change is a lot more direct in small countries. In big countries, it's a lot more difficult.

But I say I'm telling you, the thing you have to do is obviously encourage the spread of more liberal ideas, but in reality, the really, really key things that the people who go up and try to transform states, they need to have the gut instinct of liberal thinking.

Tobi;

That brings me to reparations and one of my favourite essays of yours. Uh, the reparations movement if we can call it that has gained some traction obviously in the Caribbean of course, and to some extent, perhaps not as loud, in Africa as well. What is your case against reparations?

Rasheed;

Reparations is based on a few things at the same time and I think people really kind of fuse it all together as one argument. And I say that in the Caribbean part because that's the most vocal element of the British Reparations Caribbean-Africa, a lot of it actually is very Caribbean-driven which is actually very surprising because the Caribbeans do a lot better off than African states on any metric.

But again, it's not too surprising given that the very most famous books about the exploitation argument is How Europe Underdeveloped Africa, which is a very famous book actually written by a Caribbean person.

So I suppose it's not too surprising when it's a Caribbean-led movement in that sense.

Now, the arguments are based on history, economics, and philosophy. Those are the three primary basic categories of the argument.

The history argument is simple in the sense that sugar plantations in the Caribbean were the main economic engine of industrialisation in England. That is the really core argument. But the problem here is you can look back in economic data to see how big the sugar industry was as a percentage of all industry in the UK at that time, the 1700s and early 1800s but, you know, mostly late 1700s. You can look back at data and see at best, sugar production was about two percent of overall income in England. That's very very small. That's as much as other industries, for example like agriculture, for example, like imports of copper from Ireland is about also 2%. But no one makes the argument that copper imports from Ireland was the reason why you had industrialisation in the UK.

No one makes that argument.

So why make the argument sugar?

You can go back to, for example, and see things like the amount of slave trading you could get. You should also see numbers and impact and revenue numbers.

All these data are collected. England, luckily, was very anal about numeric analysis of their economy and their systems so if you go in the British archives [there’s] so much written, captured reporting on numbers through time. One of my favourite time series is the Millennium Time series by the Bank of England that goes back A Thousand Years of Economic Growth in the UK.

So you can make accurate measurements of all these things going back a thousand years and definitely 300 years. When you read the arguments of the pro-reparations people about the economic impact, you will notice they never actually give a good economic analysis of the sugar production to impact in the UK.

They literally never mention actual econ numbers on these things.

They say, yes, this happened, believe me.

And they go as far as saying, if you don't believe me, you're racist.

That's also part of the argument, it's literally in the books. I have it in my essay. Another aspect is the… let's call it the philosophical or moral argument. I think at this point anyone would say, slavery was bad, it was evil. Okay. I don't think people debate this. I don't debate it, at least. But they leap and say therefore you owe me money and that therefore is where all the work needs to be done and they don't actually do the work. Because of the Caribbean centre argument, it's a very difficult one to do. Because, again, the Caribbean is actually doing decently well. It's not doing great, you know, comprehensively like Singapore, Taiwan, sure, okay, but it's doing good.

And if you look at the Caribbean data when it comes to this, the bulk of Caribbean economic growth happened in the late 50s, early 60s, late 60s, literally right on the beginning, even before independence and going into very early independence. So the time when it had the most colonial influence still is when it had the most growth.

And then as the colonial influence goes down, growth actually also went down in the Caribbean.So also, you can look at the other counterfactual, which is the Caribbean still has British colonies. You can look at the other counterfactual, which is there are independent Caribbean countries that were part of the British Empire. They are not independent. And at the same time, concurrently, they have Caribbean countries that are still part of the UK, like Bermuda, BVI [British Virgin Islands], Cayman Islands, you know, those countries and all of them are performing better than the equivalent independent Caribbean country.

So if the British part is exploitation, there's something breaking down where the British colonies have better performance than the independent ones and that is very difficult to square off and the reparations debaters or pro-reparations never try to discuss this point either, they always avoid it. Actually I don't even think they even think about it as a thing to think about in that sense.

So then you look at the moral part. Now you realise that the decline in growth happened well into independence, so it can't be the British exploitation that made the growth worse because you were already independent countries when you had a decline in growth after the late colonial period actually growth started to happen. So who's to blame if you're going to blame someone for post-independence growth, given that pre-independence growth was higher?

It has to be the independent countries, not the British.

Black, it's the leaders of those countries that have failed to do good policies to bring up the countries. Again, this is another way to absolve themselves of responsibility.

It's not our fault we have bad policies that don't grow the country. It's 300 years ago that put us on this path, even though most of the growth happened while you were still a colony. So the pro-reparations argument really based on nothing. However, it's ideologically soothing so you think it's good.

Tobi;

That's deep.

How do you reckon that their influence, especially in terms of policies, in terms of how they influence the general direction of what young people think and believe, how would you gauge the influence of the reparations movement, their ideas, their arguments?

Rasheed;

At least in the Caribbean, it's quite, quite impactful.

I think, not I think, every Caribbean country, these are independent English Caribbean countries are pro… as official policy, pro reparations from the UK. All of them.

So it's very impactful.

And I think if you talk to the average person on the street in Barbados or Jamaica, they will likely also be pro reparations too.

They haven't thought about it that deeply, to be clear, but just growing up in this context you will probably also be pro this thing. You know, there are people who are not either, of course, but I say on average people will be more leaning towards, yes, the idea is good and as an official policy that you should get reparations in the independent English Caribbean from the UK. So it's one of the most impactful movements, I think, in the entire region.

Again, it's not new, it's an old movement, but it has had very big impact.

And then on the UK side, it's gaining more traction by, for example, the Labour Party in the UK.

On the UK side, you know, I guess you call it woke liberalism these days as the term people use in America.

That's more why they believe it's correct. Not for any historical reasons either. So when those two things combine themselves you have a very powerful movement.

Tobi;

It will be really hilarious to me, at least, personally, if a pro reparations government actually that comes into power in the UK because I doubt the UK can afford what the reparations government is asking for.

Rasheed;

The thing that the people are, so Labour Party is very likely going to win the next election and they are going to discuss this topic a lot more, but the things that the reparations people are asking for isn't pure money.

I think that's a misconception.

I think maybe years ago that was the main thing they wanted but they're not actually asking for cash per se. So they're asking for things like better education support, perhaps even more scholarships to the UK, they're asking things like better funding for health systems in the Caribbean, they're asking for funding to do like arts and museums to have more African Culture in the Caribbean and people can understand African culture.

Things like that, also for like debt cancellation, things that still cost a lot of money, but they're not necessarily asking for direct cash transfers, particularly speaking.

Tobi;

You follow Latin America pretty closely. Are you bullish on Argentina, especially in the light of Milei's election?

Rasheed;

I think bullish would be a very strong word to use.

I would say, I think Milei has a 30% chance of getting this things done, which is, I think, so high. It's a high chance for Latin America. But I'm not going to use the word bullish. I think that's too strong a word to use in this case. It's a very, very tough road ahead.

I think people are a bit too optimistic about Milei's administration. I like Milei, I love Milei's policies and his administration, but you have to understand in the context of Argentina, the institutions are so captured by Peronist people, socialist interests that is very difficult to get really deep change happen and, of course, also the countervailing forces like the the trade unions for example, the population themselves, generally speaking, is very very pro socialist policies. The different governors in different regions are also often very pro socialist policies. So getting all of that on a correction path is going to be very very difficult.

So because of the different administration levels in Argentina the governors, the trade union leaders, the people working in the public sector, the population, it's still very directionally socialist.

See, saying the word Peronism is difficult in Argentina because Perón himself was actually a lot more liberal than Kirchner. But they're both called Peronists so it's difficult to use that term but the socialist leaning governors and people and so on make it very difficult to get really hardcore liberal change happen in Argentina. So I want it to work to be clear. Now, if he gets the dollarisation plan pushed forward and actually implement dollarisation, I think that would be a very good sign that many other things will get done. But they're really delaying dollarisation and I think they need to push that forward ASAP.

That should be the first thing they've done, but they went a different route to do it.

That was a very incorrect move.

So I wouldn't say bullish, but I'm 30% optimistic about Argentina.

Tobi;

Do you think countries that are poor today or I would say low income, that is below middle income, do you think that they can benefit from this multipolar world where global trade is fracturing and there are now talks of nearshoring and friendshoring. What are the chances that some of the countries that are poor today can, you know, seize those opportunities?

Rasheed;

See, generally speaking, I think these are more concepts in the academic sense than in practical sense.

You hear about nearshoring, for example.

What does nearshoring actually mean?

A lot of manufacturing has really been put in China but that hasn't actually changed in the last two years. People always use the examples of, oh trade between Mexico and the US are going up; okay, fine, yeah, but the manufacturing concentration in China didn't go down. [It’s] still as high as it was. So it's very difficult to really understand what these concepts really mean in practice

I don't think multipolar world makes anyone's life any easier. It probably makes it more difficult. I don't think nearshoring will have a very big impact on anything in the short term. What would happen, or what will happen, is that China, as they go up the income ladder, in theory, will be more expensive to manufacture goods in China, some goods.

Again, these are very basic goods.

It'll be more expensive to manufacture in China and therefore they might go to Bangladesh and so on. The problem there unfortunately is China is still very poor in terms of population proportions. There are 40 percent of China so literally poor. So the next China will still be China in this sense. They already have the baseline manufacturing talent, machinery, managers, you know, chemicals, all the know-how is still there. So they can just essentially push that game for at least 20 more years as things go on.

So I don't know if you want to wait 20 years for China to be completely middle income for thinking about if that kind of near-shore, offshore benefit can benefit countries in Africa, for example, as that's too long a period.

So I don't think that will have a material impact in any way as a strategy particularly to use it as growth in these small, currently poor countries.

Tobi;

Can you see a future where the Commonwealth, for example, can be a trade bloc or maybe even a loose political union like the EU?

If no, why not?

Rasheed;

No.

And the Commonwealth is not a real thing for 50 years.

Like, the only thing, the only thing the Commonwealth has in common is the English language.

Tobi;

That's something.

But go on.

Rasheed;

Well, that's a nice thing, right?

Netherlands speaks English better than some states in the Commonwealth, right?

So that's not enough. There's no core in the system. There's no common policy. There's nothing. There's literally nothing you can do to put Sri Lanka, Barbados, and Canada in the same block politically.

There's nothing you can do.

And no one wants it, it's not going to happen.

Tobi;

Would it be a worthwhile economic project though?

Maybe something like NAFTA? Or…

Rasheed;

No, it would not be. Again, you import things from China, not from, you know, the UK. So if China is not inside the bloc, the goods don't change prices. Also, you export to the US and there's no way the US is going to give you preferential taxes.

Tobi;

We are seeing things flaring up in the Middle East.

There's Russia and Ukraine.

There's Sudan, Central African Republic that is getting really ugly. Do you see a sort of global conflict similar to, say, World War II in the next decade?

Rasheed;

It's obviously very difficult to predict things like that.

If we were to assign a probability, maybe 5% chance, which is, I think, too high, but perhaps 5% chance in a decade.

A decade's not that long, so probably 5% chance.

Tobi;

Final question, which is kind of a tradition on the show. What's the one idea that you would like to see spread everywhere?

It might be your idea. It might be something you're working on. It might be an idea from anywhere.

But what is that one idea that you would like to see gain a lot of prestige, like to see spread, like to see have a lot more influence?

Rasheed;

Small countries should get Rid of Their Local Currency and Use the US Dollar.

Tobi;

Why?

Rasheed;

It is better for them because it doesn't allow their governments to monetarily finance the deficit. It allows you to have more economic freedom because you are not constrained by local capital controls. It also allows obviously low inflation because the U.S. inflation will be there for your inflation. And I trust the U.S. Central Bank a lot more than I trust Nigeria Central Bank, for example. And also it allows you to trade a lot more easier because you don't have to worry about currency exchange risk.

In terms of foreign investment, that's also a lower barrier to entry because foreign investors don't have to worry about things going, spiraling around in Nigeria where they have high inflation, they have exchange rate risk, or if, for example, the government decides, okay, we are going to put laws so you can't take your money out of the country.

So dollarisation is the general term that's used to call this concept I'm talking about. It’s actually one of the most pro-liberal, pro-free market, pro-freedom policies a country can do that doesn't actually require that much work.

Tobi;

That's interesting.

Thank you very much, Rasheed. It's been fantastic talking to you.

Rasheed;

You're very welcome.

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In this episode, I had a conversation with economic historian Johan Fourie, who is a professor of economics at Stellenbosch University, and the author of one of the most enjoyable books on economic history called Our Long Walk to Economic Freedom. We spoke about the resurgence of economic history, particularly in Africa. Johan attributes this revival to multiple factors, including an interest in understanding past economic patterns, technological advancements enabling data analysis, and scholarly work drawing global attention to the field. We discuss Africa's economic development, noting the continent's reliance on primary goods and the impacts of political and economic policies on growth. Johan stresses the heterogeneity within Africa and warns against generalizing the continent's economic narrative.

The discussion then delves into the role of ideas in shaping economies, with a focus on industrial policy. Johan highlights the importance of empirical evidence in policymaking and warns against the potential misuse of industrial policy for political gains. He emphasizes the need for a more inclusive research ecosystem in Africa, advocating for better representation and the promotion of economic history as a vital sub-discipline.

Johan also addresses the importance of economic freedom, defining it in simple terms and discussing its implications in policy decisions. He touches on the challenges of racial history and representation in academia, emphasizing the need for diverse voices and a marketplace of ideas for better policy formulation.

Finally, Johan discusses the optimism inherent in economic history, acknowledging the significant progress humanity has made while remaining cautiously hopeful about the future. He advocates for policies that ensure the equitable distribution of the benefits of increased productivity, highlighting the potential of new technologies to contribute positively to Africa's economic growth.

Transcript

Tobi;

Welcome Johan. It's good to talk to you. I guess where I’ll start is economic history is enjoying a bit of a renaissance, I'd say. Personally, for me, I'll say in the last five years I've read more economic history books and papers than actual economics itself. So I just want to ask you, what was the turning point, at least in recent time, why does economic history seem to be having a moment or its moment right now?

Johan;

I think there are many answers to that question. I'll focus on African economic history because I think that's something, firstly, that I know a little bit of, and secondly, that the factors that affect African economic history might be slightly different than those that make economic history attractive to, kind of, global audience.Although I do think your sentiment is true also for for global economic history, that there's certainly been a resurgence in interest. Of course, they were previous episodes where this also happened in the 1960s there was a great interest in econometrics, but that kind of died down by the 80s and 90s. And certainly I think in the last decade or two that's made a comeback, but certainly in African economic history, also by the 60s and 70s, for different reasons, again, because of the end of the colonial period and many Africans being interested in their own economic pasts; it was, you know, certainly intended to improve the development outcomes of many of these countries. And so studying what had happened in the past became important. And then by the 80s, you know, for reasons like the shift in history towards more cultural aspects of African history and, perhaps, also, to some extent, the fact that economics became more technical, more mathematical.

The fields really, economic history really, had kind of dialed down interest in Africa's past, but perhaps also to some extent, the fact that many African countries were struggling to grow. And so there was little interest in understanding of why these things had persisted. But by the 2000s, of course, African growth turned around and, you know, this is a continent [where] there were several countries that were growing quite rapidly and you had this covers of The Economist and Time magazine and all that was talking about Africa Rising, all these things, but also, I think, an interest by scholars, often scholars based outside of Africa, to understand this resurgence or what Morten Jerven called the, kind of, recurring African growth. So we know actually in the past that this had happened, that there were periods of growth. But understanding why there are these fluctuations became quite important. And then that combined with the ability to transcribe large historical data sets. Find many of these sources in African archives and then transcribe them and analyze them. So access to computing power also.

So it was both from a demand side like interest in Africa's past and also the supply side, the fact that they were now tools that would help us analyze what had happened in the past, that really kind of created this resurgence or Renaissance as some might call it. Of course, you know, initially led by economists in some of the leading universities. Work by, you know, James Robinson and Acemoglu, Nathan Nunn who wrote a book on slavery that was quite prominent and really pushed interest into the field. And so various kinds of groups of people, you might kind of think of them as two types, the one with the economists interested in kind of causal persistence studies. So thinking of how past shocks still affect the present outcomes and others, who're more kind of classically more like an old school economic historians that are interested in actually understanding long term patterns. So thinking of wages or standards of living or trade statistics that are actually trying to collect them and rebuild them for many African countries, because we don't actually have long term series for many of the regions across Africa. So I think that's really the main reason why we see this kind of renewed interest. And you can see that in, you know, participation of African Economic History Network meetings where you see papers maybe 10 or 15 in the early 2010s. And now you have, you know, the most recent conference in Pretoria was about 100 people attending. So it's a really massive growth in the participants and researchers trying to study Africa's past.

Tobi;

What immediately comes to mind, and when I talk to people, ordinary Africans, I should say, is that how did Africa sort of missed the boat on prosperity? I mean, as you said in your answer, growth has been recurring in Africa, but it has not been sustained enough for Africa to really join that group of countries that had a sustained growth spurt for decades. It happened a little bit in Latin America. Of course, East Asia is the most famous example of this. I mean from history what happened in Africa?

Johan;

Yeah, I think the thing to stress is that Africa's experience has been quite different from, say, you know, a Western Europe, or if you want to take the kind of country where it'll started… this sustained period of economic growth - Britain or, you know, England more specifically. So what you find is you also find periods of quite rapid growth in Africa. But then, as you've just mentioned, there are periods of stagnation or even decline in many countries. I mean, that's a very valid question, is why is that? And again, there are, you know, a myriad of different reasons. I think one of the things that one should keep in mind is that Africa's economies are often tied very closely to kind of mineral resources, and even before that, before the mineral era, to cash crops. And these prices often fluctuate quite a lot. And so you would find periods when there's a boom cycle, you would find obviously countries doing quite well. But then when these prices collapse, then of course these countries suffer. So that's a very obvious reason. And of course there are other countries in the world that also are tied to kind of cash crops or minerals, and they seem to have experienced less of this. And that is also, of course, true.

But it's worth keeping in mind that for many African countries, they have a pretty short history of independence. So it's really only in the last 70 years or so that African countries are independent and where the economic policies are not determined by some, you know, European power. Of course, you can think of pre-colonial times before the kind of mid-19th century, but even then, these were mostly kind of subsistence based or focused on trade in commodities, cash crops and, even before that, of course, in slave individuals. So it's really only in the last 70 years that we can think really of kind of modern economic growth in many of these economies. And then, for example, think about industrialization, you know, growth of manufacturing and more recently, service industry. But many countries are still very much tied to primary sector exports and therefore are closely correlated to these international price fluctuations. So that's kind of one reason.

Of course, one could also think of political economy reasons that we see quite also large fluctuations in terms of political regimes. Often we find coups that undermine kind of longterm economic planning. Many people will also argue that, you know, there was involvement of international organizations setting certain rules for African countries, certainly in the 1980s and 1990s [that] put them on a different trajectory. But I think the kind of point is that actually many African countries were relatively young and therefore tied to very much primary goods exports and it's only really in the last 3 or 4 decades where we could see this kind of shift. And in fact, by the 2000, when we do see some growth, I suspect we do see lower levels of fluctuations than we did, say, 50 years earlier. So maybe we’re just too soon yet to think of African countries as echoing some of the trends that we would see elsewhere in Europe, maybe from the early 20th century.

Tobi;

I want you to, like, disentangle this for me a little bit more. So I'll give you one example. There is a famous graph. I think I've made my own versions of it as well of income per capita growth, say, for Nigeria in 1960 and, say, South Korea. And you could see this huge difference as time goes on.

Johan;

Yeah.

Tobi;

And you speak to an average African, and especially in today's world, what you hear is that why can't it be here? You know, what is so different about Africa, especially given the experience of other countries that started seemingly at the same level over the same time period, same 60 years or 50 years, or however it is you want to slice and dice it? So really, what are the factors that we can point at? Because, I mean, this leads to various speculative theories, whether it is culture, corruption or the kind of leaders we have, you know, so many things. So just disentangle for me, what makes Africa… I don't want to say different, but why has growth really been sluggish?

Johan;

Yeah.

Tobi;

Because people are impatient.

Johan;

Yeah.

No, no, and I understand fully the impatience. I mean, I'm also impatient. Right. And so when I was a student we had many of these issues and now we still have many of these issues and then, you know, you study economics often with the hope to help improve [the] living standards of people obviously in [your] own area, own country, but also across the continent. And yet, you know, it doesn't happen as fast as you hoped it would. I think the one thing to say, first up, is to say Africa is obviously a large continent. So there's also a large variation within the continent. And I think we tend to forget this.

You know, we treat Africa quite often and when I say we, I think scholars often treat Africa is a kind of homogeneous place when we talk about Africa or sub-Saharan Africa. But in fact, there are many, many lessons on the continent where different countries experience very different things at different times. They might be, you know, a stereotype of, in the 80s and 90s things were bad, in 2000 things were better. And so, you know, a generalization guess. But even within that, you know, the fastest growing country in the world in the 1980s and 1990s was Botswana. So there are exceptions to that rule. And I think those are the helpful exceptions, because they help us understand that perhaps these things are not kind of cross-cultural. Right. So it's not the Africa dummy, for example, the famous 1990s papers that try to understand this coefficient that was called the Africa dummy that you would always throw in in Africa coefficient and it would come out negative. And so it seemed to be this universal truth that there were something different about Africa. And the kind of underlying message was that it was something wrong with Africa. But in fact, you know, again, if you look at within continent variation and even within country variation, you find very different stories that there are certain places that are doing quite well and others that are not. And so it can't be just some unilateral thing that's true for the entire continent.

But you are indeed correct, right? So if you look at 1950, 60, South Korea versus African countries, that many African countries, cities, the labour, the average wage rate of unskilled labor in African cities were higher than those in South Korea or several other Asian countries. And so what has happened in the last 50, 60, 70 years that meant that, you know, South Koreans became much more prosperous versus Africans? I think the one thing leads back a bit to the earlier conversation we had about minerals in Africa, had minerals and focused on cash crops. Again, Africa's geography means that there's a lot of variation and so different countries focus on different things. In South Korea, what many thought was a disadvantage in that they weren't any minerals. agriculture is not a main export commodity for South Koreans, which meant that they we're almost forced to go the industrialisation manufacturing route. Right. So focus a lot on education, perhaps bringing in some imports that will allow them to disentangle those things and rebuild them much cheaper and then export them. So an export-oriented view of their industrial policy versus African countries that often try to do their own thing.

They say, well, we're going to substitute our imports. We're not going to import. We try and build our own factories here, produce our own cars here, models very similar to what had happened in Latin America, which, you know, clearly wasn't the kind of successful model that many had hoped it would be. And so it's in some sense a policy decision of what had happened, what was available, and the potential for growth choosing a sector that perhaps in Africa means some growth in some years. Right. So the minerals again, but in other years stagnation and decline, whereas South Koreans would shift their focus towards really building on the inputs that are necessary for an industrial society. So focusing on education, it's not to say that it wasn't education in Africa in the 50, 60s and early 70s. There was a lot of spending on it. To some extent perhaps too much almost on basic education and too little on the higher education, which is also like those incredibly valuable technical skills that you need mathematics, engineering, you know, to build a manufacturing base. So it's a policy choice. And it, again, kind of linked to the fact that there wasn't immediate successes, meant that there was always an opportunity for political rivals to make the case that change is too slow. Right. So we see in Ghana, for example, Kwame Nkrumah comes to power with promises of growth and in fact does.

In the early 1960s we do see some growth, right, with advice from leading experts, investments in infrastructure, big plant, you know, massive dam that is built, hydropower, but that comes almost too slow. And a few months after the dam is completed, he is replaced in a coup. And so it's the frustration with the slow progress that ultimately puts Africa in this… well, I make the same mistake, generalisation. But in many African countries, you see this kind of process of growth and then kind of decline, stagnation, either because of declining prices, international prices, or because of local politics that intervene.

Of course, there are many other things to also add to that story, but I think that kind of summarizes it quite well. And the idea now, I think, is by the 2000s, we, again, see this surge in mineral prices. We see a surge in many African countries’ economic growth. But, you know, can that be sustained? In some cases we see in the 2010s it has been sustained. You know, Ethiopia was shifting towards a manufacturing base. Of course, there were other political concerns that had happened since. But in other places like Angola, you know, quite rapidly growing country, but then when the oil price collapsed, again, struggling. So, again, experiencing that volatility that is so characteristic of many African countries. I'm not sure if that answers your question, but that at least is. So, you know, I will just end by saying it's not just something that's innately Africa. I mean, think that's exactly the wrong conclusion to come to because that doesn't help us. Right? So that doesn't leave us with any policy interventions that we can, you know, lessons that we can learn. It basically seems like it's deterministic, it's fatalistic. In fact, that's just, I think, the wrong approach. I think it's really trying to understand what are, in fact, in each country, the reasons that we see growth and then stagnation, and then trying to understand what could be done differently now to prevent that from happening again.

Tobi;

I mean, I will say that I am also guilty of generalization, and I do take your point on variation very seriously. So when I do say Africa, just know that there's a caveat to that. Um, so let's talk a little bit about ideas and the role of ideas. Ideas do not exist in a vacuum. They do have influences. And also in my own experience, I've seen situations where you have scholars making arguments that are highly contextual to their environment, and you see those same ideas being used either in policy or as justification for an existing policy here in Africa, I would say in Nigeria more personally to my own experience. So I'll take one example with industrial policy which is back in fashion right now, and you see arguments from … I mean also quite relevant to a recent blog post. Industrial policy is really, really, sexy right now. It's in fashion and many people are talking about it in the context of what is happening in the United States, in Europe, in China. But the point is, over here in Africa, in Nigeria specifically, we've been here before. Industrial policy works rather differently here. And what I mean by that is, it is very, very sensitive to capture, you know. But you do not get that carefulness when scholars are making such recommendations, you know, so it's always like industrial policy works and if you are against it, you are an ideologue. So the role of ideas, especially, also historically, post-independence, you talked about this a little bit in your book, how ideas influenced the trajectory of growth and social development generally in Africa, of course with variations, I know.

Johan;

Oh, yeah.

And I think that's a great point, is that ideas do matter. Right. And sometimes you do feel like you're swimming against the tide when you make a case for, you know, let's use the example of industrial policy, when you make a case for, well, we should be cautious for using certain industrial policies in countries like South Africa or Nigeria, when, you know, you're indeed right that everyone seems to be on the bandwagon of yes, industrial policy can work and should be implemented if you are at all concerned about, you know, development or growth. And that's very difficult. And I must also add that you're also right that politicians in a very rational way, from their perspective, abuse some of these ideas, right? So they choose which ideas suit them in a specific context. You can always find an economist that, you know, would be able to convince you of a certain policy. Right. If you think of kind of labour policy like minimum wages, you can find economists that will say, yes, minimum wages is a great thing. And then you would find someone that would cite the first year textbook saying, no, it's a terrible thing, right?

My hope, I guess, and I'm not sure this is in fact viable, but it is that we move increasingly towards a more empirically based, and certainly economics has done that over the last two decades. To focus on what can we actually prove? Maybe we've gone a little bit too far. But the idea that we can actually test whether, you know, something like a minimum wage works is a very useful way of saying, okay, well, instead of focusing too much on theory and making certain assumptions and thinking what might happen, let's see what has happened in the past and potentially then make decisions based on that. Industrial policy, in fact, as you say, that there's a new literature on this, and many of these scholars actually make the same claim and say that we haven't actually indeed tested the impact of industrial policies to any great extent. And the cases where it has happened, we find actually evidence that in some cases it worked and in others it hasn't. And so understanding when it works and when you know when to say works mean really leads to actually, you know, economic growth and where it really seems to have made very little difference.

We need to understand why that is. And this is really where history is very valuable, that you can construct the theory and test it in one setting, and it seems to have a positive impact. But if you use that same theory and test it somewhere else and it doesn't, then clearly we need something more in that theory, right? We need to have the factors that affect the success, the outcome of these policies. We need to understand what they are. And this is really where context, I think, is incredibly important. I think some of that just to, kind of, you know, make the point about industrial policy. One of the things that seem that these new authors, [when] I say new authors, they, you know, they are not young authors necessarily, but they’re returning a discussion on industrial policy that, perhaps, was lost for a decade or two. I think what they have now agreed on is that, [and] one of the things that I find striking is that actually it's more likely to work in big countries than in small countries, and that almost all countries in Africa are small. And so that's something very important think to take note of, which also to me is a signal that we should be more cautious than optimistic about the likely effect of these policies. But as I've just said previously, politicians tend to also abuse, you know, these things. And certainly from a political economy perspective, for a politician, an industrial policy seems like something that can sell to voters. So to say that I am going to build a, you know, special economic zone and we're going to attract X number of jobs. And, you know, I'm going to be at the ceremony where I can cut the ribbon and show you that this has been done. That is a very, very attractive thing. Whether that actually in 5 or 10 years down the line have any impact, that's a very separate thing. And by the end, the politician’s probably not really in the game anymore.

And I think, my sense is, I'm not sure this is what the authors have said, but my sense is that that is far more likely to happen in a small country than in a much bigger economy. So that's partly why I think in smaller countries, with smaller I don't necessarily mean, you know, few people, I mean low GDP per capita, I think politicians have a greater ability to exploit the weaknesses of industrial policy than in larger economies. And so that's why I am a little bit wary of these policies. That's, again, not to say that the state shouldn't have any involvement in the economy. Right. So they are certainly places where the state, of course, it should provide public infrastructure. Right. So, you know, no private sector should just have 100% authority on what infrastructure is built. The state has an incredibly important role there, and that inevitably does imply industrial policy. If you choose between an airport or a harbour or, you know, new a telecommunications cable or whatever, that's an industrial choice that you make. So it's inevitable that you're going to make industrial policy choices. But I think where it gets to policies here where you can have politicians exploit that for their own benefit, I think one should be very cautious, right, where it’s, you know, favoring certain industries with tax policies or these kinds of things that just seems like you're setting yourself up for failure.

Tobi;

I mean, still on that particular idea and the role of ideas generally, one could also come to my mind and that I'd like you to help me understand historically is the issue of state control. Because I mean, like the title of your book, and a theme that you consistently explored throughout the book, the importance of economic freedom seem to be something that a lot of African countries struggle with.

There is an overwhelming sense that the state has to be involved in everything, not just the political life, the economic life, the social life. And sometimes I find that very contradictory, especially given the history of repression that happened all over the continent with slavery and colonialism. So how has this evolved into what it is now? Why is economic freedom or the idea of freedom generally, but don't want to see freedom because no democracy is quite popular. You cannot struggle to find democratic movements anywhere in Africa. So, but, especially getting the government relatively out of the economic life, why is it such — sometimes you feel like it's a taboo idea. It's almost unAfrican to even suggest it. You’re labelled a libertarian or a neoliberal. You are someone that is bringing unrealistic ideas that is not African.

Johan;

Yeah.

Tobi;

So, where did that come from?

Johan;

Yeah. So I think that's a great, great question. It's something that I've thought about a lot. And sadly I don't think I have an easy answer. I think where economic history can help… So so let me start with economic freedom before I get to where history can help is, you know, there are many different definitions of what economic freedom is. Mine would be very simple. And that is that you've got the freedom to choose what you produce, how much you produce and what you consume, and how much you consume and from whom you consume. And so that's a very simple definition, but it's a very valuable definition when you think about any state policy or government policy. You know, if there's an increase in taxes, does that remove people's freedom to produce or consume, or does it add to their freedom to produce or consume? Almost always, when the state enacts a new policy, it seems like it removes people's freedom. If you raise the tax rate, obviously, so let's say you've got a value added tax, if you increase that, obviously you remove people's ability to consume, right? Because they now have to pay more to the government. And so prices increase and therefore they can consume less.

Industrial policy often means that it benefits one sector, but at the cost of others. Then you have to weigh up the freedoms to produce for different sectors in the economy. In my own country, of course, for very long, black South Africans before 1994, they were forced to live in certain areas. They were forced to own certain land in certain areas, they were forced to buy from certain retail stores and not from others. So it's a very, very clear limitation on their economic freedom and the, kind of, to some extent, ironies of post 1994 is that for the area that was considered white South Africa before 1994, these freedoms, well, these unfreedoms were removed. So they gained the freedom, black South Africans in those areas, but actually in many of the former homelands, the previous unfreedoms, right, so, because, again, there, you're not allowed to own private property in many of those places, there is traditional systems that stood in place, property owning systems, you actually see that those unfreedoms have remained.

So if you look at a map of South Africa today, a third of South Africans still live in the former homelands, the only way you really escape from those unfreedoms is if you move to the cities, right? And so it's a very useful way, I think, to think about the underlying things that allow you to prosper. The underlying factors, the ability to consume and produce what you want. You know, the kind of classic Adam Smithian invisible hand that should be able to be dictated by market forces. Now, again, that's not to say that the state has no role to play, but every additional policy that the state intervenes with does have limitations on freedom, and one should keep that in mind. Now, of course, you know, certain state policies promotes freedom, right? So in South Africa we have a large grant system. So we tax the very wealthy part of the population. It's actually one of the largest transfers anywhere in the world. We tax the rich and we provide grants, 350 rands a month, to the poorest of the poor. A very well targeted grant, I must add as well. So that lifts the freedom of the poorest, which is correct. Right. That's exactly what the purpose is. It provides them with some form of income which allows them to buy the basic necessities. So I would argue that actually a pro-freedom policy, even though it's a state policy, it's not determined by the markets. But in many other cases, we find where policies are actually doing the opposite. They actually promote coercive involvement in the economy. And actually that leads to inefficiency, which is, you know, terrible for promoting prosperity, for annihilating poverty, all of these kind of things that we actually care about.

And then to kind of get back to your question about whether this is, again, like, something very uniquely African, I don't think that it's something that is particular to this continent. I think even if you just look around the world today there are unfreedoms everywhere in many countries. But I also think if you just look in history and this is really why I think the study of economic history is so important, that this was true for almost any society before the 1800s. So, basically, the state was there to kind of coerce people into producing certain things and consuming certain things. And it's only through a very kind of slow process over decades and centuries that these freedoms were relaxed. Right? Often competing elites and, you know, the one elite will promote the freedom the other one wouldn't. And then ultimately, these economic freedoms were relaxed. It was combined with the opening up of democratic freedoms and political freedoms, which, as you have rightly mentioned, is something that is very valuable in Africa. Right. And that's exactly why we want to promote that further, right? That people ultimately have the right to vote against policies that limit their economic freedom. And so I am kind of optimistic that ultimately, you know, again, this won't happen next year or the year after, but that more democratic freedoms will lead to greater economic freedom. But of course, with kind of a large confidence bound. Right. So there will be some variations. Some countries will slip back becoming more authoritarian or coercive, and others will hopefully allow people their economic freedom. And then those should act as lessons for other countries who suffer from the poorer standards of living, to hopefully see what is happening elsewhere, and then learn from that and enact the right kind of policies.

Tobi;

My next question is a bit of a two part question. So the first part would be if you look at the policy circle today, I'll say it's been, you know, monopolised by the development industry or development community. So you do not get a sense that policymakers think that we can learn anything from economic history. So if you can just tell me a few things that you think economic history can teach us, especially on development.

Johan;

Yeah. I think you're right to say that there are many policymakers who don't even know about economic history. So maybe that's a good start, right?

Tobi;

Yeah.

Johan;

Ecause it's not a field, a subdiscipline of economics that is very well known. But I think to make the case for it is to say, we are all humans and often the only way we learn is by telling stories. If you're a politician and you cite statistics to an audience, no one's going to remember the statistics, right? Then certainly if you tell them something about economic theory, they're not going to remember that, but they are going to remember stories. I mean, I think politicians know this very well. […] has called this analogical reasoning. So you take some event in the past and you turn it into a story analogy for today, and you repeat that story, and then people tend to get on board. Right. And so the famous example, of course, is the Great Depression that was used as an analogy for the Great Recession in 2007. You know, Ben Bernanke, who had been a student of the Great Depression, could tell that story to policymakers, to the public, and convinced them that, actually, what happened in the 1950s, you know, there were these different policy interventions that were illthought through and ultimately had bad consequences, and we should do something different. So quantitative easing in 2007/08 was the, kind of, response to that. And, in fact, that was why it turned out to be a recession and not a deep depression for many years.

So those I think are valuable. So your question is about, you know, what do we learn about development? You know, this is massively broad. So but I want to return to the to the industrial policies of Latin America and to some extent many African countries. Where you find these import substituting policies that were implemented. This idea that, you know, we should make our own stuff, we should build our own cars, we should build our own manufacturing, our toys, our own manufactured goods. And then that will give us, you know, the factories that will ultimately lead to an industrial workforce and, you know, make us prosperous. That's a very attractive story to tell, right. And think, by the 1950s, many of the leaders in Latin America and in 60s in Africa could tell these stories because they could witness what had happened, say in the Soviet Union, maybe even an illinformed opinion about what was happening in China. And this gave them the stories to convince their electorate or their constituents that this was really the way forward. Right. And the attraction there that it's an active intervention, right, that we can do something about it as a state rather than just say, you know, laissez-faire and things would go on as normal. The sad reality is that, actually, agriculture in Africa was doing quite well by the 1950s and 60s. It would have been far more sensible thing to support those sectors - and these were African farmers doing very well, they were producing for the international market, they were exporting their goods - instead of taxing them.

So, what was the ultimate implementation of the policy was that agriculture got taxed with the intention to build these factories of manufactured goods that were clearly, you know, inefficient and failed dismally. But in fact, if agriculture had been supported, you could have imagined a very different outcome. And I think that's really a lesson that hopefully we don't see a repeat of what we did in the 1950s and 60s. But there are, of course, many, many other lessons as well. Education. You can think of health spending. You can think of various kinds of monetary policies and, you know, high levels of debt. With the expectation that they will be very high growth many countries borrowed excessively. And then when the growth didn't materialize, then, of course, they fell into massive debt and they had to cut back and there were all these structural adjustment programs.

So almost in any subfield of economics I think there are lessons from the past that you can learn. I think that the challenge that economic historians have is to sell those, right, to sell those lessons in a way that is attractive to a policymaker and to a broader public, because I don't think there's enough of us that's trying to do this. This is partly what I'm trying to do through the blog. But of course, you know, this is only one blog and I don't have any direct links to governments, but I hope that there would be a new generation of African economic historians who would be able to do that, that would be able to tell these stories. And so, you know, I've studied what happened in Ghana. There's great work being done by Emanuel [...], for example, at Harvard on this period. And so taking those lessons and saying, you know, what is it that we can learn from this for industrial policy today? I think that would be a wonderful contribution to economics, rather than simply saying, okay, you know, let's just look at what economic theory tells us. Not to say that that's unimportant, but I don't think that's how you sell policy interventions to politicians, because ultimately what they want is they want the narrative, they want the story - how do I convince my electorate or my constituents that this is the right thing to do? And so we need to be storytellers. And I think Africans are great storytellers. We just need to tell the right stories. So, hopefully we can see that happening in the next couple of years.

Tobi;

One of the things I like most about your work is not just the output itself, but the kind of research ecosystem that you're building around you, and how do we get more of that in Africa? How do we expand the research ecosystem? Not in an exclusionary way, but I think it helps bring the evidence, the practice, closer to the policy and the politicians and the other people of social influence that matters. So, what are the levers to pull to expand economic research, scientific research and other things in Africa generally?

Johan;

Yeah, I think there are multiple levels to answer that question. The first is, I mean, if there are any listeners that are keen, you know, that are economists or historians and keen on economic history, then signing up to the African Economic History Network, for example, where every year there's a conference and that network is supported by some of the leading economic historians of Africa, often based in Europe or the US, some also on African soil. And that is a scholarly environment where you can really get to the frontier of what is happening in the field. So that would be a great first step, I think, even for students, right, that are, you know, keen to follow this kind of path of economics or economic history and just to see what's happening at the frontier. So that would be. But of course, and I've mentioned before, there is quite a lot of, still, education spending and high levels of literacy in Africa. But often where we lack is the higher education level, and even at the higher education level, we don't really see this kind of broad-based approach rather than a focus on specialisation. So I do think that there's scope for African universities to expand their offering of economic history specifically, but also focus on economics.

And here I should mention, Leonard Wantchekon at Princeton, who is investing an incredible amount of time and resources in building what he calls the African School of Economics, right? So he started in Benin and then expanded to other West African countries and now he's also planning to do this in East Africa and Southern Africa, which is an incredible, you know, achievement to build these universities from scratch, to engage students in there, and then hopefully some of the best students, to send them to the US, to top universities. And to build, really, a cohort of new trained economists in some of the frontier fields of their disciplines. And hopefully those economists could either stay in the US and train more students or come back to Africa and become policymakers themselves, or at least interact with policymakers. So that's at the kind of the macro level.

At the micro level, I would say just getting more people interested in economic history, turning economic history into courses that economists can take. There's a wonderful textbook produced by the African Economic History Network that is freely accessible on the website that would serve an undergraduate course very well. I would also note that my book textbook, of course, would be able to do that. But there are resources available, and the hope is that more Africans actually access it. The wonderful thing is, if you look at the statistics of these textbooks, most of them do come from Africa. So that's really great, so it is already being used, but that's a very kind of at the undergraduate level. And the hope is that more graduate students in economics specifically would take up economic history, an interest in economic history, and then do their PhDs, you know, somewhere in Europe or the US, and then return.

And think at the macro level, Wantchekon’s African School for Economics is a great model that can be expanded across the continent, where you can have a large cohort of really excellent students. And I'm not saying that, you know, those are the only universities where you can study, of course, Stellenbosch and UCT and University of Pretoria, all are great universities to also study it. And then of course move to the US or Europe where you can do a PhD, but ultimately build up the capacity at that very high level of specialization, where you can interact with policymakers and say, you know, these are the lessons that I've studied or that my peers have studied, and that we can now replicate and ensure that the policies are at least not disastrous. I think that's almost often the best we can hope for, is that we just make sure that we don't implement terrible policies.

No policy, I don’t think, you know, a single policy will be able to turn a country around. But what it certainly can do is to destroy a country's economy. So we should just make sure that, at least, the lessons we learned from the past helps us to not implement those terrible ideas that often quite popular and can sell to an audience, but that we try and avoid them as much as possible.

Tobi,

Final set of questions. Um, so this question is motivated by a recent experience I had which is rather depressing, I should say. So I was planning a conference and I wanted to invite a very prominent scholar, I'm not going to mention his name, who is also South African, and the organizers basically said no, because he's a white South African. So I want to ask you, how have you being able to navigate that as a historian who ask and study the questions that you do, given the racial history of that country and apartheid?

Johan;

Yeah, that's a great question. So, of course, I understand something about the history of South Africa that allows me to acknowledge that, you know, I am fortunate to be in a place where I can do research, where many other South Africans who would have probably been equally or better researchers don't have that opportunity. So that's the first thing, is to say that in South Africa, it remains a very unequal place, often very clearly along racial lines, although not exclusively so. But understanding that it is a privilege to do research, that's a very important point to start from. And so that also allows me to set agenda, research agenda, where many South Africans who would probably be, again, focused on different things in doing research, are not able to do so. Right. So one, I think, important aspect of that is that I try and build a group of scholars and, at least, some of that at Stellenbosch, but but not exclusively at Stellenbosch, where we do try and make economic history accessible to a larger cohort or a more representative cohort of scholars. And that's difficult to do because, you know, as economists, we understand market attractions. And so, if you're a black South African student, to remain in academe is almost an irrational decision because the private sector will simply pay you much, much more certainly as an economist than what we can pay you at a university. So these are not easy problems to solve. If they were easy, we would certainly have done so already. But it is something that I tend to think about a lot. Right? We want to make the field as broadly accessible as possible, of course, with the focus on the exceptional. So we want to bring in the exceptional students from all across South Africa to do research with us.

I think in asking certain questions, I think there are certain topics where I certainly know that I'm not an expert in, and therefore I would make sure that I am not the one who try and write the expert pieces on this. Right? So I, for example, would not be the one studying Nigerian economic history simply because I think you need a lifetime almost of research to know the diversity of Nigeria's both current society and historical trajectory. And the same is true for many other West African countries. So much of my own research is focused actually on South Africa, and even in fact more narrow on the Cape Colony, simply because I do have a little bit of that historical awareness of the different influences of our own place, of our place here in the Western Cape of South Africa. So I think it's important to have that awareness that, you know, I'm not an expert on all aspects of African economic history. And certainly, I don't think anyone can be given what I've mentioned before about the diversity of the continent.

What I do think I can add is, again, this emphasis on making economic history an important subdiscipline of economics. So more than just the pure content of producing new research on a specific area or other specific time period, it is to emphasize how important understanding our contexts are and then making that accessible to a broader audience. And think there are wonderful scholars already doing some of that, historians doing great work in writing more broadly accessible histories of Africa. And of course, I would challenge some of my historian colleagues to say that I think more economic history should be included there, and some of the latest research can really help in doing that. But, you know, my position here at Stellenbosch is really to try and encourage as much, and a kind of inclusive, broad-based research endeavor, and in helping that research or supporting that research to become accessible to a broader audience, both public audience and policy making audience.

I mean to, kind of, you know, get back to your very sad example is, I mean, to some extent understand the response that they are representative claims in who should inform policy and given Africa's history for how long, you know, white scholars or European scholars have acted as if they, you know, understand exactly the local context and have a full grasp of local knowledge and how that was, you know, illfitted to the advice that they gave, just simply didn't fit the kind of local context. So I think one needs to be aware of that history. Right. It will certainly be wrong to ignore that and say, you know, this is a move that, for whatever reason, seems illogical. I don't think it's completely illogical. I think history matters in explaining this behavior. What I hope is that there will be multiple voices, so that people can interact with one another, that it's not simply only one group or one person or, you know, one ideology we can pick and the others are not allowed, but that there will be engagement. And, in fact, that’s exactly what you are doing now is a great example of that, that there would be engagement and that we could be able to listen to one another and think all… well, maybe not everyone's voice. It's difficult to incorporate everyone's voice, if we say that. But ultimately, I think there should be a market for ideas, right? And ultimately the right idea with the right empirical support should be the one that wins out. And the only way we establish that is to contest ideas in this marketplace. And if we don't allow that, then sadly, I think we are going to sometimes hit it lucky and we can have the right idea for the right time and great. But often, more than often, we're going to miss the right idea and then the consequences would be sad. So i think that's the way I would think about it.

Tobi;

Mhm. I mean, I realize I could spend another hour barraging you with questions, but I think market for ideas is a good way to close this out. So my last question would be: what's the one idea, it may be something you're working on, may be an idea from someone else, but what's the one idea that you think deserves to be more popular, deserves to be more influential? It could be anything. What's that one idea for you?

Johan;

Oh, it's a tough question. I guess if you asked me a week ago, I would have one, and the next week I would have another. But let me try. I think there's a really fascinating area of research and this is I mean, might even to some [seem] quite controversial, but I think it's the idea of beliefs, of how much beliefs matter in shaping our economic behavior, and when I say “our”, I mean both at an individual level and at a kind of group or society level. And there's some wonderful work that's been done on the DRC, on the Democratic Republic of Congo by some Harvard economists. And that's been expanded now to other settings also outside of Africa. But understanding why people believe certain things, so, again, this obviously has close ties to history. So, you know, to what extent, for example, does the slave trade affect people's beliefs today or colonialism affect people's beliefs today, or, you know, access to education that might have changed certain beliefs in the past and now is reflected still in the present. Simply because one belief, to mention a single, you know, there are many different kinds of beliefs across the world, but there’s something that I would call the monopoly mindset. It's actually a blog post that's coming out soon, but it's basically this idea that the world is a zero sum game. So for you to win, I need to lose. And this seems to be quite prevalent across the world, but also in Africa. And so I want to understand firstly, how prevalent is this? Because if that is true, right, if people think the world is a zero sum game, then that also means that they would be unlikely to be entrepreneurs because basically what then believe is entrepreneurs must exploit, you know, either their workers or someone.

You must basically obtain profits that you make from some other poor soul that then loses out. Which is, of course, you know, the world is a positive sum game that entrepreneurs are profit seeking, yes, but the profit is simply a signal that they’re doing something right. That the market really enjoys the product or the service that they deliver. Right. And ultimately, we've seen over the last two centuries remarkable increases in our material welfare. So the world as a whole has become fabulously rich, 18 times more prosperous than they were 200 years ago. And even in the poorest places in Africa, you see that the average person is almost six times as affluent as they were 200 years ago. So, you know, these are rough GDP per capita estimates, but in general, that is true, right? We live longer. We live with more access to various kinds of goods and services. So clearly the world must be a positive sum game and yet many people believe it isn't. So understanding how prevalent it is and then most importantly, what determines it. Right. So what causes people to believe that the world is a zero sum game? Or, you know, to have a monopoly mindset? And if we can understand that and then change that, we might open up a much larger and, hopefully, younger generation to the possibilities of progress. Right? So entrepreneurs, innovators, so it can unlock, in some sense all, of this and empower is probably a better word people with opportunities that the market society offer. And that really is to me a fascinating question. I'm not sure to what extent I would be able to contribute to that, but I think that's an idea worth studying, and especially if we then identify those factors. So it might be very difficult and intractable to study or to change. But if we do find those factors that can shift this mindset, then I think that's an incredibly powerful tool in the hands of a policy maker to build a prosperous society.

Tobi;

I realise I cannot let you go without asking you this question. And full disclosure, I'm trying to cheat because I'm currently writing a review of your book. So this is like me trying to cheat, in a way. So I find that attitude towards history, that is, speaking about beliefs and positive sums and zero sums… attitude towards history seem to be divided, in my opinion, between pessimism and optimism. And I like the strong opening in your book, especially with the metaphors of the monopoly game and Settlers of Catan. So do you think that history has an optimistic bias? Does history always favour the Optimist?

Johan;

So is the question whether it's historians that fail the optimist, or whether it’s the arc of history? So who… do the winners…

Tobi;

The long arc of history itself. Like, will things always be better?

Johan;

Yeah. No. Because, I think firstly, to answer the first one, I think historians are quite pessimistic people. So I don't think they’re necessarily…[laughs]

That's probably why often like we don't get to hear about economic history because it is an incredibly optimistic story to tell. Right. And so if you're a pessimist, you typically are not going to tell that story. But the point is that we have made incredible progress. Not to dismiss the fact that there are major challenges in the world today, of various kinds, but we are certainly living in a better world than we did 500 years ago. But the question is whether that will continue or not. And If I knew it, I would be rich. I don't know. The one thing I would say is that there were over the last two centuries, there have been multiple scholars, intellectuals, experts that have predicted the demise of societies or the end at least of this progress that we've seen. And they've been wrong every time.

So it would be a pretty bold move now for me here at the South of Africa to claim that, you know, progress is ended. Even though there certainly are a lot of people in the world that at the moment think that, you know, either progress is too fast or the consequences might be too negative and so we need a degrowth movement or something along those lines which which I think, you know, for someone living in any developing country would find quite strange. It would be very strange for me to go to a poor neighborhood in South Africa and convince people that your incomes shouldn't grow. That's a strange idea. So I think the one thing we have that's going for us is that most people, certainly in South Africa, would agree that we still need to grow. There's still a reason to have policies in place. We might disagree on the policies, but we still want policies that ultimately lead to economic growth. Yeah. So I think that's something worth keeping in mind.

And now I've completely lost track of what the initial question was. Oh, okay. This long arc of… whether we're going to make progress? At least we want still progress in South Africa. That's the point I wanted to make. And I think that's true for many other African countries. Whether we will achieve that, you know, I simply don't know. I hope so. I think they are major innovations that are fundamentally changing our productivity. In the book, I've mentioned Joel Mokyr’s two rules that we've learned. The two things that we've learned in history is the fact that we need to use our knowledge of science to make ourselves more productive. We are doing that at a rapid rate at the moment, we are learning things in bio sciences, in natural language processing. Between all of these things, we are learning things in robotics. And you know, we're flying to space at much cheaper rates than before. So we are learning in many different industries, things, and that will certainly make us more productive. So that's great.

The second rule is or the second lesson is that we should use those surpluses that we generate and ensure that everyone benefits from it. That might be more difficult. But again, the only way you do that is through kind of a democratic system, which again, even though there has been some coups and some shift back in political freedoms in Africa in the very recent past, I still am hopeful that, you know, ultimately we will implement policies that will allow those surpluses to be shared. But Acemoglu and Johnson in a very recent book, say that, you know, some of these innovations in AI are very limiting and they will only benefit a small few. I'm less pessimistic than that. I think the ability for every African, whether that's rich or poor to access these systems is incredible and so I certainly am of the view that they are massive gains to be had in productivity. And then my hope would be that we implement the right institutions that allow these surpluses, these benefits from this higher level of productivity to be shared more equitably across the distribution.

Tobi;

Thank you so much. It's been amazing talking to you.

Johan;

Thanks, Tobi. It was great being here.

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In this episode, I had a conversation with Kurtis Lockhart who is the executive director of Charter City Institute - a non-profit that thinks and executes governance models for cities to power developing economies into growth and productivity.

Our conversation started with an update on the concept of Charter Cities and how they differ from traditional models like Special Economic Zones (SEZs), particularly in the context of economic development. Kurtis describes Charter Cities as new cities with distinct governance models designed to drive sustained economic growth and alleviate poverty, primarily in lower-middle-income countries. This approach is seen as an alternative to the model first prescribed by the economist and Nobel Laureate Paul Romer, which involved a high-income country importing its governance to a low-income nation. Kurtis emphasizes a public-private partnership (PPP) model, where a host country collaborates with an urban developer, ensuring local involvement and sustainable development.

The conversation addresses concerns about Charter Cities being enclaves for the wealthy, clarifying that the Charter City Institute (CCI) focuses on broad-based economic growth and poverty alleviation. Kurtis highlights the importance of political buy-in and stability, acknowledging the challenges of expropriation and policy consistency across different political regimes. He suggests mitigation strategies like revenue-sharing agreements, equity stakes for host countries in city developers, and political risk insurance.

Discussing the geographical constraints, Kurtis acknowledges that location and economic geography play a crucial role in the success of Charter Cities. However, he argues that geographical advantages can evolve with changing technologies and transportation networks, as seen in historical examples like the Erie Canal.

Addressing concerns about existing urban challenges and inequalities, Kurtis talked about CCI's involvement in upgrading existing cities and supporting secondary cities, especially in Sub-Saharan Africa, where most urban growth is anticipated. He shares plans to collaborate with Kenya's State Department for Housing and Urban Development to empower select secondary cities through the Special Development Zone initiative, leveraging their success as models for other cities.

Transcript

Tobi;

Welcome to Ideas Untrapped. It's fantastic to talk to you, Kurtis. I've been wanting to do this for a long time.

Kurtis;

Yeah. Thanks, Tobi. I know we've been trying to do this for a while. It's good to finally be on with you.

Tobi;

So let's start from the absolute basics. I'm trying not to get carried away because Charter Cities are something that sort of excites me as well. I should also say it annoys me, possibly in equal measure. So I'll try not to get carried away, but if you can just give me an elevator pitch, so to speak, but you can go as long as you want. What are charter cities and how are they relevant to issues surrounding economic development, particularly in the 21st century?

Kurtis;

Yeah, so thanks again. And I'll start at the highest level I can, and then you can ask more specific questions as we go on. So at the very basic level, the definition of charter cities is new cities with new rules to improve governance. And so why do we think that that's really important? Zooming out, the best way to lift people out of poverty at scale is through sustained economic growth over one, two, three, four- decades. That's what happened in East Asia, in Japan, in Taiwan and South Korea. It's what happened in China, and I think it's what's happening in India now. You then have to ask yourself, how do we increase economic growth rates over sustained periods of time? Economists are pretty agreed that the single greatest determinant of long-run economic growth rates is governance, right? It's institutions. And the problem with governance and institutions and getting good governance is many countries, especially across the global south, lower-middle income countries are, you could say, stuck in poor governance traps.

So the question becomes, okay, how do we reform and change this governance institutional structure to improve governance? It's really hard to do that, it turns out, at the national level. And so we see charter cities as a mechanism - a localised mechanism - in a concentrated geographic area where there are no incumbent or entrenched special interests in that localized area. You can get a lot deeper governance reforms at this local level and that gets people rich within that jurisdiction, within that concentrated space, number one, as well as number two, it's able to serve as a demonstration effect to the broader host country that then hopefully sees that demonstration effect and scales up those governance improving policies across the whole country. And this is what you saw in China when Deng Xiaoping instituted the opening up and reform in 1979-1980, with four Special Economic Zones in the south, Shenzhen being the most famous. But we can get into that if you want to later. Anyways, that's the high-level pitch.

Tobi;

Yeah. So for a lot of folks like me, and I'm sure some other people in the international development community when they hear charter cities, you immediately go back to Paul Romer, the Nobel Laureate economist Ted Talk in 2009. That's the popular conception of charter cities. But like you and your colleagues have reiterated over and over again that your model and the vision that you are pushing differs from that. Can you spell out the differences from Romer's charter city model?

Kurtis;

Yeah, I'm glad you asked this. So basically to go back first, so Paul Romer in 2009 gave his now pretty famous Ted Talk on charter cities, and he basically proposed that a high-income, well-governed country like a Canada come into a low-income, poorly governed country. His example was Honduras. Honduras would then cede [a] city-scale chunk of land to Canada. Canada would then, "import its good institutions" into that city-scale chunk of land and therefore that better governance within that concentrated piece of land would crowd in investment, it would spur business formation, job creation and sustained economic growth. That's the very high-level Romer model. And we can call that the Guarantor Model, [with] Canada as the foreign guarantor. CCI's model is different. We advocate for a public-private partnership between a host country and an urban developer, a city developer. So we don't think, number one, Romer's Foreign Guarantor model is either feasible or number two, very desirable.

Why isn't it feasible? I think you saw in the feedback in the response to Romer's Ted Talk. It smacked a lot of people - this foreign guarantor model smacked a lot of people as a form of neocolonialism. I don't think that's a very fair characterization, but still, it got taken by a lot of people in the international development world as a form of that. I don't think it's fair because charter cities as Romer proposed them were completely voluntarily entered into. It was a free choice among both parties to enter into these things, whereas colonialism was a form of coercion usually done at the barrel of a gun or through some sort of violence. So I don't think that's necessarily a fair critique, but it nonetheless was a critique and speaks to the feasibility of this model. I don't think it's desirable, number two, because I think a lot of the process of institution building needs to involve the host country in the institution building. And I think when you have a foreign guarantor like a Canada just stepping in and bringing in their institutions without involving or partnering with the host country, that kind of cuts off the learning and the muscle building that needs to happen in order for the host country to develop itself more broadly. So, we propose this public-private partnership because we think it's a lot more feasible, number one, especially if you're partnering as a host country with a domestic urban developer that knows the context and what‘s not. And then, number two, we think it's sustainable because developers they have an incentive to maximize land values over time. That's how they make their profits. How do developers maximize land values? They attract as many firms and residents to their cities as humanly possible. How do you do that? You create a fantastic city with urban amenities, good public goods and service provision, with a great business environment, so firms are attracted to locate there. So we think it aligns incentives in that way and also has a mechanism to be financially self-sustaining over time through the profit motive. So that's why we think our kind of PPP approach is both kind of more attractable and more desirable over time.

Tobi;

Okay, so another key distinction I like you to make before we go on is usually when we talk about charter cities, special economic zones come up a lot. Is there a particular distinction between a charter city and a special economic zone or multiple variations of SEZs like export processing zones, free trade zones and the likes?

Kurtis;

Yeah, so this is a great question. So really CCI's version of charter cities, this PPP model is what we can call the next generation of Special Economic Zones. So a lot of Special Economic Zones are restricted to what sectors can operate and get incentives in that zone. So there are textile zones or there are, you know, manufacturing zones or high-tech zones, etc. And then oftentimes these Special Economic Zones are small in scale, so they can be limited to smaller industrial parks where you don't really get the agglomeration benefits that come with bigger size urban agglomerations in cities. So the big differentiator between a charter city and Special Economic Zones is around those two things. So charter cities would be mixed-use developments. So it's not just industrial uses that are able to operate in the city, but also commercial uses and really importantly residential uses. Right? Because then you have people not just moving and commuting to a charter city for nine to five and then they all pile out of the charter city and leave it vacant overnight until the next workday like most special economic zones. Instead, these city cities are places where people not just work, but play and live as well. So you're generating those agglomeration effects that economists hold so dear.

[The] second is size. Right. I mentioned zones are often restricted and become like small industrial parks or export processing zones around ports. Charter cities are city-scale developments, right? And so the big one we use here is Shenzhen was technically called a Special Economic Zone, but it's really a proto-charter city because it was 326 square km (the zone). And this is what we're talking about when we're talking about city scale and you're able to get a lot more co-location of firms and people spillovers from that and then the positive effects of agglomeration can spin out from there. And then the third really important differentiation is decentralized or devolved powers to the charter city. A lot of the time when a zone has and is empowered to operate via a Special Economic Zone piece of legislation at the national level and when they figure out at the zone level that, okay, we got some of the provisions in this legislation wrong, we need to amend this legislation. In order to amend it, they got to go to higher tiers of government like the state level or the national level and negotiate and barter with the parliament for months or sometimes years to get these changes passed. And you and I know that that really stifles business dynamism that slows down an ability of a zone to adapt. And so we think by a charter city having devolved powers over things like business registration, land administration, land registration, immigration, taxation, things like these, and their ability to really adapt on the fly as the environment in that city changes, that'll allow the city to be a lot more dynamic to a rapidly growing city.

Tobi;

I know recently there was a Wired profile about a project you're working on in Nigeria. And one thing that also comes up a lot is, given the sort of informal or affiliation with the sort of libertarian seasteading community, how would you respond to people who say that charter cities are just a way for the rich people or people who don't like government to create an enclave for themselves and not live within the rules of a particular country? So, like, this is a libertarian non-state project so to speak. How would you respond to that?

Kurtis;

Yeah, I'm really glad you asked this because in that Wired article, we spoke with the journalists, we had a good conversation and kind of explained how CCI works with these projects, including Itana and E [Iyinoluwa Aboyeji]. The main push-back that I and CCI give when we're asked this question around, “Well, aren't charter cities just this libertarian kind of project for having political exit?”, is, no. These are co-development strategies [that] you enter into with the host country. As I said, CCI envisions charter cities as a public-private partnership between these urban developers and a host country. And again, I use the term charter cities in our version as the next generation of Special Economic Zones.

Special Economic Zones are a very common form of industrial policy used throughout the entire world. The vast majority of the world's countries have Special Economic Zones within them. There are some 5,500 zones across the world. Not to mention, you have complete UN agencies like the United Nations Industrial Development Organization (UNIDO) dedicated to pushing forward industrial parks and Special Economic zones. Right? And the UN is, like, the main upholder of sovereignty and sovereign nation-states across the globe. I don't think the UN would be involved in anything [that has to do with] subverting these nation states projects as that Wired piece suggested. So that's my main response - is like given most of the world's countries are engaged in these special economic zones that allow for unique rules within their own jurisdictions and given organizations like the UN are involved in promoting these special economic zones and industrial parks, the notion that these are a tool to undermine territorial sovereignty or get these “stateless vacuums” [which] is the term I think the article used is, I think, a total[ly] misleading exaggeration.

Tobi;

But again, I'm trying to look at the nuances here, because taking a broad view and a sort of micro view, at the same time, you've had circumstances or situations where even within the legitimacy of a sovereign state and a national government, a certain class of people who can't find ways to create different space for themselves where they don't have to experience dysfunctions, they don't have to interact with much of what is wrong or bad about the state itself. So how do charter cities, at least your model and your vision, sidestep some of this critique around, you know, inequality, class differences and things that regularly come up, especially low-income countries?

Kurtis;

So I would, number one, grant that some of these new city projects proposed around the world, they're like real estate development projects that are kind of catering to higher income segments. So I'm not going to deny that there are projects that some developers are making that are kind of totally marketed towards being enclaves for the rich. Those exist. Those are not something that CCI cares about, right? Those are real estate projects. We're interested in these city developments. Our vision is to empower these new cities with better governance, to lift tens of millions of people out of poverty. So if we're not having an impact on poverty alleviation and we're solely engaged with projects that only focus on the rich, we're not achieving our mission or our vision. I'll just put that out there.

Now, on your inequality point, I view inequality as like… the Kuznets curve is talked about a lot in economics. I don't like to talk about the Kuznetsk curve because you lose people in the abstract. I think Albert Hirschman, who is an economist that wrote about Voice and Exit, he talked about this analogy of the highway where he said inequality is a bit like being caught in a traffic jam on the highway. Once you're in the traffic jam and you see the other lane beside, you start to go, even though you're still stopped, the fact that the other lane is moving means that the roadblock up ahead, whatever it is, has been removed, and you'll likely be moving ahead soon as well. It's only when there's a huge delay such that you see that other lane going and you guys still have to wait another four or five, six minutes that you start to get really frustrated and angry. So too with inequality and economic growth.

If growth picks up but is only concentrated in, say, upper and upper middle-income segments and is not fully broad-based, some people [to] most people would prefer that to the situation of complete stagnation, right? At least some parts of the population are moving. That's good. It's only when that growth doesn't become more broad-based over time that frustrations will arise. So our hope is that charter cities will kick-start growth no matter how, and then eventually, the growth can become more broad-based over time. And you even have some projects and zones and parks and new city developments that are able to be extremely broad-based from the very outset. So I'd use examples like the garment industry operated through industrial parks in Bangladesh. This garment industry employs, like, 80% women, right? And these women, it's often their first jobs in the formal sector, their first time getting formal wage labour, their first active time in the labour market. And they have upward mobility to go from sewers to middle managers to upper management. And so, sure, some of these are enclaves for the rich. But equally, on the flip side of the coin, some of these projects can be mechanisms for alleviating inequality.

And I want to give one other example above and beyond the Bangladesh garment industry example in lifting up women. I’m a Canadian and in Vancouver, I got to talk about this project called Senakw in Vancouver, where this First Nations indigenous group called the Squamish Nation in Vancouver, they were kicked off their land in downtown Vancouver in, I think, 1910. And fast forward about a century in 2002, I think, the First Nations sued, and the court ruled that they were to receive some of their downtown Vancouver land back. And so the First Nations got this land, this scarce urban land that was undeveloped, and they were like, what are we going to do with this? So they decided overwhelmingly, I think 90% of the First Nations group voted in favour of entering into a public-private partnership with a Canadian developer called West Bank. It's a 50-50 partnership. So the First Nations group would get half of the proceeds and West Bank would get the other half. And the bottom line or the upshot of this is that if this project is successful, it would generate, over the lifetime of the project, $8 billion in the coffers of the Squamish Nation. And that would be the biggest economic empowerment program in Canadian history. So if you structure these things right from the get-go, far from being mechanisms for exacerbating inequality, they can serve just the opposite.

Tobi;

I want to return a bit to the legitimacy question, especially within the sovereign authority and political capabilities of the national governments. I see a bit of a self-selection problem in special economic zones/charter city projects, in that they are successful within the context of a national government that takes development policy seriously. Because when we talk about Shenzhen and China, we know that that project came about out of a shift in national policy when Deng Xiaoping, along with key members of the CCP, chose to open up China and modernize. If you compare with, say, a country like Nigeria, Nigeria's first Special Economic Zone was in 1992. So they are not really particularly a new idea, but they haven't had equal success everywhere. So how does your model sort of control for this? We'll get to the PPP problems much later, but how do you solve the self-selection problem?

Kurtis;

Yeah. So, I mean, there are a few above and beyond the self-selection problem. There are a few other points implicit in your question. Number one is, like, the success of zones and industrial policy and these new city developments in China and East Asia versus the largely kind of lack of success we've seen with things like Special Economic Zones in Africa. Let's take China as the example because it has by far the most special economic zones of any country on the planet. So China's approach to zones, I think, largely derives from its history as a country with a high degree of state capacity and a long history of statehood. It's the most ancient state in existence on the globe, I think. It's been in existence for a long time. And so a lot of special economic zones across China were driven by the public sector, and they were extremely successful. Not all of them were as successful as Shenzhen. Right. The first four were established in 1980. They demonstrated the success of this policy such that they were scaled up again in 1984 with a few more zones, [in] 1988 with a few more zones and more such that by 2010, some 90% of China municipalities had some form of Special Economic zone within them. And these were again largely driven by the public sector.

If we then go to sub-Saharan Africa. Sub-Saharan Africa does not have the same history of statehood or the same level of state capacity as Africa China, right? African states emerged 60, 70 years ago in the independence era in the 50s and 60s mainly. And so we just don't have the same level or ability of the state to be driving forward these massive industrial policy projects as China did. So that's number one. I think the zones will be a lot more and charter cities will be a lot more successful in Sub-Saharan Africa if they are driven largely by the private sector or as we say at CCI, through a public-private partnership. That's number one.

Number two is the location question. In China, special economic zones were paired very closely with urbanization. Shenzhen where 326 sq km of that city were declared a zone, likewise in the other initial four zones, those two things went hand in hand. Whereas in Africa, a lot of zones that are declared, for whatever reason, are declared in the middle of nowhere. So they're not piggybacking off of existing labour markets in already existing cities. They're not piggybacking off of preexisting infrastructure. So, it's oftentimes really costly to build infrastructure completely from scratch in these complete greenfield sites. And so I would say those are the two key differences between why we saw [the] success of these zones in East Asia and China, and we've seen largely a pretty lack of success across Africa with zones. And then that's the first part of my answer. The second part, just to get back to the self-selection problem that you mentioned, I mean, I think you've had Stefan Dercon on your podcast, Tobi, and this gets back to his point that because we envision these not as a form of political exit, because CCI does not mess with sovereignty. These projects are by definition part of the broader host country. And so you do need a degree of political buy-in. So to Stefan Dercon's point, you need the political elites, a group of the political elites on board and backing these projects. And ideally, you have long time horizons as well. This is why, for example, we're operating in and have partnerships in the countries that we're working in. So, [in] Zambia, President Hichelema was just elected relatively recently, I think if he gets a second term, he'll have nine more years in office. We're about to sign a partnership and engagement in Kenya, right? And Ruto was elected last August, so if he gets a second term, he'll have ten more years. In Tanzania, President Hassan took over from the former president who died of COVID and so she has two more years in his term and then another ten years if she gets a second term. So that's twelve years. And so we're in places, number one, where we have some political elites on board and bought into this, and number two, we have long time horizons available to us.

Tobi;

So that sort of gets into my point, right? Because, yes, you may have buy-in for now, but there's also the question of consistency. I'm sure before Hichilema in Zambia, the previous guy was not excited. Or I would say would not be excitable about a project like this. And what if someone that succeeds Hichilema says, “Oh, well, charter cities will only take you so far, I have other priorities. Let's concentrate on the mineral sector, this and that,” and then regulatory and bureaucratic barriers to this kind of project…[inaudible]

I'll give you a specific example. The Lekki Seaport in Lagos is usually celebrated as a win for this kind of big project, public-private partnerships. But, and I'll put up a link to that in the show notes, there was an interview by the CEO of one of the key participants in the project, the Tolaram Group, along with the Chinese investors, that basically, I'm paraphrasing… that basically said that his experience working with the government on this project left him deeply scarred and he does not envision ever doing this kind of project again. So that's my point. Like, how do you get around the consistent issues, the succession issues, the things that come up in a context where development, economic growth in itself are also burdened by this same problem? So I guess that's my point.

Kurtis;

Yeah, so this is a great point. So basically your kind of question is, okay, given these charter cities, as CCI proposes them, what do you do about the expropriation problem? Right? This problem of how do you prevent the host country government, across regimes, over time, from killing the goose that laid the golden egg? Or how do you get political regimes, different political regimes across time, credibly committing to what former regimes before them committed to? Right. That's the biggest kind of question. And because [in] our proposed model, charter cities are part of the host country, they are not sovereign entities. There are multiple things that you can do to mitigate the risk of expropriation to better align the incentives such that it nudges the host country to want the project to succeed rather than want the project to be expropriated and fail. But at the end of the day, if the government is determined to expropriate and undermine this project, there's not much you can do. But I would argue that's the same thing for any type of project. If the sovereign government of a place is determined to have malaria bed net interventions fail or the ZEDE projects in Honduras were pretty much Romer's model of charter cities, and yet still the regime that succeeded the original regime was able to repeal the ZEDE law. Right? So it's not just our model that suffers from this goose that laid the golden egg problem. I think it's other models of charter cities as well as all kinds of development interventions.

Okay, given there's this problem, how do you mitigate the risk of expropriation? And CCI, we thought about this and there are several ways. So number one, we think that there should be a revenue-sharing agreement embedded in the public-private partnership such that the host country gets a percentage or proportion of all the land rents, all the taxes, all the user fees raised in a given year should be to the host country so they have a stake and they receive a sort of stream of revenue every year from it. The other similar point around these kinds of financial inducements is we think that the host country should have an equity stake in the developer, in the city developer. That way, if the city developer is a success by creating a thriving city, the host country will have a significant financial windfall from that success as well. Other things that can be done: I know there's something called the New York Convention of 1958 that recognizes and then enforces arbitral awards. So for example, if the developer is expropriated in year eight or nine by the host country, it's then able to go and sue in arbitration for compensation for those seized assets and then have those assets enforced overseas.

So this convention is basically a form of enforcement of international arbitration. Now, the question there is like, okay, well, if your host country, say you're operating in Zambia, the future Zambian regime after Hichilema expropriates, and you then get an arbitral award in Dubai, in DIFC or something, how do you get the Zambian government to actually kind of pay? One thing that you can do, it's called political risk insurance - so MIGA [Multilateral Investment Guarantee Agency]. It’s under the World Bank Group. They have political risk insurance. That Political Risk Insurance product says if an entity like this developer receives an arbitral award in international arbitration and the host country refuses to pay, we, the political risk insurer, will pay the amount of that arbitral award quickly, right? So that the developer quickly recoups its cost. So that's one. Another thing that could be done is the developer could float its company on the stock exchange and that way you get influential entities from the business sector, for example, investing in the developer. So entities like powerful domestic business constituencies like pension funds, if they are invested in the success of the developer and they have significant influence and clout with the existing political regime, oftentimes supporting various parties and whatnot, you don't as an incumbent politician want to piss off these pension funds that are helping you and your regime stay in place. And if the pension fund has invested in this development, then you don't want to jeopardize that development. There are a few other things you can do, but I've gone on long enough on these various ways. The main point here is you can do a lot of things to mitigate the risks, to adjust both benefits to the government of hosting and having a thriving charter city, and increase the costs of expropriating that charter city in such a way to skew the development such that the government buys into it over the long term. But you can't, because they're not sovereign entities, totally get around this risk entirely.

Tobi;

When we look at Shenzhen again, for example, its location is sort of unique. And I think that contributed a great deal to its success. The proximity to Hong Kong, and particularly the fact that it's a place that had a lot of potential to do better had it not been deliberately held back, if I can use that phrase, by the security concerns of the Mao government and, you know, so many other things. Because, as a matter of fact, when the original plan was proposed for Shenzhen, the Bao’an County government already had a plan on building out the city, of populating the city, the industrial zone and so many other things. But these are natural advantages that are not replicated everywhere, especially in Africa. You see so many places that are landlocked. If you take a place like Nigeria, most of the investments would likely come to Lagos being the economic nerve of the country and the only city that has the functional port. So are Charter Cities also implicitly limited by the location advantages or disadvantages of the host country, by economic geography, basically?

Kurtis;

I mean, I'll give a pretty short answer here, I think, undeniably, yes. If you picture a spectrum or a distribution of unsuccessful to hugely Shenzhen levels of success on the other side of the spectrum, geography kind of limits that distribution. Based on things like proximity to international trade routes, for example, I'm pretty bullish on East Africa for this reason. It's on the Indian Ocean, I think India, South Asia, Southeast Asia, these are rising regions in the next few decades. And so proximity to that bodes well for charter cities established on the coast in East Africa. Things like, locationally, are you piggybacking off of preexisting cities? Are you kind of on the outskirts of a Dar es Salaam or a Mombasa or a Lagos or a Port Harcourt? The reason being, and I alluded to this earlier, it costs a lot to build infrastructure, especially in the middle of nowhere in Africa. If you can instead locate on the edges, on the extension of a fast-growing preexisting city, you get to piggyback off of their roads, their other modes of public transit that they've already built, so you lower your unit infrastructure costs.

And number two, you get to piggyback off of their labour market. Right. And in places like Nairobi and Lagos, they're known for having, among African cities, like, very highly skilled constituencies of people. So to the extent that you create this new, thriving, dynamic charter city that is a space where talented people are attracted and entrepreneurs see a lot of opportunity, it's a lot easier for [a] highly talented, highly skilled individual from Lagos to go move to a city that's on the outskirts of Lagos than in the middle of nowhere in Nigeria somewhere. So my short answer to your question, Tobi, is absolutely these projects are constrained by geography. It's not the sole determining factor. There are places…you know, I would consider Abuja a pretty successful new city, and it's not on a port or seemingly has many other key geographic advantages other than being a strategic spot between Nigeria's north and Nigeria's south, but it is a significant factor in its ultimate success.

Tobi;

I disagree on Abuja but I would save that for another day. So I guess my final question to you would be… so I know that embedded in…uh…

Kurtis;

Can I? Sorry, Tobi, Can I add to that? I'll just add a little something to my last answer too.

Tobi;

Yeah, sure.

Kurtis;

I want to say, like, geography, contrary to a lot of people's opinion on it, I don't think it's this static factor. Geographical advantage can change given changing technology and changing transportation networks across time. And we've seen this in history. For example, when in the 1800s, the Erie Canal connected New York City to Lake Erie, that new canal, that new mode of transportation created and resulted in the rapid, rapid growth of a bunch of Midwestern and Western cities. So Buffalo was at the other end. It was created as a direct result of the Erie Canal, but also Detroit, Chicago, St. Louis. You could even say New Orleans, right? Because it was at the end of the Mississippi that created this huge water arc from New Orleans to New York City. And so I'll just say, you know, analogous to the Erie Canal, a comparable big infrastructure building project that could result in a bunch of new cities becoming much more viable as a result of changing the geographical advantage of these urban agglomerations is the Belt and Road Initiative, right? You have a bunch of large infrastructure projects and ports and highways and all these things being built and that means that at the nodes of this new infrastructure, it's a lot more viable for some new cities to sprout up. And we're actually seeing this across Central Asia, the Middle East, and to a lesser extent Africa.

Tobi;

I think you sort of got into my next question with that answer which is, what's the intersection or should I say affiliation of CCI as an institution and the model of charter cities generally that you're pushing with this new network-state type of digital city enthusiasm that is sort of everywhere, that's sort of driven by technology, driven by virtuality and the likes. Is there an intersection with your vision of new cities?

Kurtis;

So there are a couple [of] things. So, first, the big differentiation is at CCI, our focus is on poverty alleviation. So we're focused on low- and lower-middle-income countries. And oftentimes these countries are far away from the technological frontier. So we're focused more on catch-up growth, right, which is very substantively different than growth at the technological frontier. And so I would say the network state people, a lot of them come from cryptocurrency and tech in San Francisco. And so they're focused on pushing the technological frontier and the frontier of innovative governance, and we're focused on catch-up growth. So that's number one. Distinction number one.

And I guess commentary number two is kind of my thoughts on the viability of network states. I tend to think that, you know, this has been tried in the past, basically using not online communities, but like the kind of analogous concept to an online community before the Internet was shared values over a large number of human beings, right? Not necessarily territorially connected human beings. And there have been a few moments in history when leaders have tried to channel those shared values and relocate large numbers of people in the physical world that share those values, which is basically the network state concept, right? That was tried, for example, in the US. I think a bunch of libertarians, I believe this was in the early 2000s, tried to find a small state in the US to say, “Hey, if all of us libertarians that share these particular ideological inclinations all move to the same state”, I think they ended up choosing New Hampshire. They said, “Okay, let's all make an oath to move like ten years from now. And if we do so, we'll then be the majority in New Hampshire because it's a pretty small state, therefore we'll be elected to powers of government and we can kind of control policy and swing it in our sort of direction.” It turns out [that] in year ten when that move was supposed to take place, a lot of the people who had made that commitment, they had had families, they now have a spouse, they have kids that go to particular schools. Their spouse has a job that he or she really likes. That individual also has a job that it's going to be hard to relocate from. And so it turns out that community, like place, is actually pretty rooted and it's hard to just uproot yourself and your family from kind of a community that's been established and go to this other kind of community that has no sort of binding glue that you currently have. So that's number one.

And number two, the kind of historical example that happened, but almost didn't happen, is Israel. Right? Judaism is this millennia-old religious tradition. You could say that it's a millennia-old tribe that has its traditions, its values that are thousands of years old. And it had this other historical event that happened at the time of the formation of the Jewish state [Israel] being this Holocaust, a genocide that tried to wipe out this tribe and that also resulted in this really unifying force calling for a place where the Jewish people can practice their religion in peace and tolerance. And even with those factors, even with this thousand-year history and this kind of world-changing genocide, the Israeli state was very close to not being successfully established. Right? It was kind of Truman's recognition of Israel that actually kind of resulted in the thing happening. Without that, I don't think it would have been a success. It was sort of 51-49 as to whether this thing would take off. And so my point with Israel is like, even with these enormous advantages and crazy factors in your favour of pulling off a network state-y situation, it almost didn't happen. And so that gives me pause about the tractability of this model.

Tobi;

My final question and I'm happy you mentioned poverty alleviation and fast broad-based growth as the things that motivates the model of charter cities that you are pushing. So this question would be one of my critiques of charter cities and I want an answer from you, which is, at the heart of this model is political decentralization particularly because like you said, there is a lot of stasis and constraint at the national level. And also, talking about governance innovation, do you think that the charter city space, if I can call it that, is leaving a couple of low-hanging fruits unplucked in the sense that where are the plans of fixing existing at a very local, decentralized level, of fixing some of the, should I say, existing problems in actually existing cities rather than building new cities? Where is the plan, for example, for upgrading slums in existing cities? Where is the plan for transforming Makoko, for example, in Lagos? So do you think that those are low-hanging fruits that you're leaving unplucked? If yes, is there a reason? Is it because there is no obvious potential gain for private capital? And of course, if "no", is that something you are working towards in the future?

Kurtis;

[The] short answer is yes, we are involved in this area. So I'll just give the example of one of the reasons I'm here in Nairobi right now is to push forward our MoU with Kenya's State Department for Housing and Urban Development. So this department, well, they just finished its [program] called the Kenya Urban Support Program, the 300 million dollar program under the World Bank that's ending I think on June 30. And then a new KUSP program, KUSP Two, another 300 million dollar program supporting local urban institutional capacity building at the local level is happening in the next fiscal year, July 1, here in Kenya. And so we're talking with the Department for Housing and Urban Development on this list of 71 secondary cities that they've selected with the World Bank to channel this 300 million dollar KUSP 2 program over the next three, four, five years. And my prior on these big development programs is that rather than spreading this 300 hundred million dollars across a swathe of stuff, you should prioritize. And so I said, okay, you do that with the World Bank. Why don't we CCI, we identify three to four bright spots on that list of 71 cities, secondary cities - existing cities, that are already doing well with their current resources and we empower those three to four cities by designating them as a Special Development Zone or Special Economic Zone or Special Economic City, basically a charter city. And that way not only, you know, presumably if they're already doing well with their existing resources by empowering them further, they just double down on that success, number one.

But number two, if they are then successful, they serve as a much, much greater and more powerful demonstration effect to the list of the other 67, 68 cities on that list of the KUSP 2 program. Right? If I'm a mayor in Kenya, my neighbouring mayor, if they are one of these three to four bright spots, and I see them and they're doing amazing stuff, that's way more influential to me and shows me that it's very possible to do this as my neighbour is doing it than some world banker coming in for a couple of weeks and giving a workshop. Right? So that's one way in which CCI is working with existing cities.

And I think one of the low-hanging fruits, to use your term, is these secondary cities, especially in sub-Saharan Africa. I think, like, a large swathe of the urban growth and the growth in urban population is going to happen in small, secondary cities and towns of kind of 100,000 people and under. And I think most of the oxygen in the room, whether that's time, attention, funding, gets sucked up by these mega-cities of Lagos and Kinshasa and Nairobi and Jo-burg. But a lot of these secondary cities have number one, less capacity than these mega-cities and are going to see growth rates that oftentimes surpass the rates of growth of these mega-cities at four, five, 6% per year. And so focusing there could be hugely impactful. Plus, I mean, I'll just say, Shenzhen, at the time it was designated a Special Economic Zone in 1980, had a population of between a 100 and 300,000 people. So by all intents and purposes, it was a secondary city at the time of its initial takeoff and so you could consider what I just outlined an analogous situation.

Tobi;

Okay, I hope to see that workout. Thank you very much, Kurtis. It's been fantastic talking to you. It's been an amazing hour. Thank you very much.

Kurtis;

Likewise, Tobi. Thanks so much for having me. And I'm glad we finally got to schedule this. Thanks so much.

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Welcome to another episode of Ideas Untrapped podcast.

In this episode, I spoke to Portia Roelofs who is a Lecturer in Politics at the Department of Political Economy at King's College London, and also a research associate at the African Studies Centre in Oxford. She is the author of a fantastic book titled Good Governance in Nigeria; Rethinking Accountability and Transparency in the Twenty-First Century.

Portia critiques the "good governance" agenda, arguing it's a continuation of structural adjustment programs from the '80s and '90s, which focused on market-driven development, privatization, and state withdrawal. She asserts these reforms didn't consider the social and political realities in African countries, leading to significant challenges, including a narrowed policy scope and "choiceless democracies."

Portia proposes a more socially embedded approach to governance, emphasizing the need for government officials to be accessible and accountable in more culturally resonant ways, beyond just transparency and efficiency. She suggests practical steps like politicians residing in their constituencies and being directly reachable. The conversation also explores the tension between technocratic and populist approaches in Nigerian politics, highlighting the importance of addressing immediate social needs alongside long-term developmental goals.

Despite the critique of current governance models, the conversation acknowledges the complexity of governance in Nigeria and the need for nuanced solutions that consider both the efficiency of the civil service and the broader economic and social goals of the state. The discussion concludes by reflecting on the need for a more comprehensive discussion on the role and aims of the state in Nigeria, beyond just improving civil service efficiency.

Transcript

Tobi;

I'll start with where you started your book. I should say I enjoyed your book very much.

Portia;

Thank you.

Tobi;

It's very interesting, and I really connected with it as a Nigerian. So, what you described as the good governance agenda and its challenges, its failures, and way it has come short in the context of Africa and Nigeria, in this case, is where I’ll like us to really start. So just give me a brief rundown of that, because what you call the good governance agenda or the technocratic World Bank-type description of what good governance is, is still the popular and, I should say, acceptable form of discourse in the popular mind about how we think governance should be. So, just give me a brief rundown of your critique of that.

Portia;

Okay, sure. So, I think to understand a good governance agenda you really have to understand what it was a response to and, kind of, the immediately preceding history. So in the 1980s and the 1990s, you have the structural adjustment programs which are promoted by the World Bank and the IMF and adopted by many, many countries both in Africa and in the global south. And these are programs that take aim at the kind of bloated state and too much state intervention in the economy. And they say the economy needs to be structurally changed to allow market forces to drive development. So you see a kind of consistent pattern of privatization, liberalization, devaluation, removal of capital controls. And that was driven by a strongly ideological belief that the market is the best allocator of resources and the best driver of development.

And Nigeria, in 1986, under Babangida adopted something that was basically the structural adjustment programs, albeit not quite in name. And then by the kind of 1990s, the early 1990s, the late 1980s, people were starting to realize, actually, these structural adjustment programs don't work. They don't achieve what we wanted them to achieve. In many places, they had absolutely disastrous results. And a lot of the critique of that is coming from places like CODESRIA (Council for the Development of Social Science in Africa). So African scholars, from a more heterodox perspective saying: you can't rely on the market to just fix all of Africa's problems. And actually, in doing so, you did things like eliminating much of the middle class, these are hitting a lot of people who were otherwise in the professions. So there are lots of controversy over the structural adjustment, and it's seen as being a very ideological project.

And then in response to this, within the World Bank, there was thinking about, okay, maybe the problem isn't necessarily at the level of the policies, it's at the level of how does government itself operate. And so you see this move - you've got reports from the early 90s like governance and development, this move towards saying, okay, we need to reform how government operates. And this is actually applicable to all governments. All governments should be accountable. All governments should be transparent. All governments should be made more efficient. And if we do this by focusing on how government itself operates, then that's a better route to development. It's kind of like way of answering some of the critiques of structural adjustment.

However, many people say that the good governance agenda was really just a continuation of much of the structural adjustment policies. That the core ideas that you need to withdraw state intervention in many, many areas of the economy, privatize, liberalize, adopt private sector methods of operating and import them into the public sector, kind of lived on. So there's as much continuity as there is rupture. And so in practice, a lot of what the good governance agenda was doing was things like public finance reform or civil service reform and that kind of lives on. But I should also say that the word good governance has been used to cover many, many different things. And so people aren't always talking about the same thing when they use the term.

For example, in the early 90s, you have this, like, third wave of democratization. And in some ways, the good governance agenda was a bit interwoven with this. It was seen as multiparty democracy, elections. So there are definitely different debates to be had. But the one I guess I'm interested in is this one that says good governance is accountability, transparency, and the public-private divide. And the interesting thing there is it really promotes this idea of good government is technocracy. And so that means the people who are making decisions really should be the people with technical knowledge. That's often like public finance experts or economists. And the interesting thing is that that immediately sets up a bit of a tension, not necessarily with politics, which I know we've touched upon already, but with democracy.

Because if you've basically got, like, philosopher kings, wearing suits, with their degrees, then what's the role for the people? What's the role for mass participation? So the Thandika Mkandawire's critique of this was he said that you create choiceless democracies. So at a time when African countries were often opening up to democratic governance, in 1999, in Nigeria, for example, it also came at the same time that the kind of menu of policy options that it was acceptable to pursue and that were permissible within this kind of good governance framework and aid conditionality and increasing controls from the IMF and the World Trade Organization was really narrowing.

So finally people have the vote, but what can they vote for? Actually, quite a narrow set of kind of pro-market policies that pursue development in quite a narrow way as defined by international institutions. So that's kind of what I see as being some of the central tensions of the good governance agenda. And in the book, I kind of explore how does this play out at the level of state government in Oyo State, for example, or how is this playing out in debates in Lagos State government’s new agencies or whatever. So, yeah, I'm really standing on the shoulders of other people like Yusuf Bangura, and other Nigerian political scientists, people who were critiquing the good governance agenda as it was developing in the 90s.

Tobi;

We'll get into your field work in Oyo States, and I'm curious what the Lagos model really is, and I know a lot of people in the audience are curious as well. But I want you to help me contextualize the good governance argument better. So I think where I share your sentiments, especially around the Structural Adjustment Program and other donor driven programs of the like is that they are very antidemocratic, they are not even accountable in the sense that they define accountability to be. And I think we share similar sentiments in that regard.

So let me take one very popular example that sort of intersects with the discourse around governance, which is that in Nigeria we've been talking about corruption for decades, right? There are always stories in the news of bureaucrats, civil servants and even politicians misappropriating public funds, you know, and the way the good governance narrative sort of feeds into that is that if you then have a process of rules that holds people accountable, it then becomes difficult to misappropriate public funds. Funds that should be invested in social programs or infrastructure that then find their way into people's accounts via very clever and, in some cases, not so clever means.

But what we have seen is that despite all the talk of instituting all these frameworks and rules, we haven't really solved the corruption problem. It never really goes away. Even under a President Like Buhari who was strongly seen as clean and incorruptible, there were still massive news reports of corruption under him. So help me use corruption to contextualize the failure, I would say, of the good governance agenda. And what's the alternative to that? How can we better understand the concept of good governance?

Portia;

Yeah, so this is such an important thing to talk about. And actually, when I first came to studying southwest Nigeria, I thought that my project was going to be about corruption, because I thought, why not? I'm coming to Nigeria, that's a constant critique Nigerians have of their own country. And what I found was, first of all, trying to research corruption, the interviews were often quite boring. Because it's almost like there's this script. You ask people about corruption in Nigeria and they have a lot to say about it, but it often covers kind of very, very similar sort of themes. I kind of got used to hearing the same things over and over again. And I found this interesting of, like, if this feels like there's a very, very standard kind of script, maybe more conceptually, what I realized was that something happens when we talk about corruption - and when we focus on critiquing corruption as a kind of, like, dominant aspect of Nigerian politics - is it creates a false illusion of consensus.

Because if we spend all of our time talking about what's wrong, it gives this impression that we agree about what corruption is, thus we must agree about what the opposite of corruption is. As if we all want the same thing. If only we could get rid of corruption, then we could do X, Y, or Z. And actually, X, Y and Z are quite different options. And that's why we have democracy. That's why we have political debate and contestation. Because actually, people's visions of what the state should do and what society should look like are not all the same.

So I decided that it would actually be much more interesting to look at what are the positive visions that people have of what they think government should be doing if it weren't corrupt. So that's kind of why I wanted to start finding out, okay, what are people's kind of visions of good governance? Also on that, I found that there were some interesting instances where we think that corruption and good governance are the opposite of each other, and yet there were things that people were doing where some people thought, oh, that's an epitome of corruption, and other people would think, no, Hooray, this is the epitome of good governance.

And I think by understanding those more ambiguous, more puzzling, more tricksy cases, we learn much more about the underlying values of what good governance could mean. And I think this comes out maybe most clearly in the study of transparency, for example. So one of the things that governments have kind of position themselves as succeeding in this good governance agenda, one of the things that they did was tend to put more documents and budgets and statistics and data online. And this is seen as an unambiguously good thing. It makes them more transparent. There are lots of NGOs and civil society organizations in Nigeria like BudgIT that are pushing for this, and it's broadly seen as like a measure of transparency.

And yet at the same time, there's also a kind of popular suspicion among people about what this data and these budgets and these documents hide as much as reveal. Or the idea that, well, you know, if you're educated enough to put together these very complex accounting documents, maybe you're also smart enough to kind of use them to cover your tracks or to bamboozle people. And so in the chapter of the book where I talk about transparency, I give a couple of examples. And first of all, is this kind of Nigerian idiomatic idea of speaking grammar. That you're using very fine, beautiful, elevated language, but that doesn't mean, oh, you're upright and trustworthy. It means you're kind of obfuscating. And that actually it'd be more truthful if you spoke in a more accessible register.

But also there's a debate from before the 2015 Oyo state election that was on the radio, where one of their other candidates is talking about Ajimobi, and Ajimobi says, oh, you know, we built this bridge, and you can't say it's corrupt because we spent this much, this much, this much. Look at the budget. And his opponent says, oh, my brother is very good at giving statistics. And there's a glint in his eye or a smirk on his face, and the implication is like, you know, statistics is not everything. So I think it's really important to probe into that suspicion of these traditional good governance methods, because otherwise we don't understand why something that we think should work and be a solution isn't necessarily working. And it also helps us understand why when you have governors who are really performing kind of good governance in these standard ways that we expect, they're not always reelected and they're not always locally popular. And I think the standard account or the standard kind of interpretation of this by academics and commentators is, well, when you fight corruption, corruption fights back. And there's this idea that Nigerian voters are incorrigible. They're just totally committed to just taking rice and chicken from people and giving them their vote, and just that they're so kind of entrenched in these patrimonial ways of thinking that even when they're offered something better, they don't take it.

And I think I'm a little bit skeptical or hesitant about embracing that narrative in an uncomplicated way, because I think actually voters are often doing something much more sophisticated. They're looking at what politicians are doing, and they're comparing them to more popular or more kind of broad based ideas of what accountability and transparency should mean. So we shouldn't see it as a war between accountability and corruption, but we should see it as a conflict between different ideas of what accountability might mean. And that would require us to take Nigerian voters much more seriously.

Tobi;

That's interesting. There’s also… if we look at even the last election, which the issue of vote buying was really a big issue around the elections and it was even one of the reasons why the central bank engaged in the really expensive and economically destructive currency change policy. And I've never really agreed also with that narrative of voters being stupid and they are selling their votes and basically selling their future for stipends. And I think it's condescending and it gives people less credit about their ability to make choices about their lives. So which then brings me to… I think it takes me back a little bit to early in the book where you talked about the sort of progressive era in Southwest politics. One of the things I love about the book is the concept of olaju - enlightenment - which you used really well, where you had this political movement that grew out of olaju, the enlightened participation in governance. And, of course, how Awolowo was a key figure in that and how there was so much focus on technocratic governance. And the trouble it eventually ran into with voters and some of the local political dynamics. So, walk me through the… I should say I don't want to use the word failure or the challenges of technocratic conception of what governance should look like. Sort of walk me through that.

Portia;

Sure. Yeah. So, I'm so glad that part of the book resonated with you because it was a really interesting part to kind of research and think through. So with this concept of olaju, which is this Yoruba word and apologies, I can't do tonal pronunciations, but this is drawing on the work of people like Wale Adebanwi or J.D.Y. Peel and Olufemi Vaughan, who've looked at this historical thinking about the evolution of Yoruba ideas of what it means to be a good leader. And even if we look in precolonial times, there's this idea that the leader should be the point where power and knowledge meet and that a good leader is someone who has maybe a type of knowledge that other people don't have. So we see, up to 150 years ago, this idea of leaders and enlightenment being overlapping. And then this takes on certain forms in the establishment of the colonial bureaucracy.

You know, in precolonial Ibadan, to be powerful, you had to be a really good warlord. You had to be a powerful head of household and show virtue in war. And then the bureaucracy comes, and actually, you need to start to be able to read and write and to be able to kind of participate in these kind of Westernized forms of bureaucratic control as well. So this is detailed really beautifully in the work of historian Ruth Watson as well. So you have this evolution of what does that enlightened knowledge that leaders need look like? And then you have Chief Obafemi Awolowo, who's very influential in Yoruba politics. He's not from Ibadan, but he's called the Sage. And he takes on this figure of being, like, leader of the Yoruba, whatever that might mean, and he's seen as being a perfect fulfillment of Olaju and this idea of enlightened leadership. And he sets up the party - Action Group, which is a progressive party that starts first under colonialism and then leads into the First Republic, and later also founds the UPN - Unity Party of Nigeria, which carries forward similar ideas, which many of your listeners will be familiar with.

So I characterize this in the book as being a form of government that not necessarily is technocratic, but maybe it falls under a wider umbrella that I call epistocratic. And so we take the word like epistemology means a study of knowledge. So epistocratic is the rule by people who have the knowledge. And it can include technical knowledge, but can include other thoughts as well, kind of. And so this kind of Yoruba progressive movement that I should say is also linked into certain ideas of Yoruba cultural nationalism that maybe I can't really touch upon in this discussion, but are important to it as well, the formation of the Yoruba ethnic identity, cultural practices, linguistic practices, et cetera, et cetera.

But the problem with focusing on a kind of epistocratic approach to governance is often it means that you neglect other elements of governance that are equally important. And so the one I kind of emphasize in the book is the social dimension. I think there's also the material. And I think when we study African politics, we're often obsessed with the material. Like, what are people doing? What are they giving people? Are they giving public goods or private goods? So I try to set that to one side and then kind of bring it in a bit later. So this kind of progressive form of governance inspired by Awolowo has a certain position in terms of the social relations it posits between leaders and followers, which is one of elitism. And you see a really, really interesting use of the idea of elites and what's a relationship between elites and masses. And you have this idea that, okay, well, if the elites are the people who have enlightened knowledge, they've been exposed, they've been abroad, they have Western education, then their job is, first of all, to set the direction of society, because the masses don't have their abstract knowledge, they're not enlightened, they don't necessarily know where we should be going. But also that it's the job of the elites to make the masses more like the elites. And that means you don't necessarily need to listen to what the masses are saying. It has certain antidemocratic threads running through it because you're basically saying that the masses don't know what they want.

And so in the book, I link this to something that Governor Ajimobi says in one of his speeches, where he says, a good leader takes people where they want to go, a great leader takes people where they need to go. Actually, if you're enlightened leader, you don't necessarily need to be accountable to what the people want or what the people are saying that they want to happen. You need to be accountable to serving their best interests. And so you often get this kind of idea, what I call the Lagos model, the Tinubu project, followed up by Fashola and extended into the southwest of wait and see what we can do in four years. And then at the end of the four years, look at what we've done, have we performed? And if so, that means everything that we did during that four years was worth it. So you often had this idea also of accountability to performance, but also the legitimacy and the necessity of sacrifice. And in some of my other work, I look at this in the context of urban renewal, which in Ibadan and Lagos basically entailed the demolition and destruction of thousands, if not tens or hundreds of thousands of small scale shops, for example. So people losing their livelihood where they'd been based for decades, potentially.

And what was really interesting in places like Ibadan, under Ajimobi, was Ajimobi wasn't downplaying the cost of demolition. He wasn't saying, no, no, it's fine. He wasn't ignoring it. He wasn't trying to silence people when they complained about it. So very pro-Ajimobi newspapers were recording people saying, you know, my life is a disaster now, I can't make money. And he was saying, yes, but it's a sacrifice. So this very explicit acknowledgment of you need to trust what we're doing. And he uses the image of sometimes when you're a parent, you have to make the kid take the bitter medicine because the parent knows what's best. So this is all a very long way of saying, why is it that this kind of progressive project runs into trouble? And I think it's because it neglects the kind of appropriate social relations that say that the constituents want to be connected to their followers, they want to be taken seriously, they want to be listened to. Whereas if you kind of position yourself in this progressive mindset, you don't necessarily need to listen to voters that much. Because they're not the people who have the answers. So I think often you've seen, running parallel to this kind of Yoruba progressive line, an equally deeply rooted and equally historically established, more kind of populist conservative line in Yoruba politics. Which is embodied by people like Adedibu, Adelabu, these kind of figures who like, if you go to the streets of Ibadan, people are still singing songs about them. They still remember them now in 2023. And they're seen as being the people who care for the people. They're sensitive to their needs. And often this has been performed in ways that are very, very material.

So, in Oyo State we talk about amala politics. Amala is a staple food, it's like a swallow that you have in Oyo State. And people like Lamidi Adedibu would literally have people gathering outside of his house and he'd feed them amala and gbegiri. And again, there are lots of dominant conceptions of politics in Africa that say this is just standard patrimonialism. This is just standard getting people to support you politically by catering to their most base needs. But I think it's not only the kind of material exchange, but it's also the symbolic and the ideas of sociality that this conveys, which is you're hungry, so I'm going to take that seriously. I care for you. I care for the everyday people. Yeah, I think that's why it runs into trouble. And whenever the progressives have become kind of too elite, too enlightened, too like haughty, there's always been this alternative line waiting to step into the vacuum when they're not able to kind of meet popular demands for both epistemic and social rule.

Tobi;

So in a contested kind of way, as you posited in the book, isn't this also like a kind of political entrepreneurship? So it's kind of like two rival products going to the market and see who can persuade the consumer.

Portia;

Yeah, absolutely.

Tobi;

How much of that was going on at the time time, as opposed to maybe like a failure of technocracy. And you're absolutely right about the progressive era in Southwestern politics, by the way. I recall that I've seen copies of Bola Ige's letters to students every term during their resumption. So there was this idea of, you know, we won't really run a progressive, elitist government. And I also think that some of their goals were not necessarily bad. Even some of their policy positions or proposition or programs and agendas are also quite populist as well, like universal education, universal health care and things like that. So I wonder how much of the failure we saw was due to political entrepreneurship and just the savviness of their political rivals being able to look at the people, look at their complaints and find a way to sort of appeal to that.

Now, it may not be in the Patrimonial Condescending way, but we see you, we look at you, we know what you feel and this is where these people are messing up and we are offering something better. Because when I look at the outcomes of, should I say, these two rival conception of government, even in cases where the amala politics, to put it that way, was able to weaponize people’s discontent to sort of kick out the progressives, the rivals generally often do not do better. Right? You often find people at the end of it almost complaining about the same thing. This person's out of touch or we got him there, but now… so just walk me through that. How much of it is the failure of the progressive project per se, as opposed to just the contested nature of politics?

Portia;

Yeah. Yeah. So I think that's a really great point, and I love your characterization of, like, can we think of these two things as different products which are being offered to the electorate? And so I should issue the caveat that the story I'm telling of Yoruba politics is a stylized narrative. And I do believe that there are these two kind of like ideological threads that we can trace, which is somewhat contested in the history of studying Nigerian politics where people say there's no ideology. But to make that point, you have to erase some of the details and the complexity. So if any historians of Yoruba politics read the book, I'm sure they'll have many points where they're like, oh, but it's more complicated. So, you know, Adedibu, he started his political career in the Action Group, so I'm taking him as the embodiment of the kind of opposition to Awolowo. But he actually has very strong links as well to these guys. And also, everyone in Ibadan knows each other. So there's definitely more kind of complexity there. But I think it's still a useful way of thinking about how politics has evolved.

And I also wanted to…you know, you're saying these progressives, they've done some good things as well. And I really want to emphasize that many of the achievements that have put the Southwest Zone in the position it's in today of having often the highest socioeconomic indicators, highest levels of education, high levels of human capital, whatever, they were achieved because of the kind of four pillars of the Action Group and the kind of transformative decade under Awolowo. And that's kind of part of my academic motivation is it's easy to critique the bad guys. It's much more interesting to critique the good guys. And for many people, they quite rightly feel that Awolowo is the best president that Nigeria never had, that he's the best offering that Nigeria had. But I think we find out most from then saying, okay, but still, what's missing? Even from the people who we wish that they could have done more. That has relevance when you're thinking about the Lagos model, because the Lagos model was really, really popular with donors. So organizations like USAID, the EU, what was formerly DFID, the British Department for International Development. I quote some things in the book where development professionals are looking at Lagos, and they're like, there are reforms that we've been trying to push in Nigeria for 20 years at the federal level, and we've had no success. And here's a state government which is taking on these reforms and driving them of their own accord.

So not necessarily saying, oh, everything they did was a failure or their approach is totally wrong, but saying where we have these examples that many people think are the best offerings Nigerian politics from the last 30 years, we still need to be aware of where do they fall short? And why might they fail to command popular legitimacy in the ways we might expect? And then finally, in terms of thinking about political entrepreneurship. So when I talk in the book as a whole, I kind of conclude that what we need to be thinking about is socially embedded good governance. Which is defined by more socially embedded conceptions of accountability, accessibility, transparency in people, et cetera, et cetera. And I'm not saying that this approach is something that the populists are doing. And I talk about a number of quite unsavory figures, people like Ayo Fayose in Ekiti State, and I'm definitely not saying, oh, let's copy them, or they've got the solutions. But what I think we see is that there are kind of a number of underlying either reference points or demands that voters as a whole tend to have.

They tend to want some attention to the epistemic dimensions of government. Like, you definitely don't want a leader who's not enlightened, but that's not enough on its own. And there's some demand to have appropriate social relations with leaders or leaders who perform the appropriate social relations and kind of has socially embedded forms of governance. But again, that on its own is not enough. Yeah, you need a government that can deliver, whether that's long term infrastructure or immediate economic benefits.

One of the figures I talk about in Oyo State is Lam Adesina. A very highly regarded public intellectual, you know, he was a teacher, he was a really smart man. But it's not just enough to do that kind of enlightenment side of it. He wasn't able to deliver that kind of material element of government quickly enough in response to those demands immediately after the return to democracy in 1999. So I'm kind of saying there's like a triangle at the heart of what good governance means. And if you neglect any of those points, then other people will step in. And these, like, political entrepreneurs, as you say, will see an opportunity and say, actually, we can step in and offer some of what you're neglecting to offer. And what I would say is that it's Populists who have a natural affinity with the social element of government. So they're often the people where we see the most exaggerated, almost like pantomime versions of accessibility and socially embedded good government, because it's often something that they kind of have an instinct for, but that doesn't mean that what they're doing is actually being accessible or actually having appropriate social relations. Often they're kind of like…

Tobi;

Performative…

Portia;

Yeah, it's like a kind of very exaggerated performance. So, yeah, I hope that kind of contextualizes a little bit how I see these two lines of politics, and it's a stylization, but I still think it's useful.

Tobi;

We've been talking about certain things in the course of the conversation that we haven't really clearly defined yet. So, tell me what and I know a number of my audience would be very interested in this, especially given the current political climate. So what is the Lagos model? Because we know the current president more or less ran on his record in Lagos. Record of performance in Lagos. He is generally seen as the man who built Lagos, but this isn't about him personally. So just what is the Lagos model as conceptualized in the book and your choice of Oyo State as the sort of case study to look at that. Why?

Portia;

Yeah, so the Lagos model is a term that I coined, but I also think it describes something that a lot of people are talking about, but maybe in other kind of terms. And so at its most basic, it's the form of governance that Tinubu initially develops and then extends under the Fashola leadership from 1999 2015 in Lagos state. So it's kind of what he's doing. And then this is replicated in other southwestern states from 2011 onwards. Okay, so what is the content of the Lagos model? Well, we've talked a lot about its historical, ideological antecedents, so it draws a little bit on this, like Awolowo progressivism. That's definitely part of the picture. But Tinubu's position within that history is a little bit ambiguous. He's definitely not the clearest example of a descendant of Awolowo, politically.

Tobi;

Yeah, his Awoism is contestable.

Portia;

Yes. He's also informed by what was happening in the southwest in the 1990s under Abacha. We have the leadership of General Babangida in the 80s and early 90s. We says he's going to open up to democracy. We then have the June twelveth election with MKO Abiola, who's a Yoruba Muslim businessman. But basically you have the prodemocracy movement that uses this June 12 election that was annulled. And we have the arrival of General Sani Abacha, who becomes the most despicable, violent, despotic dictator Nigeria has ever seen. And under Sani Abacha, you have various kind of slightly younger politicians organizing as part of the prodemocracy movement and NADECO, and that's where we see the rise of some figures like Tinubu, Dr. Kayode Fayemi, who also goes on to be governor of Ekiti State. So you have these variety of influences and then what we see in Lagos is a kind of package of policies and reforms and approaches that comes to characterize the Lagos model more specifically.

So I would say that it is a model of development that involves a very strong state, but the state using its power to drive private sector driven development, or to kind of facilitate private sector driven development. So common policies that make up this model are the expansion of the tax net with the intention of driving internally generated revenue. Interestingly, this kind of serves a variety of ends. So, as you talked about at the very beginning, this was partly a way of enabling Lagos State to have financial autonomy from the centre in a country where many states were just relying on the statutory allocation of oil revenues from the Federal Government, which was very patchy and erratic.

In the case of Lagos State, which was often knocking heads with the Federal Government at the time, you often see like a digitization of tax records, a professionalization of the tax department, in this case Lagos Inland Revenue Service. This tends to come along with civil service reforms. So one of the things that Tinubu did, and that often is then created in other states, is the creation of kind of executive agencies or new forms of trans-urban governance. So in Lagos you see things like LASTMA, LAWMA, Kick against Indiscipline, so a real changing of the structure of urban governance. And then we also see the embrace of certain kind of private sector driven initiatives or ways of bringing the private sector into development, especially in the promotion of public private partnerships. In Lagos state that often took the form of things like the Lagos State Security Trust Fund, which is a collaboration between state and the private sector.

And behind this is this wider justification that you need to bring in investors and that the state needs to bring in investors by controlling and changing public space, which is why urban renewal and the improvement of transport infrastructure in big cities is so important to this model. So you see a lot of discussion, especially in the work I did in Ibadan, on people in Ibadan need to learn to see their city through the eyes of investors. They need to learn to see their city through the eyes of people who are coming anew. And they need to realize how dirty and old and backwards and African the city looks. And we need to make it look more new and modern and international, and otherwise we won't have the investment we need to kind of grow our economy and grow our internally generated revenue. There are some critiques I can talk about with this, but maybe I'll leave it there. I'm aware you also asked, why look at Oyo state for this?

Tobi;

Exactly. Because Oyo state kind of like…

Portia;

It's not Lagos.

Tobi;

Not that. I find that interesting choice because I can see why it makes sense. It sort of clearly demonstrates the way you sort of built your narrative in the book and, I mean, with the Fourth Republic and Lam Adeshina coming to office, who is as Awoist as they come, as progressive as he is and who also possess the sort of technocratic mindset and the challenges he then had in governance. And then you had someone like Ladoja coming into government and his own struggles also with the Adedibu brand of politics and the challenges he experienced before he was impeached and then brought back in the government. And we then saw the rapaciousness of Alao Akala…

Portia;

Yeah, ATM.

Tobi;

Yeah. And how the other model of governance can run away and then culminating into Ajimobi finally getting into government and to sort of bring back the professionalism and the technocracy. So the choice of Ibadan and Oyo State clearly comes alive in the book and the story you were trying to tell.

Portia;

So maybe in the interest of transparency I should set out both my academic justification, but also my practical justification. I mean, in a lot of ways, Oyo State is like the heartland of Yoruba land. It's kind of like the psychic heartland. Ibadan itself claims to be often the seat of the Yoruba, even though that's contested. So there are various reasons why it kind of makes sense to talk about Oyo State in terms of its resonance in the Yoruba imagination. Also, what I wanted to do, I wanted to look at the Lagos model without Tinubu. Because in our discussion, we've often been conflating them. But I think it was really useful to go somewhere and say, okay, how can we study this package of policies, reforms and kind of practices and ideas without necessarily always talking about the man himself?

And what we also lack is we lack the money and the economic base of Lagos. And so at the time I was studying it, Ibadan's state budget was about 10% that of Lagos. And so you're looking at often the contradictions and the tensions within the Lagos model become a lot sharper in somewhere like Oyo State because they don't have the money just to buy people off. And so where we saw in Lagos the ability to do things, for example, achieve security by demobilizing the area boys, but by also incorporating them into new forms of state patronage, which is what LASTMA, LAWMA, Kick Against Indiscipline, a lot of the waste management staff…

Tobi;

Yeah, yeah.

Portia;

You know, it created a lot of new jobs. Then it was kind of possible to say to people, this is a sacrifice, but there's going to be a reward to the sacrifice. Whereas in Oyo they were much more constrained. And also at the time I was there in 2015, they'd been suffering from very, very low oil revenues, which had led to plummeting budgets in states across the country. So across the country, civil servants hadn't been paid for a very long time. And suddenly the priorities of how you spend the scarce funds that you had became a lot more highly charged. So I think that also enabled the kind of ideology behind this to come out much more clearly, because people are having to really say, what are your priorities in politics?

Whereas, as you say, Ajimobi's predecessor, Akala of the PDP, was known as being the most profligate, the most venal. There were times when Obasanjo had be called in to try and make up with some of the local traditional leaders because Akala had offended them, because he was just so kind of difficult to tame. So there are a variety of reasons why it's worth studying the Lagos model in Oyo State. And also, it gives a nice kind of story of transformation.

Before Ajimobi came to power, there was this idea that you go to Ibadan and you have to sleep with one eye open because the insecurity was really terrible.

Tobi;

Yeah.

Portia;

And Ajimobi is able to do very similar to what Tinubu did in terms of Operation Burst, which is its security operation and the demobilization also of the NURTW, which is for listeners who aren't familiar with it, it's the National Union of Road Transport Workers. So the people who control the buses and the motor parks, and under Lamidi Adedibu had been the kind of foot soldiers of street violence and the source of a lot of that kind of insecurity. So those are the kind of analytical or academic reasons, but I also have to be transparent. So, one, Ibadan is a lovely place to stay.

Tobi;

Okay.

Portia;

And there are really great research networks there. So you have the University of Ibadan, and I had a lot of support from the Political Science department there, so I really have to appreciate that. I also had support from the French Research Institute in Ibadan, which is called IFRA, they were able to host me. They're the center of a lot of academic organizing. You have organizations like NISER (Nigerian Institute of Social and Economic Research), so there are various reasons it makes sense to be an academic researcher hosted and based in Ibadan. And so I think sometimes as researchers, we have to be a little bit honest about [how] we also have to try and have an easy life. So that was kind of part of the picture as well.

Tobi;

I mean now, extending the Lagos model, like you said, which I sort of agree with [is] Tinubu looms too large in discussions about governance in Lagos and he has been out of power for a long time, as a matter of fact. Now, looking at the Lagos model and how it extended to other parts of the country, in this case in Oyo State, which was your primary focus in the book, and also you touched upon Ekiti State. Now, how did it play out? And what were the… I know you talked about the constraints, resources…what were the other tensions you found in this extension of the Lagos model of governance, which is a very strong state that is then trying to use the power of the state to get private businesses and economic growth and transformation going locally? What problems did it run into?

Portia;

So something…when we were talking about before, this idea behind a lot of the active state of intervention was this idea that we need to attract investors. And so what is it that investors need? Whatever it is investors need is the top priority. And this led to, I think, sometimes a slightly confused understanding of different political priorities. Something I look at, and I don't think it's actually in the book, but it's something I'm looking at in a subsequent article, is I often found that people were talking about Maslow's hierarchy of needs. So, in general, this is like a little pyramid that says the most basic needs that people have is for material survival, and then it's psychological survival, and then at the top is something like self fulfillment or whatever. The meaning it was given in different political discussions was about how do you rank the priority of different needs and priorities in government? And it was often used in kind of opposing ways. I think it helps us kind of understand some of the contestation that was going on in Ekiti and also Oyo.

So if we take the list of priorities from the kind of Ajimobi progressive train, there's this idea of, first of all, we need to attract investors. To attract investors, we have to make the city attractive and accommodating to them. And there's explicit discussion of, like, so we need some good nightclubs, and we need a five star hotel, and the government should be active in creating these things. Which is rather odd because we tend to think of the government's obligations primarily in the spheres of things like health and education and security and whatever. And definitely there were elements where the Lagos model in Oyo state was very attentive to these things as well. So I'm not saying they ignored them. But what was interesting was you have this situation where we say the top priority is for the state to make sure that there are good nightclubs and recreational facilities for investors coming from outside. And we do see the development of things like Agodi Gardens… I forget the name, is it Premier Hotel, the one on the top of the hill?

Tobi;

Yes.

Portia;

And basically being told that this is the number one development priority. And yes, at the same time, people who are more everyday people in the state maybe who don't have that much money or who are struggling with unemployment or whatever, they're looking at this and they're thinking the government says that it won't do amala politics, it won't give out up small, small money to ordinary people on the street. It's knocking down our shops, it's doing demolitions, it's making our livelihoods hard, it's telling us we have to be making sacrifices. And yet the elite seem to be getting all of these benefits as if it's the most essential thing for development. I think you see this kind of debate about what should be prioritized? Who is it who has to wait for development? And often the outcome of this is that the poorest people are being told they have to wait and that the immediate benefits are going to go to the richer people. So, for example, one of the achievements of the Ajimobi governorship was that they built a flyover in Mokola in Ibadan, and that speeded up journey times. But who benefits from that? It's people who own cars, because often the buses are not even allowed over the flyover.

And so, in a very kind of everyday, direct way, people were seeing infrastructural development and they were seeing that it benefited the richer, more elite people. And I think there are genuine ideological tensions there over, like, what is the best route to development? What are the models we should be pursuing? But this came out really clearly in the Ekiti State election. So in 2010, there's the election of Dr. Kayade Fayemi, who in many ways is like the prime example of a technocratic politician. Very highly educated. He actually has a PhD from my own institution, King's College, London. Really smart guy. People describe him as omoluabi, so very cultivated. Not only is he smart, he has the correct moral dispositions, you know? And so he came to power in 2010, and he was seen as delivering this long term progressive vision. And yet in 2014, he came up for reelection, and his opponent was this guy, Ayo Fayose the Populist, this kind of pantomime expression of all of these more patrimonial tendencies. And from the Fayose campaign, we get this idea of “stomach infrastructure”.

Tobi;

Yeah. A phrase he popularised by himself, no less.

Portia;

And so we have, like, a challenge. Okay, well, Fayemi, he builds infrastructure. Me, I'm going to build stomach infrastructure. And there's a phrase that originates in Yoruba, I only know the English version of it, which is, you cannot tar a road without tarring the stomach. And so he was famous for distributing bags of rice, chicken, just very short term goods that fill people's bellies, but don't necessarily contribute to long term development. I know a lot of people who are more progressive just see this as an example of corruption fighting back. But I think it's important to pay attention to the temporality, by which I mean, like, how does this connect to different ideas of time? So if on the progressive approach, the kind of Fayemi approach, we have this idea that you have to wait for development. It's a long term project. You have to make sacrifices. You won't see the benefits today. And yet the people who are benefiting today are often the kind of people at the richer end of the spectrum, and then you're saying to the poorer people, you have to wait. It's not surprising that you have political entrepreneurs, as you say, emerging, who are offering much more short term benefits.

And this is in a country where a lot of people don't know how they're going to get to the end of the week, the end of the month. So telling them they have to wait is quite unrealistic, or this is the kind of argument that was put forward. So I think these ideas around what does development look like? What should the priorities be? They were real areas of contestation in places like Oyo and Ekiti. And the interesting thing was that so in 2014, Fayemi loses the election, and this becomes like a warning sign to all of the other Lagos model governors who were elected in 2011, because it shows, you know what?

Tobi;

It was a real shock.

Portia;

Yeah, like, people were shocked. And if you look at what progressive commentators are writing around the time, they're really despairing at the state of Nigerian democracy. And there was a sense of, well, we thought we were doing everything right, but maybe our diagnosis was wrong or maybe our approach was wrong. So there's also a real moment of soul searching among progressive politicians. Then the 2015, the following year, when a lot of those state elections were taking place, including in Oyo, they were kind of in the shadow of Fayose's victory in Ekiti. And when I was doing my fieldwork, everyone in Oyo state knew who Fayose was. Sometimes they laughed when I mentioned him or they gave me this look, but he kind of loomed large, this specter of even if you haveTinubu support, even if you have all of the donors cheerleading what you're doing, there's still this specter, this ghost…

Tobi;

They’re still vulnerable.

Portia;

There's still this vulnerability. And I guess my book is really trying to make sense of that vulnerability and get beyond this kind of corruption fights back narrative and ask was there something maybe deeper going on?

Tobi;

So one of the things I was able to and you can correct me if I'm wrong about this… one of the things I was able to abstract from the book and even from your answer right now, is that I think part of the failures of the progressive kind of governance and epistocratic model of the Awosit movement, which Fiami also kind of sort of represents in a way, though he’s from a different era, is that sometimes I think economic transformation for that model is not really about the people. Because it's one thing to ask voters to wait, but they have to know what they are waiting for. The signs really have to be there that things really will get better if we persist with what we are doing. It's not a case of oh wait, your tone will come, you know, it may never come. This is politics. There are other dynamics at play. Like you said, these are places where some times the livelihood of the population is really vulnerable. Many people live on daily wages, even from their micro businesses. So I feel perhaps maybe the progressives and this whole idea of technocratic epistocracy, you know, they have the wrong priorities sometimes. Like you said, the hotels, the bridges. Imean if we compare with Asia there are also transformative policies and public spending that you can do even alongside your hotels - things like agriculture that really touches upon the lives of the everyday people. Oyo state is very, very huge in agriculture. Ekiti state, I imagine the same thing. So I see your point that they are really out of touch, and I see how that can be quite vulnerable to the brand of politics of Fayose who will sit with you and eat corn on the road and convey the image of a guy who really feels the pulse of the street.

Portia;

Yeah, I think what you said, you're asking people to wait their turn, but their turn may never come, I think is a really interesting way of thinking about it. And all I can say on this point, really, is that I think this debate is only more relevant today than it was when I was writing, because we've had the announcement of the withdrawal of the fuel subsidy. I'm sure most of your listeners will know what this is, but the Nigerian government subsidizes the price of petrol, which means it's available at a cheaper rate than it would be at market prices. And for many people, this is the only thing they get from government, right?

Tobi;

Yeah.

Portia;

They're paying taxes. Government makes their life hard in terms of getting a visa or a driver's license. There are so many ways in which they are suffering from government and the only thing they get is they get slightly cheaper petrol. It's been on the table for a long time. There have been multiple attempts to remove it and Tinubu has, again, committed to remove it. And talking to people, being in Lagos kind of this past week and talking to people, people are really worried that they kind of think it's going to happen. And I think this will be a test case for how is Tinubu and the people around him, many of whom have long experience, but some of whom are kind of young, more technocratic, fresh blood, how are they going to navigate this point when exactly what you say [that] you can't ask people to wait for that long without giving them something in the meantime? I guess it really just demands statecraft of how do you maintain legitimacy whilst withdrawing the kind of one benefit that a lot of people see that they have from government? Especially at a time of massive economic depression and the currency, cash crisis, all of the other things that are kind of making life in Nigeria hard for many, many people.

And I should say, when I talk about people are struggling to get to the end of next week or the end of next month, this isn't people who lack education, this isn't people who lack the skills. You know, oh, we should empower them to give them some skills, they have the skills. They probably have a university degree. You've got people out there with pharmacy, engineering degrees and they're in exactly the same position. So just to say that, just to prevent against kind of mischaracterization of the Nigerian voting public. So I guess, yeah, it's a test case. Tinubu has been a great political operator. He's been able to achieve some of these things where you demand sacrifices of the population, but you kind of keep them on board. You carry them along, as perhaps Nigerians might say. And so on this front, you know what? Maybe it's unwise, but I do have a little bit of optimism. Because I feel like if someone is able to balance the competing demands and to push something through and really make something happen? You know, Tinubu does have track records in this regard in a way that Buhari just was not active. Like he wasn't proactive. He wasn't able to balance different competing groups, different competing elites, different competing demands. So a little bit of me is looking to the President and hoping that he's able to pull off a miracle.

Tobi;

Two things I would love us to touch on before we wind down this conversation. And one is, you know, it’s one of these things like corruption that never really goes away, which is accountability. If we look at the technocratic sort of conception of good governance, accountability then means that there's a rule book and there are things you have to conform to. For example, in the context of the new government; we are talking about asset declaration, and early in the conversation we talked about the use of numbers and statistics and this is what it really means to be transparent. Transparency as accountability.

But one point you drove home in the book which I found relatable was sometimes for the voters, accessibility is what they find accountable. How accessible are you? How approachable are you? How much of you can they see and interact with? From there I want us to then move into this your idea of socially embedded governance, because sometimes the challenge when we talk about the social dimension of governance is that they do not acquire the necessary inertia because they are weakly institutionalized. So where I want you to sort of close off is how can we then practically institutionalize some of these lessons that we have learned from looking at the social dimension, not just the material and the technical dimensions of government?

Portia;

Great. Thank you so much. So I want to get to accessibility, but if I can just come back on this idea of is technocracy always a case of setting stronger rules and setting up the rule? But I'm not sure that's always what's happening. And this is actually one of my critique of the kind of newer forms of governance reform that a lot of donors and the World Bank and DFID and the British government are pushing. And I think sometimes it's lost in the debate. So traditionally, yeah, the critique of the African state, the post colonial African state, is it's weakly institutionalized. So it's neopatrimonial. Like, maybe it has some of the trappings of rules and this idea of having, like, a Weberian rule bound state, but in reality, it's run like a private household. The big man sitting at the center just gets to decide what to do.

So the goal has always been stronger rules, greater institutionalization, more predictability. And yet this has kind of been intention, this idea of good governance as being mimicking the private sector. We don't necessarily always talk about, oh, government would be better if it had more rules. We say government should be more agile, it should be more lean, it should be more innovative, more entrepreneurial. And actually, some of the things that we see be these good governance, kind of friendly, donor friendly, Lagos model governments doing actually lead to the kind of underinstitutionalization of the state. So I'm thinking of things like outsourcing, the creation of public private partnerships to deliver infrastructure and services and the use of consultancies. And so this often leads to a situation where actually the rules that govern how the state behaves, so the civil service or laws are basically being circumvented and bypassed by the bringing in of private sector agents to do things that the state would otherwise be doing. And often that's seen quite favorably, like, great, the private sector is more efficient, it has better ways of working, maybe it brings in international best practice, these are people who've worked in very high achieving international environments.

But we see things like consultants, they're not necessarily accountable to the people, they're accountable to their shareholders or kind of the pursuit of profit. And I'm not saying they aren't doing good things at the same time, but there are definitely democratic concerns around that. And I'd also really highlight the case of PPPs. So, public private partnerships. So it used to be that privatization was at least quite straightforward. We had a state water company and then we transfer ownership of it to a private water company and we can try and work out what the private water company, are they doing well or are they doing badly, et cetera, et cetera. The form of public private partnerships that we're currently seeing emerging and backed very, very strongly by international financial institutions are some of the most complex legal and financial instruments you've ever encountered. It's often hard to work out even who the private partner is, because they come around via special purpose vehicles that are created by consortia, by asset managers, often bringing together very complex financial arrangements, often hosted offshore. So there are kind of confidential and kind of tax arrangements that mean we don't even know who run them.

One of the things I have concerns about is that we think that these kind of technocratic, PPP, private sector led development is going to bring in clearer rules and less corruption. And yet often they're creating a situation where it's impossible to know what the rules are because they're so complex. And you need to be, like, quite an advanced kind of corporate lawyer to even understand what's going on. I guess I'm raising it because it's a bit of a kind of concern of mine, and I think it's something that we really don't understand enough as scholars or commentators. So I just wanted to kind of flag that. And I think it's something that I'd really like to see more discussion of within that kind of, like, Nigerian public sphere. Because my sense is that people have a very, very positive understanding of public private partnerships without necessarily knowing on a case by case basis, are these working in favor of the people or are they just kind of a big shift of risk onto the state? But I know your question was much more tightly linked to this question of accessibility.

Tobi;

Yeah.

Portia;

The idea of accessibility, for me, it's an example of how we can learn from Nigerian politicians and voters. How the rest of the world can look at what Nigeria is doing, and actually, you know, you're able to articulate something that's valuable for the rest of us. So in political science, we don't really have a term that captures what accessibility gets at. And yet whenever I spoke to people, okay, you said, you think this politician is doing a great job, why is he doing a good job? Oh, he's accessible. Or contrastingly, when people criticize politicians, they often said, well, he was arrogant, he was aloof, he was inaccessible. And so something I try and do in the book is I try and delve down into, okay, but what does accessibility mean if we had to give it an academic definition? And I define it as the maintenance of space for direct communication between the ruler and the ruled. So in practice, this normally means face to face, but it can also be by, like, telephone or something. And the thing is, in that moment when you're directly communicating with your ruler and with your kind of followers, is a moment where accessibility can happen through social sanctions. So all politicians, no matter how rich they are, no matter their control of party structures, the one thing they don't like is being booed or being heckled. And if they know that they're going to be booed, they often try and hide. They don't want to be accessible. So it doesn't necessarily happen all of the time when people in communication with their leaders, but there is a kind of possibility for alternative forms of accountability to play out in those moments of communication and accessibility. So this often relates to things like people say, we voted for this politician, he ran off to Abuja, and we haven't seen him in four years. How can you be accountable if I've never seen you? And this is something that people say in Nigeria, but it's also something that I found in studies of politics in places like Ghana and the UK. So a bit further afield.

So this is why I think we have it's a case where we can say that Nigerians were the initial originators of this idea, but it's actually universally applicable. And then you asked, okay, if accessibility is one of the elements of socially embedded good governance, how can we institutionalize it? How can we create rules or procedures or expectations that enable us to kind of put this into practice? And so I do this in the book. I give some very, very basic suggestions, and yet they're rather different from what you would see in good governance agenda set of recommendations. So one thing, maybe you should live in your constituency. If you're a politician, you need to live where your constituents are, because otherwise, how will they have access to. And maybe that sounds kind of willfully simplistic, but I think it's kind of a good, provocative idea, especially as people often like to run away to the nicer, richer areas. But also there's something that Nigerians are already doing that I think kind of captures this idea of accessibility. So if you go on the website of a lot of government agencies, and Lagos State were really the forerunners of this, you'll see the personal telephone numbers of the people who are running these agencies. And that kind of speaks to this level of accessibility of, like, the state is both a bureaucracy, but it's also a set of people. And you need to have access to those people. And often this is being seen as a liability for government that if the people have access to politicians and elected officials, they'll ask them for money or chop or they'll make these personalistic demands. And I address some of the kind of critiques around that in the book. But I also think that we have to think about how can we open up government and have more accessibility rather than less? So that, for me, would be like an example of how we could institutionalize socially embedded good governance.

Tobi;

I mean, I asked that question because I think and this is more of a personal point for me and it's a bit of a Marxist point, if I should say, is that my personal frustration with the works of people like. Thandika and the rest is that they are often very short on practical proposals. Whereas what you're critiquing, at least if we look at Washington Consensus, there's a list of ten clear policies that you should pursue. But there's always a shortage of, okay, so if this falls short in some very important ways, then what next? What should we do? If I win office tomorrow and we've done this and it doesn't work, then what do I do? Now. So it's always short on practical part. That was why I asked you. I like your answer. It sounds simple, but I like it. Live in your constituency is something we can really, really make a hard rule, because, like you said, you're right. My local government chairman does not live in my neighborhood here in Lagos, actually. [S]he lives in a much more nice, richer, high part of the state. And, I mean, she only comes around for party constituent meetings. It sounds very simple, but it’s a very…

Portia;

Maybe let me add to that a bit then, just because sometimes I wrote this book, it's like 80,000 words long, it took like seven years to write. And then people are like so your conclusion is we should put telephone numbers on websites, that's it?

[laughs]

So let me maybe add to this a little bit. So I think there are a number of things that already happen in Nigerian politics, almost like traditional conventions of how you do politics. And I think we can understand them in terms of accessibility. So there's a long history of rulers holding court by sitting outside of their residence or their palace and being accessible to the people. So they might come with with petitions, they might come with complaints, but they basically have to spend some of their time sat on view, not so surrounded by security that you can't reach them at all. There are these ways of making those who have power have to be on show and have to be visible. You know, there's a Nigerian tradition of the courtesy call. And when I first arrived and I started reading Nigerian newspapers I couldn't understand why every… so many of the stories were this head of government office has paid a courtesy call to this traditional politician, this head of this party has paid a courtesy call to the… and I was like what is? It was clear that there was something going on that I didn't fully understand. And so my attempt to make sense of this over time has been that what they are saying is I was accessible. I created a moment of communication between me and this representative of this social constituency or this trade union or this community. It's showing that they are keeping open the lines of communication. And of course we don't necessarily know what is said in those places. And what is said in those places may be negotiations or demands that we're not very happy with. But at least I think it's the signaling of respect by maintaining communication.

So I think maybe we need courtesy calls from the leader of Islam or an informal settlement. Maybe we need more courtesy calls. And this was something that came out if you look at the campaign materials of Ayo Fayose in 2014, this kind of big populist figure, something that really stuck in my mind was on his website. He said what is the most common phone number in Ekiti? It's my phone number. Everyone has access to me. Not only that, but he says if you call this number I will pick it myself. What he's saying is, it's not like you call my number and you get through to a secretary or a handler and they'll just fob you off, and actually you'll never get to talk to me. Which was often the complaint made of Ajimobi that these civil society groups that had been working for many years, they'd go in and they'd say, we want to see the budget, we want to talk to the governor, and they would wait hours and they'd come back day after day and they'd never get to speak to him. So I think this idea of being accessible and available is really, really important. But think the wider point is also to think that you can't monopolize accountability with only one understanding of what it means. And so when I talk to these people who are in this technocratic class, they often think like, well, all we need to do is deliver and perform. What is it that we need? We need roads, fine, we'll build roads.

But that, I think it gives you a very fragile understanding of accountability that doesn't serve everyone, it doesn't meet everyone's demands. But also, maybe this is a pessimist in me, but there are going to be times when even the most fantastic government cannot deliver and cannot perform, because there are certain factors beyond the control of the government - world oil prices, currency fluctuations, and increasingly, as we look to the future, Nigeria is very, very vulnerable to climate change. So there may be years where even the most fantastic, technocrat, highly educated leader is not able to deliver much that is visible to the population. And so the question is, how will they remain accountable? And how will they keep some trust and legitimacy among the people, even when things are going really badly? And I think that's where you need to be attuned to these alternative understandings of accountability, so that you can carry people along with you, even when that village is flooded and there's nothing you can do, even when there's drought, whatever it is. So I think the wider argument for socially embedded good governance is that it makes states more resilient, and it makes that legitimacy deeper and stronger and kind of more multilayered. Rather than just relying on this idea of, okay, we can perform, we can build the infrastructure, we can give people the public goods that they need, because that's only one strand of it.

Tobi;

Like you said in your allusion to Fayose, I was going to say that accessibility has never been a problem for amala politics. I mean, you can, at least, relatively…you can see Adedibu on a Friday. The chances of you seeing Adedibu and having a very short conversation with him on a Friday, the chances are very high, unlike some other political figures who are a bit more progressive or technocratically minded. And I'll tell you one interesting story about Akala, actually. But on this point of accessibility in his hometown in Ogbomoso, he comes around every weekend. And I've also seen scenes of this, so it's not just hearsay. So he comes “home” every Friday and you see lines of people. Pool that are in his house just to collect cash, not just handouts, oh, I want to start a business, I want to pay school fees. And he just hands out cash, sometimes unbelievable sums of money to people. But the funny story I have about Akala, which made me laugh when I read that part in your book, of him being an ATM. So I think this was in 2011 when he was campaigning. So I was traveling, I was driving to Ilorin, so I stopped in Ejigbo to buy fruits. So after buying a very large basket of mangoes, I was out of cash. So I wanted to go to the... I think it was just one bank in Ejigbo at the time, Skye bank it was called back then. So I wanted to get some money. Unfortunately for me, Akala was campaigning in Ejigbo that day. So he basically walked into the bank and after making a withdrawal, the bank had to shut down.

So I think a bank staff sort of told us that he collected 200 million naira and the bank just had to close shop that for today, no cash. So Akala was really an ATM.

Portia;

Yeah. So like this point you make about if you wanted to see Adedibu, you could probably see him. And I think that links to a critique that sometimes I've got from people when I presented my work, which is maybe what you're talking about accessibility, maybe it works at the village level, maybe it works at the local government level, maybe it works at the city level. But like realistically, in a country of 200 million people, is this an idea that can actually work at the macro level? Because it's impossible for 200 million people to see to newborn on a Friday. And so what I'd say to this is when we think about accessibility and what are the correct social relations that politicians are meant to have with their constituents, it's not necessarily about direct personal experience necessarily. So it's not necessarily the question of how does the governor treat me, but it's often the question how does the governor treat people? So what I really noticed in the run up to this most recent election is that we saw one of the candidates, Mr. Peter Obi, often celebrated for this exact reason that he was accessible. And people used this word he's accessible. They're not saying necessarily that they themselves met him. What they're saying is that maybe they saw a video online of him interacting with someone he just met in an airport or someone in the street. And so it's about people's understanding of the social relations that these leaders have even if it's not with them directly. And I think this is why in the book, when I get into the more like analytic, academic, theoretical part, I really emphasize that I'm not talking about personalistic relations or private relations between me and you as individuals. I'm talking about social relations which might just be what are the sort of relationships that someone cultivates, what are the sorts of ways of behaving and then judging someone on the basis of that. And often when we talk about clientalism, we talk about relationships where the followers of the voters are directly known to the leader or the person who's their kind of patron. And that's not really what I'm talking about in the book. I'm talking about more this intermediary level of kind of social relationships that can go beyond just individuals. And so that's why I think it's possible for even the president to demonstrate that he's accessible without having to be directly accessible to every single Nigerian citizen. But that's one, I think, very sensible critique that sometimes people do raise to this argument.

Tobi;

Also, I would like to respond to something which relates to your point on what you are seeing as an increasing embrace by the donors of a different way of doing things in government. So I did election special for the podcast. I'll send you a particular episode we did with one of the persons that used to run the Lagos State Emergency Service Management. So we did a very interesting episode on some of the challenges in trying to run public service and provide public goods alongside.

And one thing that actually came up, which it's not a defense of that approach, but which just sort of made me see maybe as a runaway pragmatism, is that sometimes and you see this with the federal government as well, the civil service, the rules around hiring are very amorphous, they’re not very clear. So sometimes using consultants are sort of the easiest way to get things done and not be buried in the bureaucracy. I used to live in Abuja and you have cases where literally your file go missing trying to get approval for one thing or the other. Your file just sits there in somebody's desks who wants something or forgot or doesn't think it's priority enough. And I think that civil service, which then sort of feeds into what you talked about with the Lagos model and how sometimes public services and the civil service is usually used as an employment creation scheme and sometimes very loose culture, or should I say ethics around professionalism and what the job actually entails and how that can then slow down the process of execution of policies in some cases. So, and I think that using consultant sometimes is [practical]….it’s not an ideal solution. Personally, I don't like it as well, especially on the accountability point. But I see it as a sort of runaway pragmatism.

Portia;

Yeah. So I think your point about the civil service and the challenges of getting things done really resonates with so many of the critiques of the state in Nigeria. And a lot of the people I've been talking with in my new project have shared similar concerns, and it's obviously like a major issue. But again, I think I would kind of return to the question I posed at the very beginning of our discussion, which is that often when we spend spend a lot of time thinking about the critique decrying corruption in Nigeria, it creates, again, a false consensus about what it is we actually want. And when we come to that kind of positive vision of the future, there's no guarantee there's going to be full agreement. And actually, that's where the contestation lies. So my question would be, if we want a more efficient civil service in Nigeria, what do we want it to do more efficiently? To what purpose do we want to put that efficiency? So, again, if we want to build state capacity, okay, but what are the goals to which we want to direct that state capacity? And it makes me think of an article again by Thandika Mkandawire where he talks about monocropping and monotasking, and he talks about how the good governance agenda and public sector reforms in the 1990s basically prepared states to do one task and one task only, and that was to attract FDI and to guarantee the property rights of foreign investors.

So that basically is taking risk away from foreign investors and allowing them to do what they want, but also not demand from them to really give back or kind of guarantee any benefits. And that you can build up a state to be very, very efficient for some things, and yet you don't necessarily have kind of democratic consensus on what those goals should be. And so I think there are different things that the state in Nigeria could be aiming for. And it relates to conversation we were having before the recording started as well of, what actually is the economic ambition of Nigeria. And people put it very simply of, oh, we want more investment, we want more growth. But what is it that you want to do? Do you want to build up domestic firms? Do you want to enforce economic activity that is maybe more decentralized or more labor intensive? There are a whole number of different ambitions. The word that's often the elephant in the room is redistribution. Maybe you want a stronger state so that you can radically redistribute and eliminate the kind of off the charts inequality that we see. But that's definitely not the sort of thing that the good governance agenda or public finance initiatives are going to equip you to do. No one is talking about a cap on earnings, for example. And again, I'm not saying this is necessarily the solution, but I just want to highlight the way that there are certain things which are not currently on the menu. And if you're going to have a full discussion of the full range of things that Nigerian state and government could work towards, these need to be some of the options just so that you know that you've kind of explored all of it. And people say there's no ideology in Nigerian politics, and here I'm borrowing from the work of Saeed Hussaini, but often the ideology happens before you even notice it, in limiting the menu of options of what it is a state can do. So I think even in what seems like quite an uncontroversial discussion about the civil service, it probably should be more efficient. There's still something hiding there of what is it exactly that the civil service would be able to do in ideal situations? To what ends do you want to kind of make it work? In that regard, I'd kind of highlight the work of people like Mariana Mazzucato and the idea of the state that is much more focused on specific agenda, whether it's around climate change or whatever else, or if you look at the experience of the South Korean government and their kind of industrial policy. So I think we should be alert to just having an efficient civil service does not exhaust the discussion of what it is that we need to be doing in civil service reforms.

Tobi;

This has been a very interesting conversation.

Portia;

Thank you very much. And thank you so much for having me for this really fascinating and insightful discussion. It's such an honour to have someone read it so thoughtfully and intelligently and then connect it to clearly a very wide kind of political experience and insights.

Tobi;

Yeah. Thank you. Thank you very much.

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Hello everyone, and you are listening to Ideas Untrapped podcast. This episode is a continuation of my two-part conversation with Lant Pritchett. It concludes the discussion on education with the five things Lant would recommend to a policymaker on education policy, how to balance the globalized demand for good governance with the design of state functionalities within a localized context - along with RCTs in development and charter cities. I also got an exclusive one of his infamous ‘‘Lant Rants’’. I hope you find this as enjoyable as I did - and once again, many thanks to Lant Pritchett.

Transcript

Tobi;

Yeah, I mean, that's a fine distinction. I love that, because you completely preempted where I was really going with that. Now, on a lighter note, there's this trope when I was in high school, so I sort of want us to put both side by side and try to learn more about them. There's this trope when I was in high school amongst my mates, that examination is not a true test of knowledge. Although it didn’t help the people who were saying it, because they usually don't test well, so it sort of sounded like a self serving argument. But examination now, or should I say the examination industry, clearly, I mean, if I want to take Nigeria as an example, is not working. But it seemed to be the gold standard, if I want to use that phrase. It's as bad as so many firms now set up graduate training programs. Even after people have completed tertiary education, they still have to train them for industry and even sometimes on basic things. So what are the shortcomings of examination, the way you have distinguished both? And then, how can a system that truly assesses learning be designed?

Lant;

Let me revert to an Indian discussion because I know more about India than Africa by far. There are prominent people, including the people around JPAL and Karthik Muralidharan, who say, look, India never really had an education system. It had a selection system. And the ethos was, look, we're just throwing kids into school with the hopes of identifying the few kids who were bright enough, capable enough, smart enough, however we say it, measured by their performance on this kind of high stakes examination who are going to then become the elite. So it was just a filter into the elite, and it really meant the whole system was never really in its heart of heart geared around a commitment to educating every kid. I've heard teachers literally say out loud when they give an exam and the kids don't master the material, they'll say, oh, those weren't the kind of kids who this material was meant for. And they leave them behind, right? There's a phrase “they teach to the front of the class.” You order the class by the kid's academic performance, and then the teachers are just teaching to the front of the class with the kind of like, nah, even by early grades. So the evils of the examination system are only if it's not combined with an education system. So essentially, an education system would be a system that was actually committed to expanding the learning and capabilities of all kids at all levels and getting everybody up to a threshold and then worried about the filter problem much later in the education process.

So if they're part of an education system like they have been in East Asia, they're not terribly, terribly damaging. But if they're part of a selection system in which people perceive that the point is that there's only a tiny little fraction that are going to pass through these examinations anyway and what we're trying to do is maximize the pass rates of that, it distorts the whole system start to finish. My friend, Rukmini Banerjee, in India started this citizen based assessment where it was just a super simple assessment. You need assessment in order to have an effective education system, because without assessment, I don't know what you know or don't know, right? And if I don't know as a teacher or as a school what my kids actually know and don't know, how is anybody imagining that you're giving them an effective education? So I think the role of early assessment and the drive to integrate teaching with real time assessment, I think is hugely, hugely important. This is why I had the preemptive strike on the question of testing [which] is that I want radically more assessment earlier, integrated with teaching. And there are still some educationists that will push back against that. But if we put in a bundle, formative classroom assessment integrated with effective pedagogy and high-stakes examinations, then everybody's going to hate them both. So we have to really unbundle those two things.

And the hallmark of an education system is that it really has targets that every kid can learn and believes every kid can learn, and builds a system around the premise and promise that every kid can learn. There's this example out there, Vietnam does it. And Vietnam did it and continues to do it at levels of income and social conditions that are very much like many African countries. So if I were a country, I'd kind of hate Vietnam as this goody goody, that, you know. You know how you always hated the kid in school who would really do well, and then the teacher would go, well, how come you're not like that kid? On education, Vietnam is that country. It's, like, out there producing OECD levels of learning with very little resources and starting at least in the 1980s, at very low levels of income. So they're proving that it's possible. They're the kid who, like, when everybody goes, oh, that exam was too hard, and like, Bob passed it, like, how hard can it be? Anyway? So I think radically different bases for assessment versus examinations. And to some extent, the only integrity that got preserved in the system wasn't the integrity of the classroom and teaching, it was the integrity of the examination as a filter.

Tobi;

I want to ask you a bit about the political economy of this a little bit. So if, say, you are talking to a policymaker who is actually serious about education, not in the superficial sense, but really about learning and says, okay, Lant, how do I go about this? How do I design an educational system that really does these things? I've written quite a number of reports here and there that rely so much on your accountability triangle. I would have sent you royalty checks, but it wasn't paid work. Sorry. So how exactly would you explain the political economy of designing a working educational system? I know people talk a lot about centralization versus decentralization, who gets empowered in that accountability triangle? Where should the levers to really push, where are they? So how exactly would you have that conversation?

Lant;

So let me start with the accountability triangle and design issues. I think people mistake what the accountability triangle and design issues are about in the following sense. If I'm going to design a toaster, and the toaster is going to turn my untoasted bread into toasted bread, and it's going to be an electric toaster, there are certain fundamental things that have to happen, right? I have to have a current. I need to get that current running through something that heats up. I need that heat to be applied to the bread. I need it to stop when I've applied enough heat. Now, those fundamental principles of toaster design can lead to thousands of different actual designs of toasters. So I want people to get out of the notion that there's a single best toaster and that the accountability triangle or any other mode of analysis is to give you the best toaster and then everybody copies the best toaster. The principles are, design your own damn toaster, right? Because there's a gazillion ways to toast bread. Now, [for] all of them to work, [they] have to be compatible with the fundamental principles of electricity and current flow. You know, so I'm trying to get to one size doesn't fit all, but any old size doesn't necessarily fit everything either.

You raise the question of decentralization, right? The thing is, if you look across countries that have roughly similar learning outcomes from PISA and other assessments, they're radically different designs. France is an entirely centralized system. Germany is a completely federalized system. The US is almost completely localized system. The Low Countries, Netherlands and Belgium have money follows the student system into the private sector. They have the highest private sector enrollment of any country in the world because they allow different pillars of education between the secular, the Catholic and the Protestant to coexist. So then if you ask is decentralization the best way to design your education system? It's like, no, no, no, you're missing the point. The point is, if you choose a centralized system, there are principles in how you design the flows of accountability that are going to produce success and those that are going to produce failure. If you choose a decentralized system, there are systems of the alignment of accountability that are going to produce success and failure. So the analytical framework doesn't determine the grand design, it determines the mechanics of the design. And I just want to get that straight up front.

Second, as a result of the eight year research project of RISE, we have a policy brochure that has, kind of, here are the five kind of principles and here's the 15 minutes if I have five minutes with a minister or leader of a country, here are the five things I want to tell. And the first of those things is, commit. A lot of times we want to skip the most fundamental stage. And what I mean by commit is you actually need to create a broad social and political consensus that you're really going to do this and that you're committed to it. This big research project, RISE, which is based out of Oxford and I've been head of for eight years, we included Vietnam as one of our focused countries because it was a success case. Hence, we wanted our research team to partly do research about Vietnam and issues that were relevant in Vietnam. But we really wanted to answer the question, how did Vietnam do this? Why did they succeed? Right? And five years into the research effort, I was with the Vietnamese team and they had produced a bunch of empirical research of the econometric type. Is Vietnam success associated with this or that measurable input? Nothing really explains Vietnam at the approximate determinant input level. And finally, one of the researchers said to me, Lant, we're trying to get around the fundamental fact that Vietnam succeeded because they wanted to. And on one level it's like, my first response was, I can't go back and tell the British taxpayers that they spend a million dollars for a research project on Vietnam, and the conclusion to why Vietnam succeeded was because they wanted to.

[Laughs]

Tobi;

That’s kind of on the nose, right?

Lant;

Yeah. On another level, it's a deep and ignored truth. The policymakers ignore it, the donors ignore it. Everybody wants to ignore it. Everybody wants to assume it's a technocratic issue, it's a design issue. I think the fundamental problem of these failing and dysfunctional education systems, it's a purpose problem. The purpose of education isn't clear, understood, widely accepted among all of the people from top to bottom responsible for achieving results. And once that leads to what I call norm erosion. Within the teachers, there's this norm erosion of what does it really mean to be a teacher? So again, the first and maybe only thing I would say if I had five minutes with a leader is, how are you going to produce a broad social, political and organizational commitment that you are really going to achieve specific, agreed-upon learning results? The technical design issues have to flow from that commitment rather than vice versa. And you could copy France’s system, you could copy the Vietnamese system. I think you've heard the term from me and others, isomorphic mimicry. You can copy other people's systems and not have the same effect if it isn't driven by per purpose. Like, if you don't have the fundamental commitment and you don't have the fundamental agreed-upon purpose, the rest of the technical design is irrelevant.

Tobi;

It sort of leads me to my next theme. And that is the capability question in development.

Lant;

Yeah.

Tobi;

First of all, I also want to make a quick distinction, because lately, well, when I say lately that's a little vague. State capacity is all the rage now in development.

Lant;

Really? Is that true?

Tobi;

Yeah,

Lant;

I'm so happy to hear that. 3s I'm glad that you think so. And I hope that that's true, because it wasn't. It really wasn't on the agenda in a serious way. So, anyway …

Tobi;

But I also think there's also a bit of misunderstanding still, and usually, again, maybe I'm just moving with the wrong crowd. Who knows? People focus a lot more on the coercive instruments of the state and how much of it can be wielded to achieve certain programmatic results for state capacity. Revenue to GDP in Nigeria is low, how can the states collect more taxes? How much can the state squeeze out of people's bank accounts, out of companies, or the reverse. That, the reason why the state collects very little taxes is because state capacity is low. But, I mean, nobody really unpacks what they mean by that. They just rely on these measures like X to GDP ratio.

Another recent example was, I think it was in 2020, when the pandemic sort of blew over and China built a hospital with 10,000 bed capacity in, I don't know, I forgot, maybe 20 days or…

Lant;

Yeah. It was amazing.

Tobi;

A lot of people were like, oh, yeah, that's an example of state capacity. It's very much the same people now [who] are turning around and seeing China as an example of failure on how to respond to a pandemic. So I guess what I would ask you is, when you talk about the capability of the state, what exactly do we mean?

Lant;

In the work that were done and the book that we wrote, we adopt a very specific definition of capability, which is an organizational measure. Because there are all these aggregate country level measures and we use them in the book. But in the end, I think it's easier to define capability at the organizational level. And at the organizational level, I define [that] the capability of an organization is the ability to consistently induce its agents to take the policy actions in response to circumstances that advance the normative objective of the organization. And that's a long, complicated definition, but it basically means can the organization, from the frontline worker to the top of the organization, can it get people to do what they need to do to accomplish the purpose?And that's what I mean by the capability of an organization. And fortunately, unfortunately, like, militaries, I think, make for a good example. It's amazing that highfunctioning militaries have soldiers who will sacrifice their lives and die if needs be, to advance the purpose of the organization. Whereas you can have a million man army that's a paper tiger. No one is actually willing to do what it takes to carry out the purpose that the organization has been put to of fighting a particular conflict. And I think starting from that level makes it clear that, A, this is about purpose, B, it's about inducing the agents to take the actions that will lead to outcomes. And the reason why I'm super happy to hear that capability is being talked about is (you're doing a very good job as an interviewer drawing out connection between these various topics) the design of the curriculum is almost completely irrelevant to what's happening in schools. And so there's been way too much focus in my mind in development discourse on technocratic design and way too little on what's actually going to happen in practice. And so my definition of capability is, you measure an organization's capability of what actually happens in practice, what are the teachers actually going to do day to day? Right? And having been in development a long time, I often sit in these rooms where people are just, you know, I go out to the field and teachers aren't there at the school. Teachers are sitting in the office drinking their tea while the kids are running around on the playground, even during scheduled instructional time. And then I go back and hear discussions in the capital about higher order 21st century skills. You know, I wrote this article about India called Is India a Flailing State?

Tobi;

Yeah.

Lant;

And what I meant by flailing is there was no connection between what was happening in the cerebrum and what was being designed at the center. And what was actually happening when the actual fingers were touching the material and the nerves and sinews and muscles that connected the design to the practice were completely deteriorated. And therefore, capability was the issue, not design. So that's what I mean by capability. I mean, you use the example of tax. I think it's a great example. It's like, can you design a tax authority that actually collects taxes? And it's a hard, difficult question. And I think by starting from capability, I was really struck by your description of capability being linked to the coercive power of the state because that's exactly not how I would start it. I would start it with what are the key purposes for which the state is being deployed and for which one can really generate a sufficient integrated consensus that we need capability for this purpose.

Tobi;

Now, one of my favourite blogs of yours was how you described… I think it was how the US escaped the tyranny of experts, something like that. So I want to talk about that a bit versus what I’ll call the cult of best practice…

Lant;

Hmm.

Tobi;

Like, these institutions that are usually transplanted all over the world and things like independent central bank and this and that. And you described how a lot of decentralized institutions that exists in the United States, they were keenly contested, you know…

Lant

Yes.

Tobi;

Before the consensus sort of formed. So I'm sort of wondering, developing countries, how are they going about this wrong vis a vis the technical advice they are getting from development agencies? And the issue with that, if I would say, is, we now live in a world where the demand for good governance is globalized. Millions of Nigerians live on the internet every day and they see how life is in the industrial rich world and they want the same things. They want the same rights. They want governments that treat them the same way. Someone like me would even argue for an independent central bank because we've also experienced what life is otherwise.

Lant;

Right.

Tobi;

So how exactly to navigate this difficult terrain because the other way isn't also working. Because you can't say you have an independent central bank on paper that is not really independent and it's not working.

Lant;

Your questions are such a brilliant articulation of the challenges that are being faced and the complex world we live in because we live now in an integrated world where people can see what's happening in other places. And that integrated world creates in and of itself positive pressures for performance, but also creates a lot of pressures for isomorphism, for deflecting the actual realities and what it will take to fix and make improvements with deflective copies of stuff that has no organic roots. I've written lots of things and even though you love all of your children, you might have favorites. One of my favorite blogs is a blog I wrote that is, I think, the most under cited blog of mine relative to what I think of it, which is about the M16 versus the AK-47.

Tobi;

Oh, yeah, I read that.

Lant;

It's an awkward analogy because no one wants to talk about guns.

Tobi;

Hmm.

Lant;

But I think it's a really great analogy because the M16 in terms of its proving ground performance is an unambiguously superior, more accurate rifle. The developing world adopts the AK-47. And that's because the Russian approach to weapon design was - design the weapon to the soldier. And the American approach is - train the soldier to the weapon. And what happens again and again across all kinds of phenomena in development is the people who are coming as part of the donour and development community to give advice to the world, all want them to adopt the M16 because it's the best gun, and they don't have the soldiers that can maintain the M16. And the M 16 has gotten better, but when it was first introduced, it was a notoriously unreliable weapon. And the one thing as a soldier, you don't want to happen is as you pull the trigger and the bullet doesn't come out at the end. That's what happens when you don't maintain an M16. So I think this isomorphism pressure confuses what best practice is with assuming there's this global best practice that can be adopted independently of the underlying capacity of the individuals and capabilities of the organizations. So I think huge problem.

Second, I think there is a super important element of the history that the modes of doing things that now exist in the Western world and which we think of as being “modern,” I'm using scare quotes which doesn't help in a podcast, but we think of as being modern and best practice had to struggle their way into existence without the benefit of isomorphism. In the sense that when the United States in the early 20th century underwent a huge and quite conflicted and contested process of the consolidation of one room, kind of, locally operated schools into more professionalized school systems, that was politically contested and socially contested. And the only way the newer schools could justify themselves was by actually being better. There was no, oh, but this is how it has to be done, because this is how it has been done in these other places, and they have succeeded. And so there was no recourse to isomorphism, right. So in some sense, I think the world would be a radically better place for doing development if we just stopped allowing best practice to have any traction at all. If Nigerians just said, Screw it, we don't want to hear about it. Like, we want to do in Nigeria, what's going to work better in Nigeria? And telling me what Norway does and does not do, just no. Just no, we don't want to hear about it. Like, that doesn't help because it creates this vector of pressures that really deteriorate the necessary local contestation. My colleague Michael Wilcock, who is a sociologist, has characterized the development process as a series of good struggles. And in our work on state capability, we say you can't juggle without the struggle. Like, you can't transplant the ability to juggle. I can give you juggling lessons, I can show you juggling videos. But if you don't pick up the balls and do it and if you don't pick up the balls and do it with the understanding that unless you juggle, you haven't juggled, you can never learn to juggle. So I think if development were radically more about enabling goods, local struggles in which new policies, procedures, practices had to struggle their way into existence, justifying themselves on performance against purpose, we would be light years ahead of where we are. And that's what the debate about capability has to be.

And I think to the extent the capability discourse gets deflected into another set of standards and more isomorphism, just this time about capability, I think we're going to lose something. Whereas if we start the state capability from discussion of what is it that we really want and need our government to get better at doing in terms of solving concrete, locally dominated problems, and then how are we going to come about creating the capability to do that in the Nigerian context, (I’m just using Nigeria, I could use Nepal, I could use any other country). That's the discussion that needs to happen. And the more the, kind of, global discourse and the global blessed practice gets frozen out completely, the sooner that happens, the better off we’ll be.

Tobi;

So I guess where I was going with that is…

Lant; 78:25

Yeah.

Tobi;

One of those also fantastic descriptions you guys used in the book is” crawling the design space” on capability. So now for me, as a Nigerian, I might say I do not necessarily want Nigeria to look like the United States. Because, It wouldn't work anyways. But at the same time, you don't want to experiment and end up like Venezuela or Zimbabwe. It may not work to design your central bank like the US Federal Reserve, but at the same time, you don't want 80% inflation like Turkey. So we're ate the midway, so to speak?

Lant;

I get this pushback when I rail on best practice. I often get the push back, well, why would we reinvent the wheel? And I've developed a PowerPoint slide that responds to that by showing the tiniest little gear that goes into a Swiss watch and a huge 20 foot large tire that goes on a piece of construction machinery. And then say they're both wheels. Nobody's talking about reinventing the wheel. There are fundamental principles of electricity that a toaster design has to be compatible with. So, again, there is a trade off. There are fundamental principles, but there's a gazillion instantiations of those principles. We don't want to start assuming that there's a single wheel, right? When people say, don't reinvent the wheel, it's like, nobody's reinventing the idea of a wheel. But every wheel that works is an adaptation of the idea of a wheel to the instantiation and purpose for which is being put. And if you said to me, oh, because we're not going to reinvent the wheel, we're going to take this tiny gear from a Swiss watch and put it on a construction machine and expect it to roll, it's like, no, that's just goofy, right? And what I've really tried to do in the course of my career is equip people with tools to think through their own circumstances.

Tobi;

Hmm.

Lant;

Coming back, the accountability triangle or the crawling the design space. What I'm not trying to do is tell somebody, here is what you should do in your circumstance, because my experience is what's actually doable and is going to lead to long-run progress is an unbelievably complicated and granular thing that involves the realities of the context. But what I do want to do is help people understand there are certain common principles here and some things are going to lead to, like, Venezuela like circumstances, and we've seen it happen again and again, but there are a variety of pathways that don't lead to that. And you need to choose a pathway that works for you. And the PDAA isn't a set of recommendations, it's a set of tools to help people think through their own circumstances, their own organization, their own nominated problems and make progress on them. The accountability triangle isn't a recommendation for the design of your system. It's a set of tools that equip people to have conversations about their own system. And I have to say, at one time was in some place in Indonesia and it was a discussion of PDAA being mediated by some organization that had adopted it and was teaching people how to do it in Indonesia. And I had the wonderful experience of having this Indonesian woman who was a district official working on health, describe in some detail how they were using PDAA to address the problem of maternal mortality with no idea who I was. And I was like, oh, just for me to hear her say, here is how I use the tool to address a problem I've never thought about in a context, in an organization I've never worked with. So I think equipping people with tools to enable them in their own local struggles is my real objective rather than the imagination that I somehow can come up with recommendations that are going to work in a specific context.

So the don't reinvent the wheel is just complete total nonsense. It's like every wheel is adapted to its purpose and we're just giving you tools to adapt the idea of the wheel to your purpose. Adapting a square to the purpose just isn't going to work. So I agree. We want to start from the idea of things that work. And there are principles of wheel design that you can't violate. You can't come in and say, I have a participatory design of a water system that depends on water running uphill. No. Water runs downhill. That's a fundamental principle of water. But I think the principles are much broader and the potentiality for locally designed and organic, organically produced instantiations of common principles are much broader than the current discourse gives the possibility for.

Tobi; 83:47

I can't let you go without getting your thoughts on just a few more questions. So indulge me. I've stayed largely away from RCTs because there's a bunch of podcasts where your thoughts can be fairly assessed on that issue, but it's not going away. Right? So for me, there's the ethical question, there's the methodological question, and there's the sort of philosophical question to it. I'm not qualified to have the methodological question, not at all. Maybe on the ethics, well, there's a lot of also biases that get, so I'm not going to go there. For me, when I think about RCTs, and I'm fairly close here in Nigeria with the effective altruism community, my wife is very active, and I have this debate with them a lot. Surprisingly, a lot of them are also debating Lant Pritchett, which is which is good, right now. The way I see it is. The whole thing seems too easy in the sense that, no disrespect to anybody working in this space at all… in the sense that it seems optimizing for what can be measured versus what works.

So for me, the way I look at it is, it's very difficult to know the welfare effects for maybe a cohort of households. If you put a power station in my community, which has not had power for a while. So, but it's pretty easy if you have a fund and you distribute cash to households and you sort of divide them into a control group, and you know… which then makes it totally strange if you conclude from that that that is the best way to sort of intervene in the welfare and the well being of even that community or a people generally. I mean, where am I going wrong? How am I not getting it?

Lant;

No, the people listening to the podcast can't see me on the camera trying to reach out and give you a big hug. I think you have it exactly right. I think we should go back and rerecord this podcast where I ask you questions and your questions are the answer. So I think you've got the answer exactly right. So first of all, by the way, the original rhetoric and practice of RCTs is going away, and roughly has gone away. Because the original rhetoric was Independent Impact Evaluation. All of the rhetoric out of JPAL and IPA and the other practitioners is now partnerships, which is not independent, but essentially everybody's adopted the Crawl the Design Space use of evidence for feedback loops in making organizations better. So they've all created their own words for it because they don't want to admit that they're just, again, borrowing other ideas. So to a large extent the whole community is moving in a very positive direction towards integrating, seeking out relevant evidence for partner organizations in how can they Crawl the Design Space and be effective. And they're just not admitting it because it's embarrassing how wrong they were first, but they've come to the right space. So I want to give them credit.

When I gave a presentation at NYU called The Debate About RCTs Is Over And I won. It's not a very helpful approach, it's true, but it's not very helpful because I have to let them do what they're now doing, which is exactly what I said they should have been doing, and they are now doing. So, to some extent, asking people to say, yeah, we changed what we're doing is a big ask. And I'd rather they actually change what they're doing then they admit they did that. So to some extent it is going away. I think it's going away as it was originally designed, as this independent white coat guys, descend on some people and force them to carry out an impact evaluation to justify their existence. They're much more integrated, let's Crawl the Design Space in partnership with organizations, let's use randomization and more AB testing ways. And so I feel it's moving in a very positive direction with this weird rhetoric on top of it.

Second, I think you're exactly right and I think it's slightly worse than you said. Because it's not just about what can be measured, but it's about attributability. It's not just what can be measured, but what can be attributed directly, causally to individual actions. And my big debate with the Effective Altruism community is I'm hugely, you know, big, big, big wins from the Effective Altruism movement attacking kind of virtue signaling, useless kind of philanthropic endeavors. I think every person should be happy for them. But if I were African, I would be sick of this philanthropic b**t that you guys are going to come and give us a cow or Bill Gates talking about…

Tobi;

Or chickens.

Lant;

Chickens. My wife doesn't do development at all. She's a music teacher. But when she heard Bill Gates talking about chickens, she think, does Bill Gates think chickens haven't been in Africa for hundreds of years? Like, what does he think he knows about chickens that Africans don't know about chickens? That's just such chicken s**t, right? But again, I'll promote a blog. I have a blog called let's All Play for Team Development. And I think what you're raising in your thing is that it's not just what we can measure, it's what we can measure and attribute to the actions of a specific actor. Because, you know, your example of not having power in a village, that we can measure. But all of the system things that we've talked about so far - migration, education, state capability - these aren't going to be solved by individualized interventions. They're going to be solved by systemic things. And with my team on education, we've had this big research project on education standards but I keep telling my team, look, if you're not part of a wave, you're a drop in the ocean. The only way for your efforts to not be a drop in the ocean is for you to be part of a wave [of] other people around you working on the same issue, pushing in the same direction, to build that. And that kind of thing gets undermined by attributability. So with my RISE project, I sometimes tell my funders, you can have success or you can have attributability, but you can't have both, right? Because if we're going to be successful at changing the global discourse in education, we're not going to do it by ourselves. We're going to be part of a team and a network. So, anyways…

By the way, like early, early, early in the Effective Altruism movement, I had an interview with Cari Tuna and I think Holden Karnofsky, when they were thinking about what to do, and I made exactly this point. It's like, look, being effective at the individualized interventions that are happening is one thing, but don't ignore these huge systemic issues because you can't measure the direct causal effect between the philanthropic donation and the outcome. And that's your point, I think, which is, Nigeria is not going to get fixed by cash transfers.

Tobi;

No way.

Lant;

I mean, for heaven's sakes if Nigeria had the cash to transfer to everybody and fix it, well, then the national development struggle wouldn't be what it is. It's a systemic struggle across a number of fronts.

Tobi;

Why not just get Bill Gates to donate the money.

Lant;

But again, even Bill Gates, his fortune relative to the…you know, impact you could have through these programs, relative to what happens with national development, is just night and day. So to the extent that the adoption of a specific methodology precludes serious, evidence-based, hard struggle work on the big systemic issues, it's a net negative.

Tobi;

Again, to use your term, “kinky ideas in development.”

Lant;

Yeah.

Tobi;

I was reading a profile in the FT, a couple of days ago, all about charter cities, right?

Lant;

About what?

Tobi;

Charter cities. It was an idea I was kind of into for a while, I mean, from Paul Roma's original presentation at TED. But you strongly argued against it at your CATO debate. So what is wrong with that idea? Because there are advocates, there are investors, who think charter cities are this new thing that is going to provide the space for the kind of organizational and policy experimentation. And China's SEZs are usually the go to examples, Shenzhen particularly. So, what do you have to say about that?

Lant;

I like discussing charter cities.

Tobi;

Okay.

Lant;

And the reason I like discussing charter cities is because they're not kinky. Right. My complaint about Kinky is that you've drawn this line in human welfare and you act as if development is only getting people over these very low-bar thresholds. So conditional cash transfers are an example of Kinky, and conditional cash transfers are just stupid, right? Charter cities are wrong.

I mean, conditional cash transfers are just stupid in a trivial way.

Charter cities are wrong in a very deep and sophisticated way. So I love talking about charter cities. The reason I love talking about charter cities is A, they have have the fundamental problem posed, right? The fundamental problem is countries and systems are trapped in a low level equilibrium and that low level equilibrium is actually a stable equilibrium and so you need to shock your way out of it. And the contest between me and Charter cities is I think there's good struggle paths out of low level equilibrium. So I'm a strategic incrementalist. I want to have a strategic vision, but I want incremental action. So I'm against the kinky, which is often incremental incremental, it doesn't really add up to a development agenda. So I like, yes, we need to have a way out of this low level equilibrium and state capability in the way education systems work, in the way economic policies keep countries from achieving high productivity, et cetera. But I'm a good struggle guy. And charter cities want Magic Bullet. Right.

Now, the rationale for Magic Bullet is that good struggle is hard and hasn't necessarily proved successful. And these institutional features that lead to these low level traps just are resistant to good struggle methods out. And I think that's a really important debate to be having. But I think the right way to interpret China's experience and Yuen Yeun Ang's book on how China did it is, I think, a good illustration of this is China was Good Struggle. Using regional variations as a way of enabling good struggles. It's instructive that difficulty with Charter Cities always goes back. You keep going deeper and deeper of who's going to enforce this, who's going to enforce this, who's going to enforce this, you know. They're caught in their own catch 22 in my mind. So the first proposed, what appeared to be feasible Charter City in Honduras eventually got undermined by governance issues in which the major investor didn't want to actually be subject to rules based decision making.

So, I love talking about charter cities. I think they're on the right set of issues of how do we get to the institutional conditions that can create a positive environment for high productivity firms and engagement and improved governance. And they have a coherent argument, which is good, that, it's a low level trap and there's no path out of the low level trap and so we need big shock to get out of it.

But I don't think they're ultimately correct about the way in which you can establish the fundamentals. You can't just big jump your way to having reliable enforcement mechanisms and until you get to reliable enforcement mechanisms, the whole Charter City idea is still kind of up in the air. The next podcast I have scheduled to do is with the Charter Cities podcast, so that hopefully…

Tobi;

Oh. Interesting. Last question. We sort of have a tradition on the show where I ask the guest to discuss one new idea they would like to see spread everywhere. But I think more in line with your own brand, like you said earlier, I think I would like to ask for our own exclusive, Ideas Untrapped Exclusive Lant Rant, something you haven't talked about before or rarely. So you can go on for however long you wish. And that's the last question.

Lant;

I think if I had to pick something that if we could just get rid of it, it would be this fantasy that technology is going to solve problems. My basic point I make again and again and again is Moore's Law, which is the doubling of computer capacity every two years, has been chugging along, and it might have slowed down, but has been chugging along since 1965. So computing power has improved by a factor of ten to the 11th. And just as an illustration of just how big ten to the 11th is, the speed you drive on a freeway of 60 miles an hour is only ten to the 7th smaller than the speed of light. So ten to the 11th is an astronomically huge number in the sense that only astronomers have any use for numbers as big as ten to the 11th. Okay. My claim is anything that hasn't been fixed by a ten to the 11th change in computing power isn't going to get fixed by computing power. And I ask people sometimes in audiences, okay, particularly with older people, you look a little young for this question, but I ask them, okay, you older people that have been married for a long time, computing power has gone up ten to the 11th over the course of your marriage, has it made your marriage any better. And they're like, well, a little bit, sometimes when we're abroad, we can communicate over Skype easier, but on the other hand, it's made it worse because there's more distractions and more temptations to not pay attention to your spouse.

So on net, ten to the 11th of computing power hasn't improved average marriage quality. And then I ask them, has it improved your access to pornography? And it's like, of course, night and day, like, more instantaneous access to pornography. And my concluding thing is a huge amount of what is being promoted in the name of tech is the pornography of X rather than the real deal. So people promoting tech in education are promoting the pornography of education rather than real education. People that are promoting tech in government are promoting the pornography of governance rather than true governance. And it's just like, no, these are deeper human issues, and there's all kinds of human issues that they're fundamentally technologically resilient. And expecting technology to solve human problems is just a myth. It enables salespeople to pound down people's doors, to sell government officials some new software that's going to do this or that. But without the purpose, without the commitment, without the fundamental human norms of behaviour, technology isn't going to solve anything and the pretence that it is is distracting a lot of people from getting to the serious work. So if we could just replace the technology of X with the pornography of X, I think we'd be better off in discussions of what its real potentialities are. How's that for [an] original?

Tobi;

Yeah, yeah.

Lant;

You asked for it.

Tobi;

Yeah, that's a lot to think about, yeah. Thank you so much for doing this.

Lant;

Thanks for a great interview, Tobi. That was super fun. We could go back and record this with my asking questions and your questions being the answers. Because you're really sophisticated on all these issues. You're in exactly the right space.

Tobi;

Thank you very much.

Lant;

Great.

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Welcome to the Ideas Untrapped podcast - and my guest today is Development Economist Lant Pritchett. He is one of the most incisive and insightful scholars in the field, and his influence at the frontier of development research cannot be overstated. His research mostly focuses on economic growth, its contributing factors, and the development implications for peoples and countries. It was a privilege for me to talk to Lant, and I took the chance to ask him questions about some of the big themes of his research like Migration, Education, and State Capability.

This is a two-part conversation. In this episode, we discussed Migration and Education. Lant provides insights into how the demographic transition in many rich countries has now pushed the migration debate to the forefront, as opposed to when he was writing about it two decades ago. How the Solow model might explain the absence of migration on the development agenda, and why he thinks the ‘‘brain drain’’ is ‘‘mostly a myth’’. He also explained to me how we ended up with the wrong dashboard in education policies and the distinction between assessment and examination in measuring learning. I want to thank Lant for talking to me, and thank you all for always listening. I hope you enjoy it.

Transcript

Tobi;

My guest really needs no introduction. There's nowhere in the world of development, global development, and development economics, where Lant Pritchett is not a household name. So I’ll like to say welcome, and it's a pleasure to talk to you.

Lant;

Thanks for inviting me.

Tobi;

On a light note, let's start on a very light note. What have you been working on recently?

Lant;

So recently I've been doing two things. I've been wrapping up a large research project on basic education in the developing world, sort of K to twelve, and that had been an eight year research project that's just wrapping up. But more recently, I'm trying to ramp up my engagement on labour mobility. The world is facing a real demographic transition point, with the rich industrial world, particularly workforce age populations, just in constant decline while their aging population is increasing. And at the same time we have this massive youth bulge in parts of, not all of, but in parts of the developing world. And, you know, I'm an economist, whenever you see huge differences, you think, well, here's an opportunity for exchange. So the world's biggest opportunity for exchange right now is the West, as we call it, desperately needs workers, Africans definitely need the hide productivity income and jobs. And it's a great opportunity for exchange, but it's blocked by laws and policies that just make migration next to impossible. And I'm working to break that gridlock and get some sensible ways in which we can put willing workers into needed jobs.

Tobi;

I think that's a good launchpad to start the conversation on migration, which you've worked quite a lot on. I read your book Let Their People Come a couple of years ago. As a general question, what do you think we have learned from the time you wrote that book and you were compiling that research and now? Because definitely to me, it doesn't feel like much has changed in terms of the debate. And like you said, migration is such a big issue with economic and political consequences on both sides of the Atlantic. So what have we learned? And if nothing, why is that so? Why is there such a resistance to thinking differently about migration?

Lant;

What have we learned is a great question. Let's start with the demography of this. That book was written in 2006. One thing about demography is you can predict it very far into the future, right? Everybody who's going to be a 30 year old worker in 20 years is ten years old today. And so it's really not that hard to know what the future, the 20-, 30-year future of the labour force is going to look like, because everybody gets a year older. So on one level, we've learned nothing. But on another level, I think there's a current ongoing night and day shift in the urgency of the issue, because things were easily forecastable when I wrote the book - what is it, 2006? 2023 - 17 years ago. 17 years ago, I was saying, look, there's going to be this demographic crisis in the West and you're going to need these workers, but it was far away. So when you ask has anything been learned, it's like, no, but all of the projections for what was going to happen 17 years ago are now 17 years closer. And now, all of a sudden, the Prime Minister of Japan, I don't know if you've seen this, but the Prime Minister of Japan gave a speech a couple of days ago saying, “for the demographic future of Japan, it's now or never.” And it's like, no, it's never. The opportunity you might have had to address your labour force crisis through fertility was 30 years ago. It's over now.

Now the only issue is how are you going to get workers to work in the Japanese economy to fill the jobs that you need, given that you have the demographic crisis you have, which you now can't fix? I wish I had a good word for this or a clever way to put it, but it's sort of like when a child touches a hot stove, do you say they learned something? Well, yeah, kind of. They learned that the stove is hot. But people had been telling the kid, the stove was hot, don't touch it for years. So, you know, did they learn something? Well, kind of. They know it in a different, more intense way than they maybe knew it before, but they didn't learn anything new. So my first response is, I was just way premature with Let Their People Come in 2006 because the problem was still too far away for politicians and policymakers really to focus on it. But now it's like, boom, it's in your face. labour shortages in the West aren't like this hypothetical going to come thing. They're here, they're now. They're everything I do, everything I look at, I think it's here now. And now, like I said, the prime ministers of countries are going, “we really need to worry about this demographic thing.” So on one level, nothing learned. On another level, radical change and attention to the issue because what was easily predictable and was predicted is now happening in a way you can't ignore it.

Tobi;

But even with that, you still hear many of the standard objections to more migration, whether it's in the wages of domestic workers in the host countries and things around cultural integration. So, just do a quick recap for me why these objections are false or untenable at best. Because a lot of people are still susceptible to the same arguments even with copious evidence and years of research debunking them, you still hear these things. And in the age of social media, where information travels very very fast, you know, and it's also easy to appeal to people who might be affected by this and politically weaponize their disaffection. So the standard arguments to migration, whether we're talking about the work of Borjas and people who are built on the back of that, why are they untenable?

Lant;

I mean, we can talk about why they're untenable or many of the factual claims are false, but I think we want to start a step before that. I think the biggest problem with conversation about migration is fundamentally, and I'm talking mainly about the rich industrial West, which West includes Australia and West includes Japan, the rich industrial world. Okay. The problem is, since the early 20th century, these countries have forced two questions to have the same answer. And they're radically different questions. One question is, who are we as a sovereign entity that control a border? Who are we going to allow to be physically present on our territory and perform labour services? That's a clear question. It's a policy question. It's a legal question. It's a regulatory question. You can have an answer to that question. Then there's the separate question which is, who is the future of we? Who are we going to allow to come to our country and on the premise that they're going to become a citizen, become a future one of us and determine the future of who is us? Right? And I feel that forcing these two questions to be the same, you get a complete distorted discussion of the first question. So I think nearly everybody who's arguing about the impact of migration or labour mobility, which is by the way, I try and use two different words…

I try and always use the words labour mobility because when I use the word labour mobility it's clear I'm talking about the first question [which is] who are you going to allow under what terms and conditions to be physically present on your territory and what kinds of work are you going to allow them? What kinds of contracts and labour are you going to allow them to engage in? That's a question we can debate and have independently, in my view, of the question - who are the future citizens of the country? Right? But when you force those questions to be the same, I think nearly all the discussion of wage impacts is complete subterfuge b**t. Because the problem is if you say, oh, I don't want people coming to my country because I just don't feel they're going to fit in with us, boy, that sounds racist. That sounds exactly why whites in America had restrictive covenants that wouldn't allow African Americans to move into their neighborhoods because they're not like us. They'll change the nature of our way of life. And so most intellectuals in the West are reluctant to actually deploy cultural-based arguments for migration, but it's much more politically acceptable to say, “oh, well, I'm not saying that I am racist and that I don't want people of different races or ethnicities in my country, but it would be terrible for our workers. And therefore, that's why we're not going to do it.” And I think for the most part that's just b****t. It's just subterfuge. It's just substituting an argument that's politically acceptable but false for an argument that's true but not politically acceptable.

So, I think the reason why these false arguments, quite untenable arguments persist is exactly that. It's that these arguments are factually untenable, but it's easier to justify action in terms of those rather than deal with the concrete issue. And the way in which I'm proposing countries can deal with a concrete issue is start to think about separating these questions. So we have legal mechanisms for people to come and work in the country that perhaps have some path to citizenship, but you don't have to decide the citizenship question immediately when any work authorization is granted.

Tobi;

Of course, there are also people on the other side of these arguments who advocate for more migration and letting more people travel and be able to work. And like you said, they often mix up these two arguments as you have delineated them. So my question then is, is it time for advocates of more migration to maybe swallow some bitter pills, especially on questions of rights? Because I think that is where some of the hot buttons lie. What rights would people have? What are the benefits they are entitled to in their host country? And some of the fiscal implications of that, you know, even though some of you may be a cover to hide larger cultural or behavioral argument. So is it time for advocates of migration to, I dunno, maybe, embrace more pragmatic arrangements, so that we can move this issue forward a bit, you know? What do you think?

Lant;

Absolutely. I think that's a very perceptive question because I feel in the space of people that are debating and talking about migration, refugees and labour mobility, those three kind of different channels, the kind of if we use the word migration just to mean the intent that somebody is going to move permanently from one country to the other country and acquire different citizenship, then there's refugees, and then there's labour mobility. I think there's this tension between more and better. And I'm advocating that the path to better runs through more. Whereas a lot of people in this space want better, but it's not at all obvious that they aren't willing to sacrifice more for better. So I'm an economist, so I believe that if the price price of something is higher, people will do less of it. So I feel if you go to countries and you say every person who you allow into your country to do labour services of any kind automatically has to be entitled to the following long list of entitlements. They'll say, “gee, no, we're not going to do that then, we're going to have robots or we'll do without.” No one really should be talking about abrogating fundamental human rights. I mean, I've never say, oh, people should be expected to in any way, shape or form sacrifice fundamental human rights in order to move to another country. But there's a huge space in between. I like that you use the word entitlements versus rights. I feel a lot of human rights are negative rights. These are things that you can't have done to you. It's just immoral, illegitimate to ask you to sacrifice the privileges against these negative things being done to you. Suppressing your freedom of speech, suppressing your freedom of association, forcing you to change your religion, et cetera. But citizens of the West enjoy this huge amount of entitlements which they're entitled to legally as citizens. But migrants don't necessarily need to become endowed with the full panoply of entitlements that citizens have just because they're in the country. And we accept that for students. If you go to study in the United States, no one says, oh, because he's in the United State as a student, he's entitled to every social program available to any citizen in the United States or a tourist. I guess it’s the lack of imagination here and I love the title of Ideas Untapped. I think there's a lack of imagination here because we're not making the right analogy.

It's like, look, we allow people to be in countries for all kinds o f reasons, like tourism, for students, for passage, to do high level business deals, and we don't expect that to come with this huge array of the complete entitlements of the citizens of the country they happen to be in. And, you know, there's kind of a fetishism about work. Like, if you happen to go to another country and work for three months, that needn't come with the full entitlements of every entitlement every citizen of that country has. And then we just need to have an open and untapped conversation about what is the right line between, for sure protection of rights, for sure limitation of reneging on contracts, of abusing migrants because they're in a difficult legal situation of not being in their home country, but the array of entitlements is a hard question to answer, and countries need to take that on. Okay, if we're going to let people come to our country, what does that entitle them to and in what sequence and how? It’s a hard question that countries need to deal with but I don't think it's impossible question. But it is often made impossible by the insistence of like, no, it has to be perfection immediately. Because if you say that, you act as if you're advocating for better, but I feel you're not advocating for more, and lots and lots of people would love more.

And second, it's not obvious that there is a path to better that doesn't go through more because a lot of the abuse that people suffer is that they're being trafficked to reach these labour opportunities in illegal and informal and undocumented ways, which puts them at even more risk of abuse. So the analogy I use is prohibition in the United States. At one point in the United States, we passed a constitutional amendment, we banned the sale and production and import and everything of alcohol. But then what did we end up with? We ended up with a whole bunch of alcohol being marketed illegally and everybody marketing alcohol was, by definition, breaking the law. And so we ended up with a really, really crappy regulation of alcohol. And the only path to better regulated alcohol was to end prohibition and have it be legal. And I feel we're in this prohibition mode, vis a vis labour mobility, and it just isn't viable.

Tobi;

Sometimes the context within which these debates happen is also ideological, especially in America the right, the left. There's a tiny section of the right that I would like you to respond to their argument, or I should say their sentiments. Maybe I'll fit someone like Tyler Cowen in this category, who are pro immigration but who largely favors high performing technical talent from other countries and not people that can work in the jobs that you argue are actually badly in need of workers in the industrial world, what you call the hard non-tradables. Right? So how would you respond to that? What would you say to them who favour more immigration, but what they want is basically the stem talents of other countries? You know, let them come. Perhaps, they argue, that, productivity is stalling in the United States and to keep pushing the technological frontier, it has to be a large absorption of technological talent from other countries.

Lant;

My first response is that's exactly the inevitable consequence of bundling the two questions. If you bundle the question who are future citizens? And the question, who's going to be allowed to work in our country? It inevitably leads to we should allocate the few scarce slots we're willing to allocate, that inevitably leads to global war for talent kind of migration policies where you're going to attract the best and the brightest out of Nigeria, out of India, out of other places to come to America. And that makes economic sense. My point is there shouldn't be two categories. There should be three categories. Currently the debate happens as if there's two categories. There's migrants and there's refugees. Those are the two kinds of people that move. Whereas my point is we need a third category. In part, we need a third category because as you point out, and as I point out, and this is something that is, I think, completely absent from the debate in the West so far is that the change in occupational demand with respect to some measure of underlying skills in those occupations, it's U-shaped. There's actually been more increase in demand for the low skill, physical, non routine activities and an increase in demand for the super high skill. So if you look at change in wages or change in occupations in Europe, in the US, there's more demand for things that aren't easily amenable to technology and aren't repetitive, like, just to use a prosaic example, like cleaning a hotel room.

Cleaning a hotel room is a very hard, it's not an easily automatable thing because it's different every time, you walk in, things are in different places. And so the result of the technological changes in the West is that everybody's complaining about the falling wages because the middle of the wage distribution has been hit hard by technological changes. But we have a whole bunch of jobs that are needed at the low end that the domestic citizens don't want to fill, and in the US, there's going to be something like a million more needed people in home health care. It’s not a job that any American middle class family is, oh, you need to grow up and be a home health care aid. It's not a super attractive job to the emerging youth, and we just don't have any youth coming into the labour market, so we need to fill those jobs. But if you say to a country, oh, you should determine who you are as a people and who you are as a nation and who your future citizens are, in order to meet your needs for home health care, they're like, no, we want computer scientists, we want data engineers, we want doctors. So what I'm saying is, Tyler's argument is inevitable if you accept the premise that what we're talking about is immediate and expected path to citizenship, labour mobility and the only form of labour mobility is migration.

If you look at what's happened with Canada and Australia, who adopted points systems for their immigration, that's exactly the way it went. You gave points for higher levels of education. You gave points for speaking the language. You gave points for things that were cultural match. Canada has massively benefited from global war for talent kind of recruiting through a points-based system. But there's a whole bunch of other jobs in Canada that you also need to fill. And Canada is dealing with this. It's like, okay, how do we deal with all of these existing [jobs] native born Canadians don't necessarily want and so you're not taking them away from anybody by having more people in here working on those, but on the same type, it's a very difficult political discussion to say, we are going to, in some sense, put the future of who we are as a people at the hostage of the immediate needs of the labour force. So Tyler's arguments make a ton of sense if you accept the premise there's no temporary mobility. Once you allow for rotational or temporary or time limited mobility, which can include path to citizenship, then the whole conversation changes. A fundamental principle of economics that is often ignored is instruments to targets. If you have two different targets, you need two different instruments. And so if we've have multiple needs for immigration, we need multiple pathways. And I think Tyler is right about one pathway. I'm a big advocate of the other pathway. Because I am a development economist, if I say what would really benefit Africa, it's not Tyler Cohen having aggressive American policy to take the best and brightest out of Africa, it's creating multiple pathways for Africans.

Tobi;

On Africa, I don't want to draw into any particular comments on that, but let's move the debate closer. Which is, we also worry about migration in Africa, especially…

Lant;

Oh, within…

Tobi;

Yeah. For example, in Nigeria, there is always a huge debate about the number of Nigerian doctors that leave for the UK every year. Canada is also a big competitor now. Another industry that is causing quite a bit of domestic disruption in Nigeria is software talents, which is a new and burgeoning industry with lots of investments but the talents are moving in droves, which inevitably brings up the issue of the brain drain. Right. I usually cite Sandefur and Clemens work on the Philippines, but I encounter some resistance to that argument that no, no, no, don't tell us about Filipino nurses. So now, is the brain drain, is it a myth or reality? I know that's a bit of a vague question, but…

[Laughs]

Lant;

Well, like, it's mostly a myth, but at the same time, most myths have some grounding in some deep aspect of human reality. Myths that persist are capturing something deep and important. Right. So let's start with the way that it's not a myth. The way that it's not a myth is that if a country is not yet in the position in which there's really rewarding ways for the high talent workers to use their skills, then people are going to leave the country and not come back. And then brain drain is, I think, a significant problem because a lot of the pathway of the the education of the people to become the superstars in software and medicine, capable of moving to Canada, Germany, and the US, was publicly funded. So there is a legitimate concern. The whole premise is we'll educate our people because we'll recoup our investment through taxes when they become more productive people. But if that productivity happens in another place, then, yes, there's a serious problem there. But I think what we've learned from lots of experiences with India, where I live and have been working on and off for over 30 years, eventually there's another rhyming thing that's never going to become as popular as brain drain, and I call it cortex vortex. I think one reason brain drain gets so much attention is the two words rhyme, which is not a good reason for an argument to have credibility. But I'm afraid it's like people [go] “brain drain, oh, yeah. Brain drain, oh, yeah. Rhymes. It must be true.” So I want to contrast that with cortex vortex, your brains moving back and forth. There's a vortex of movement, and I think India undoubtedly has benefited from the fact that the early migration out of India into America was permanent. These people left India. But then, as India changed its economic policies, became a more dynamic place, the rotational mobility that there were trained Indians in both places that you could establish the connections, that you could create essentially huge software firms that were essentially US firms based in India. Meaning. All of the revenue was in the US. All of the work was in the US. But the work was being done in India. That was a consequence of the previous establishment of connections.

So I think, on net, the benefits of vortex cortex, when countries become sensible and viable places to do business, exceed the risks of brain drain. So, not that there can never be a brain drain situation, but the brain drain situation is often a much deeper problem with the country. And when the country changes, you can move from brain drain risks to cortex vortex benefits. And I think that as a country, in Nigeria, I would be saying, well, look, we really should be thinking about why software engineers aren't setting up businesses in Nigeria much more than worry about losing Nigerians to the US. And moreover, the more Nigerians we have going and working in the US, eventually it is going to benefit Nigeria in the long run by creating the possibility of connections. The third issue. I realize I'm giving long answers, but the third issue is an issue that Michael Clemens has raised and has documented is if there were viable, again, time limited pathways, then the net effect of investment in training in these things can far exceed the drain and hence you actually get more skilled people from the possibility of migration. So if you look at the Philippines as an extreme example, like if brain drain were true, Philippines should be desperately short of nurses because there's Filipino nurses all over the world. Exactly the opposite, because Philippine nursing schools train a whole bunch of people with the promise and premise that some of them are going to go work and get jobs as nurses in other places. But the net number of nurses trained versus the net number that actually go abroad is very small. So the opportunities for Filipino nurses to work abroad have dramatically increased the supply. And so there's way more nurses, we need to think of the long-run endogeneity of the number.

So again, people's ability for counterfactual is often very limited. They see a Filipino nurse working in the Gulf and think that nurse could have been working in the Philippines, so therefore it's created less nurses in the Philippines. And they have a very difficult time imagining the more complex counterfactual of well, that nurse actually created five or six additional trained nurses who are in the Philippines because they got trained as nurses and went abroad for a while and then came back and worked in the Philippines. Or never got the opportunity to work abroad. So the net brain creation is a huge driver to the extent that these very high returns to possibility of going abroad increase the total creation of supply often gets completely ignored in the brain drain discussion. So I'm sure a lot of Nigerians are investing in their software skills in the hopes of working abroad. And the net effect of software skills available in Nigeria may well be hugely positive, even though you can point to lots of individuals who leave.

Tobi;

One evidence that you're having a conversation with Lant Pritchett is if his answers always lead you to your next question. Speaking about the cortex vortex now. There are people who argue, and sometimes they toy with a very horrible idea of limiting emigration in African countries, especially emigration of highly educated, highly skilled people because of the fear of brain drain. And one argument that I've heard is that there is less incentive for national development if your brightest and the best leaves. The political incentive is for the ruling class to keep looting. They have no incentive to fix anything. I mean, citizens get educated, they grow up, they leave. Nothing about the political dynamics of the country changes. How would you respond to such people? How would you tell me to respond to such people?

Lant;

I have to say there's two levels to this. First kind of this is getting beyond my pay grade, so to speak. It's like the true dynamics of how countries come to do national development in this fourfold transformation that I talk about, of the politics, the society, the economy, and the administration, it's a huge, complicated historical transformation. And I'm not at all convinced forcing your best and brightest to stay in the country because they'll be really unhappy, and therefore, by being unhappy, they're going to play a positive role in the political dynamics is a plausible story to first order at all? I don't know. Maybe. But it's hard to point to the cases where by not allowing these people to migrate, they instead of becoming a Nigerian doctor working in Canada, they became this path-breaking political transformational figure. And a very striking counterexample is Gandhi in India. Came back to India when he was in his 40s, having spent a significant amount of time in the UK and a significant amount of time in South Africa. You could have said, oh, man, if we had just forced Gandhi to stay in India, things would have been so much better. And there are a number of significant examples of people who went abroad for a period and then came back and made a positive difference, too. So that first one, it's like, kind of on first order sounds plausible, but I don't know of any either historical, or social or political or economic solid evidence that it's true.

Part of my brand is skepticism. Just because it sounds plausible doesn't mean it's true. First of all, yeah, that sounds plausible, but I'm not sure it's true. Had Gandhi not been allowed to go study law in the UK, would India have in the long run historical trajectory, be in a better place? I don't know. The actual historical thing was, and I feel embarrassed as someone who has lived in India for a long time, but I think he was 44 years old before he came back and became a prominent and effective political advocate in India. And who's to know that that experience of living broad didn't radically increase his productivity as a transformational political leader? So that's the first thing I'd say. Second thing I'd say is I have these fundamental liberal tendencies that forcing people, even if it's good for the country, forcing people to do it, makes me nervous.

Tobi;

Yeah.

Lant;

Even if I did accept that it were true, that it would be marginally better for Nigeria if these people didn't go off and work in other countries, putting that burden in a coercive way on the individual makes me nervous. Just makes me nervous. Because how did the burden of Nigeria's national development transformation fall on this person just because they happen to be a good programmer? That's not at all an obvious thing. And then the last point I want to make is, you know, I sometimes want to promote the analogy that human capital is a lot like physical capital, right? And on this, both sides have been completely hypocritical in the sense that when Westerners make this argument, I go, hey, until you guys start refusing to take Nigerians physical capital, when Nigerians want to invest in Swiss banks or British banks and say, no, this physical capital should be forced to remain in Nigeria to promote the national development of Nigeria and so we should ban Nigerians from being able to put money in Switzerland because it would be better used there than in Switzerland. Until you're willing to make that same argument, I'm pretty sceptical that your argument a Nigerian should be forced to remain in Nigeria is really a principled argument. Because analytically, it's exactly the same. And yet the West is like, oh, yeah, yeah, all of the money that wants to roll out of Africa into Swiss, and British and other banks [we’re] super happy to take it, even though exactly the analytically same argument can be made as, oh, this money should be better invested and if we force people to invest their money in Nigeria, they'd be more aggressive about creating a better investment climate. But the West is fully complicit in taking all the money that wants to come out of Africa, and yet when it's people, all of a sudden they acquire principles. And then, secondly, the same thing for the country, it's like, look, if you're losing physical capital, you might want to look at why people don't want to invest in Nigeria and create a better investment climate.

Tobi;

My final question on migration, before we move on to another baby of yours - education. So as a development economist, and also you've written about this, why isn't migration so much on the “development agenda”? I don't know any development organization or any communique or report that is so big on migration as a development policy. Policy that radically increases the welfare and the incomes of the people, like you said. Because sometimes development is usually framed more as a country thing than the people. So why is it missing on the agenda?

Lant;

I think there are lots of reasons. And let me start with the one that is less, I think, discussed and deserves more consideration. And the answer is the Solo model.

Tobi;

Okay.

Lant;

So let's talk economics first, right? The Solo model, which I don't know how many of the listeners are actually into economics, but it was the dominant model of economic growth. And it said that economic growth is a combination of this thing called investable stuff. We'll call it capital. And that includes human capital and infrastructure and all kinds of physical stuff. I'm taking human capital as a physical stuff. So there's capital and then there's the productivity with which capital is used, which we'll call A. And that was kind of the dominant model of economic growth when development organizations in the 1950s and 60s came into being. Now, in the Solo model, and I had the privilege of actually being taught by Bob Solo, so I can speak with some authority about how Bob Solo talked about it. A, was regarded as blueprints. This total factor productivity that interacted with capital was ideas that were in the air. It was regarded as technical. Now, if you think about, therefore, how the dynamics of growth were going to work, is A, this technical blueprints of how to do stuff was going to diffuse very fast, right? Because after all, if I have a blueprint for how to build a power plant or build a dam or build a highway or run a coffee processing plant, that blueprints can transfer across countries really fast. So if you scratch what was the intellectual kind of environment in which the bones and DNA of places like the World Bank were built? They were built on a model that ideas were going to diffuse fast. Well, if ideas diffuse fast, then the productivity of factors in the places that now have high A but have low human capital and low physical capital was going to be super high. And so the whole problem was how do we invest in this super high productivity, physical and human capital in these places with high A and low K? That was the whole model of development. Right? Now, what we have learned and this we really have learned in the sense that we didn't know it and now we know it, is what we have learned from five decades of research on economic growth is that model isn't exactly wrong. Exactly wrong. A, is what hasn't converged. If you ask why hasn't Nigeria had the gross prospects that we would have hoped and anticipated for Nigeria, it's because A stayed low. Not because Nigeria and we'll get to this when we get to education in two minutes, but not because Nigeria has necessarily had radically underinvestment in human capital or radically possibility for investment in physical capital. It's that A didn't diffuse, and it turns out A isn't blueprints. A is much deeper things about how you can make factor productivity in a country which go way beyond do you have the blueprint to build a power plant? Right. So the first reason why development wasn't originally part of the development agenda is that in the Solo model, we should have had human capital flowing to Nigeria because the return to factors should have been super high, because A should have been super high relative to the level of K and HK. So before we get into more cynical, and hence probably more realistic and true positive models of why it's not on the agenda, I think there was an intellectual flaw about economics itself and how it thought about growth that I don't think we've pointed out strongly enough, how completely, totally wrong it is, and how it leads to radically different assumptions with how important migration is going to be. And in the Solo model, there was no need for migration. Like, once A was there, the returns to HK were going to be phenomenally high, not low.

So we really have learned from constructing data sets and just decades and decades of growth research, that A doesn't converge. And that is a huge, huge puzzle. Right. Because if A were, as Bob Solo thought it was, a set of blueprints, it should have diffused very fast, and instead it's been not diffused. So that's an economic-based argument for why it wasn't on the development agenda. And the problem is, like I say, the DNA and bones of the World Bank were built because if you ask, why does the World Bank focus on moving money? Well, again, in this model that A has converged and we need K and HK to catch up, what these countries need is money. Right. Anyway, and it's very hard to change an organization's DNA. Then there are the obvious, and I just want to point out, I'm not being completely silly and naive… it's also the case that most of the development organizations have their intellectual agendas dominated by the rich donors, and the rich donors never really wanted it. Since they never really wanted it, it was always easy to push it off the agenda. Now, on the plus side, the World Development part of the World Bank, which is often a very flagship document, is this year on migration. So for the very first time, the World Bank is going to solidly bring development issues and migration issues side by side. This is another way in which I think the overall environment for discussing migration is going to change radically, I think, in the next ten years. And I think this is a harbinger of that.

Tobi;

I look forward to reading the document.

Lant;

I've seen drafts of it, and it will be good.

Tobi;

Okay, moving to education now. Yeah, so I'll start this way. It's one of those things that is super sexy to talk about politically. We are in [an] election season now in Nigeria, and every candidate is saying, I'm going to invest in education. We need to fix basic education. We need to make our education work. If we make it work, then this and this and X and Y will not happen. There will be no crime. People will no longer kidnap. They can, you know, a lot of things. The benefits of education seems intuitive. But what frustrates me, whether you're talking to policymakers or investors or even my friends who talk about education, is, other than researchers like yourself who are working in the field, almost nobody stops to look at the evidence. Nobody. And then we've ended up with this, to use one of your phrases, we ended up with the wrong dashboard for education, where we are basically measuring schooling and not learning. How did this happen? You can’t talk about human capital without talking about education. So how come we are still measuring the wrong things? How come countries are putting in money, and there’s basically nothing to show for it?

Lant;

Wow, okay, well, that was a long set-up. So I'm writing, like, one of these efforts where a variety of people are getting together, writing about different topics, people are writing about infrastructure and other things, and I'm writing about education. And I start by saying I feel that the field of education is the field in which more false things get set than any other domain. Just completely, totally, obviously false things. Perfect people are perfectly happy to repeat them again and again, year after year, decade after decade. So let me start with the most positive possible spin on it. The most positive spin on what's happened with schooling and education is that if you go back again to the origins of decolonialisation and these newly independent national governments come in and they have control of policies for the first time, it was obvious to everyone and completely accepted that the education level and if now by education we mean mastery of certain capabilities. If we define education in some sense as a vertical axis of, we want them to have skills and capabilities and values and dispositions that are going to contribute to national development, how many years of schooling are going to do, right? There's two ways to increase the stock of, kind of, skills and capabilities. One is more kids in school. One is more learning per year. Well, in the 1960s, it was obvious more kids in school was an easily available, doable, and viable way to do that. You could just push more kids through school, and as long as you push them through at roughly the same level of skills per year, you've got more of it. Right? And every time either national leaders or global leaders or people raised the quality issue, the response is, we'll cross that bridge when we come to it. There was a lot of nervousness that a lot of the early pushback against excessive expansion in the education system was really elitist nonsense, right, that, oh, these people don't really need to be educated and we should reserve education for the elite. And so it was easy to create this debate where the people talking quality were hidebound traditionalists that were anti-egalitarian, and the only acceptable position was [to] expand schooling. And so to some extent, people kept saying, we'll cross that bridge when we come to it. We'll cross that bridge when we come to it. We'll cross that bridge when we come to it.

So the reason for starting with this positive thing is, hey, we're now at the bridge. Like, around the world, nearly every kid goes to school. Like, something like 3% of children don't go to any school ever in their life. And most kids are going to school for a very long time now. And we haven't ever really come back to say, by the way, in the 1960s, it was obvious more kids in school and at constant learning per year was okay. In 1980s, there was still a lot of kids not in school, girls were out of school, et cetera, poor kids were out of school, et cetera. But in 2020, it's like, hey, we're at the bridge. The scope for increasing a country's stock of human capital or the stock of learning and skills and capabilities by expanding the years of school is over. It's just over. It's just over. The additional marginal gain from pushing out on the quantity of schooling access just doesn't hold any promise in most countries of the world. So to some extent, the discourse has to change because the facts have radically changed. Like, I don't want to go back and say people in 1960 were wrong to radically and rapidly expand education or that free primary education in 1970s was a mistake, because there were still lots of kids not with the opportunity or access to school. But that world is gone. That world is gone. And our views and attitudes and discourse hasn't changed nearly as much as the facts on the ground have changed. And so we just have to recognize that, look, the only real viable possibility for substantial, sustained improvements in the level of skills and capabilities of youth is now from more learning per year. We have to radically change that.

Tobi;

So I mean, pivoting to learning, I get that. But I want to talk a bit about testing. Right.

Lant;

About who?

Tobi;

Tests.

Lant;

Oh, okay, let's not talk about tests.

[Laughs]

I'm being quite serious, because there's two radically different things.

Tobi;

Okay.

Lant;

One is assessment and one is examinations.

And then tests, I'm not quite sure what you mean. I'm preempting you here because I was just literally writing about this two days ago.

Tobi;

Okay.

Lant;

Most education systems relied radically too much on high-stakes for-the-student-late-in-the-cycle examinations. But they relied radically too little on assessment of learning. And so when you say testing, I want to be clear, are we talking about grade ten school leaving high stakes for the student examinations, or are we talking about assessments of, in third grade, can kids read and how do we use assessment of learning? Because within the education community there's this huge negative stigma around testing, which then I think leads in radically unproductive directions, because assessment gets thrown into the bundle with high-stakes examinations. And everybody hates high-stakes examinations, particularly because they're often unbelievably crappy examinations, meaning they're examinations of how much can you memorize? And hence we're allocating future opportunities to go to college on the basis of a really crappy assessment of learning. So everybody hates examinations, but I think everybody should love assessment. Sorry, so I've answered a question you haven't asked yet.

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Hello everyone, and welcome to Ideas Untrapped podcast. My guest for this episode is Decision Scientist, Oliver Beige - who is returning to the podcast for the third time. Oliver is not just a multidisciplinary expert, he is one of my favourite people in the world. In this episode, we talk about scientific expertise, the norms of academia, peer review, and how it all relates to academic claims about finding the truth. Oliver emphasized the importance of understanding the imperfections in academia, and how moral panics can be used to silence skeptics. I began the conversation with a confession about my arrogance about the belief in science - and closed with my gripe about ‘‘lockdown triumphalism’’. I thoroughly enjoyed this conversation, and I am grateful to Oliver for doing it with me. I hope you all find it useful as well. Thank you for always listening. The full transcript is available below.

Transcript

Tobi;

I mean, it's good to talk to you again, Oliver.

Oliver;

Tobi, again.

Tobi;

This conversation is going to be a little bit different from our previous… well, not so much different, but I guess this time around I have a few things I want to get off my chest as well. And where I would start is with a brief story. So about, I dunno, I’ve forgotten precisely when the book came out, that was Thinking Fast and Slow by the Nobel Laureate Daniel Kahneman. So I had this brief exchange with my partner. She was quite sceptical in her reading of some of the studies that were cited in that book.

And I recall that the attitude was, “I mean, how can a lot of this be possibly true?” And I recall, not like I ever tell her this anyway…but I recall the sort of assured arrogance with which I dismissed some of her arguments and concerns at the time by saying that, oh yeah, these are peer-reviewed academic studies and they are most likely right than you are. So before you question them, you need to come up with something more than this doesn't feel right or it doesn't sound right. And, what do you know? A few years, like two or three years after that particular experience, almost that entire subfield imploded in what is now the reproducibility or the replication crisis, where a lot of these studies didn't replicate, a lot of them were done with very shoddy analysis and methodologies, and Daniel Kahneman himself had to come out to retract parts of the book based on that particular crisis.

So I'm sort of using this to set the background of how I have approached knowledge over my adult life. So as someone who has put a lot of faith naively, I would say, in science, in academia and its norms as something that is optimized for finding the truth. So to my surprise and even sometimes shock - over different stages of my life and recently in my interrogation of the field of development economics, people who work in global development - [at] the amount of politics, partisanship, bias, and even sometimes sheer status games that academics play and how it affects the production of knowledge, it's something that gave me a kind of deep personal crisis. So that's the background to which I'm approaching this conversation with you.

So where I'll start is, from the perspective of simply truth finding, and I know that a lot of people, not just me, think of academia in this way. They are people who are paid to think and research and tell us the truth about the world and about how things work, right? And they are properly incentivized to do that either by the norms in the institutional arrangements that birthed their workflows and, you know, so many other things we have known academia and educational institutions to be. What is wrong with that view - simply academia as a discipline dedicated to truth finding? What is wrong with that view?

Oliver;

There's many things. Starting point is that it was not only Daniel Kahneman, behavioral economics has multiple crises also with Falsified work. Not only with wrong predictions, wrong predictions are bad but acceptable. This is part of doing science, part of knowledge production. But Falsification is, of course, a bigger problem now and they had quite a few scandals in that. The way I approach it always is sort of like a metaphor from baseball. Basically there's something called the Mendoza Line in baseball which is a hitter that has a 200 hitting average. This is like the lowest end of baseball. If you go below 200, then you’re usually dropped off the baseball teams. And on the upper end you have really good hitters that hit an average of like 300 or something. If you have a constant 300 average you usually get like million dollar contracts, right? We can translate this to science in a lot of ways. Of course, there is a lot of effort involved in going from a 200 average to a 300 average to a 20% average of being right to 30% a average of being right. But still if you're at a 300 level, you're still wrong 70% of the time.

And so the conversations I observe, they're people that are not specialists in a field [and] we're trying to figure out who is right in a certain conversation. Talking about conversations in a scientific field we basically try to use simple pointers, right? One of the pointers is of course a paper that has gone through peer review. You see these conversations of like, okay, this paper has not been peer reviewed, this paper has been peer reviewed. But peer review does not create truth. It sort of reduces the likely likelihood of being wrong somewhat but it doesn't give us any indicator of this is true. The underlying mechanism of peer review usually cannot find outright fraud. Cannot detect outright fraud. This happened quite a few times. And also peer review is usually how close is the submitted paper to what the reviewers want to read. There is a quality aspect to it, but ultimately it changes the direction of the paper much more than it changes quality. So academia overall is a very imperfect truth finding mechanism. The goal has to be [that] the money we spend on academic research has to allow us to get a better grasp of so far undiscovered things, undiscovered related relationships, correlations, causal mechanisms, and ultimately, it has to give us a better grasp of future and it has to give us a better grasp of what we should do in order to create better futures. And this all basically comes down to, like, predicting the future or things that were in the past but yet are to be discovered.

Evolution tends to be a science that is focused on the past, looking at things in the past. But there's still things we have to discover, connections we still have to discover. And this is what academia is about. And the money, the social investment we put into academia has to create a social return in the way that we are better off doing the things we need to do to create a better future for everyone. And its [academia] track record in that regard has been quite mixed. That's true.

Tobi;

So let's talk a little bit about incentives here. Someone who has also written quite a lot, who talked so much about some of the issues - I think he's more focused on methods. He's andrew Gelman, the statistician. I read his blog quite a lot, and there's something he consistently allude to and I just want to check with you how much you think that influenced a lot of the things that we see in academia that are not so good, which is the popularity contest - the number of Twitter followers you have; whether you are blue checked or not; bestselling books; Ted Talks that then lead to people making simplistic claims. There's the issue of scientific fraud, right, some of which you alluded to also in behavioral economics, behavioral science generally. There was recently the case of Dan Ariely, who also wrote a very popular book, Predictably Irrational, but who was recently found to have used falsified data. And I recall that you also persistently criticized a lot of people during the pandemic, even till date - a lot of people who made outright wrong predictions with terrible real life consequences because policymakers and politicians were acting under the influence of the “expert” advice of some of these people who will never come out to admit they are wrong and are less likely to even correct their mistakes. So how is the incentive misaligned?

Oliver;

Okay, many questions at once. How does academia work? And like I always like to say that academic truth finding or whatever you want to call it is not too far away from how gossip networks work. The underlying thing is, of course, any kind of communication network is basically sending signals. In this case, snippets of information, claims, hypotheses and the receiver has to make a decision on how credible this information is. You have the two extreme versions, which is basically saying, yeah, I just read this paper and I think this paper makes a good claim and is methodologically sound or I just read this paper and this paper is crap as everything about it is wrong. So you basically start with a factual claim and an evaluation. This happens in science Twitter in the same way a gossip network communicates typically good or bad news about the community. Also, a gossip network communicate hazards within the community, sending warnings, which is what academics have been doing quite a bit over the last two and a half years. And they also have this tendency to, a) exaggerate claims, reduce claims, and [they] also have this tendency to create opposing camps. Because very few middling signals are being retransmitted.

I've been watching the funeral of the Queen, I have no strong opinion about British royalty in either direction so if I post something on Twitter about it, nobody will retweet. And, of course, the two extreme ends will be retweeted. This is how Twitter works, but it's also how science usually works. You’ll see that strong claims in either direction are being transmitted much more frequently than middling moderate claims. So the bifurcation of opinions is inherent in both of them. This element of credibility, that you build credibility, based on how someone else reflects your own beliefs. Your own prior beliefs, really. This is the core mechanism [that if] I read something that confirms my prior beliefs, I'm much more likely to retransmit it with a positive note that "I really like this and I think it's methodologically sound." And if it's something that contradicts my prior beliefs, I'm very much more inclined to question its methodology. And I think we've seen this to an extreme over the two and a half years because we had situations where the discussion was very polarized. And the really bad thing to observe in a scientific discourse in general, but also the amplified scientific discourse on Twitter, is like the absolute lack of quality control when something confirms one's own prior beliefs. So this is usually what a scientist has to do. Like, if I get something that confirms my beliefs, I still have to do a minimum quality control [to check] if it's actually methodologically sound. And this clearly did not happen. People were just passing on anything that confirmed their beliefs and basically expected someone else to do the quality control. The first job any academic has is basically to subject everything, even that confirms your beliefs, and this is also [what] you think is true, you still have to subject it to quality control. And clearly this rarely ever happens. This is why academia is supposed to run on confrontation that, basically, the other camp does it. But if you bring academia together with Twitter, which is [an] amplification network that runs on social engagements, likes and retweets, then you have a very toxic mix. And this is the situation we had over the last two and a half years, how scientific communities can coalesce around things that are just not empirically sustainable.

Tobi;

Now pardon my language, there's a way that academics, whether they are scientists or social scientists (I know economists are particularly notorious in this arena), they completely f**k with your mind when you're a skeptic. So I'll give you an example. Two days ago…I opened with the replication crisis in psychology, so two days ago, I read a SubStack by someone who is presumably a psychologist, who was then basically complaining that, “oh, yeah, after the replication crisis, a lot of them in academia who were doing PhDs, were also having their own crisis of confidence, because then you have to confront a public who thinks they know everything.” So, like, you describe your study or you say you found something and someone says, "oh, but the field didn't replicate." The whole thing just sounded like some weak apologia that just didn't make any sense. I recall that sometimes a little bit after the financial crisis [of] '07-'08, if I recall correctly, Paul Krugman was dismissing something Talib, Nicholas Nassim Talib, wrote by saying that, oh, if you think you found something that a whole community of academic experts… I'm not quoting him verbatim, I'm paraphrasing… If you think you found anything that a whole academic community of experts missed, then you are most likely to be wrong.

So, it brings me to the question of skepticism and how to approach it, because at the other extreme end of this is to say… and certainly there are people like that in the world today who think that no scientific knowledge is true, who question even proven medicine, and there are also conspiracy theorists who say outrightly false things for their own motives, no doubt. So, like, how does one deal with skepticism? Especially if you have conspiracy theorists and outrightly ignorant people on one side, and on the other side you have academic confusion or experts who out of their own biases or some of these institutional and social problems that you have described can also not really come out and admit that, oh, we botched this and this and this is what we are doing to correct our errors. How do you handle skepticism in such a milieu?

Oliver;

The first thing is and it's also the reason why I like the baseball metaphor is if you are [an] academic, you're an expert in a field, you spend far more time studying this field than others, you're communicating with other experts in the field, so you can get this feeling, and probably justified feeling that because you put more effort into it you should get more reward in the form of more recognition and more credibility. But you should also come up with a realization or understanding that any field you're in and that includes economics and all other fields, there are so many things that are still undiscovered, so many things that are undiscoverable that we have to build axiomatic constructs around in order to actually help us move forward. And if you're able as an academic to move from 20% right over many years to 30% right, you're still 70% wrong. So these are not empirical numbers, but I think they get the point across. And if you don't get that, then you're doing something wrong in academics in general, right?

And we've seen this arrogance that was not supported by imperial superiority, like, quite a bit over the last years. Especially Paul Cook when he got some of the things very wrong just recently when he came out, when he admitted that most macroeconomists have been dead wrong about inflation for over a year. And then he claimed that nobody could have foreseen that. This is doubly wrong. You can be arrogant or you can be incompetent, but you cannot be both at the same time. Basically, academia is also a competition for attention. This is an attention industry and exaggerated claims get more attention than moderate claims. So this is not a problem. The problem is, and I see in the discussion is the complete absence of understanding of what the scientific method entails. And that clearly, a lot of academics become specialists in a particular subsection of the scientific method but don't have an understanding of how the whole thing works.

Which is interesting, especially in economics, because economics has this very strong claim that it underwent An Empirical Revolution over the last 20 years, which is certainly true. Econometrics have got a much bigger role over the last 20 years, but they also claimed that because they underwent an empirical revolution, they also underwent a credibility revolution, that their results are much more credible and this is a much bigger claim. And this is not a claim that recent events have validated or recent economic performance has not been up to par to support it. But the key thing [is that] the scientific method is basically starting out from a theory which does not have to be a formal way of expressing, but you have to have an overarching idea of how things are connected, how some things cause other things. And from this, you have to be able to create predictions. Basically, foresee future discoveries. And you do this in a number of steps. The first step is usually formalization. You try to come up with a formal model. There are lots of discussions about like, okay, how formal does a model have to be? Usually, formalization is a self-discipline device. It means that you don't come up with ad hoc predictions, but the predictions are based on a clear mechanism that should be working under a variety of conditions. And then once you have a formal model, which we've seen a lot of people trying to build formal models over the last few years, and a lot of them have gotten more attention than they deserved or that they expected, and then you come up with a hypothesis. Hypothesis usually means are you comparing your own view of the world to competing views of the world. You try to find the positions where they diverge the most or where it becomes visible. And then you do empirical test experiments. Or in economics, you try to do a natural experiment or control trials in order to show that your overarching theory, your model, is closer to the truth than the competition. But the key is also and this is remarkably what a lot of people have just simply missed out on, this is the replicability and the role of moving away from a subjective view of the world to an objective view of the world so this can be refuted or replicated by others.

And this also means that people who are opposed to your viewpoint have to admit that your view of the world was better than others. And this has almost completely broken down. Because in the two scenarios, economics (macroeconomics) in particular has been dead wrong, especially about inflation which is really one of the core predictive elements of macroeconomics and they have been dead wrong for an extended period of time for the very simple reason because they did not want to acknowledge it. And this is a problem, right? So then we start obfuscating about where you went wrong and you're trying to play political games that being wrong was not just unexpected change in economic environment or social environments or something but being dead wrong was basically caused by your model being fundamentally wrong.

Very clearly economics should be in a crisis. The crisis should be clear within the field and the less the field itself owns up to this crisis, the more the outside world [should] pressure the field itself to come clear with its wrong predictions because the cost of getting these things wrong are staggering

Tobi;

True. So I have three questions but I'll ask them differently. You mentioned towards the end of your answer you talked about political games which is something that also gets me really angry and sometimes confused. And a related issue about that I found also is in development economics. But that will take us into the second question. So let's talk about the politics here. For example, take a field like economics which is highly partisan. You have some people that are called neoliberal economists. Some people are socialists, some people are heterodox, some people are capitalists. I know within the field of macroeconomics itself, they have all these other labels - new Keynesian monetarist, you know, whatever.

But what I'm getting at is the role of partisanship, because you always have rival camps accusing themselves of partisanship. One story I related to, which I'm sure you also must have come across is - I saw a story on Twitter a couple of weeks ago before the Chilean constitutional referendum that Mariana Mazukato, Gabriel Zukman and Thomas Piketty, who are all economists, who are all leftists, who mix their research with political preferences and policy advocacy, plan to travel to Chile to celebrate the new draft constitution because it's a win for justice, it's a win for this or that. It's the final rejection of the Pinochet dictatorship and the neoliberal imposition that is. I did not encounter in that particular discourse chain anybody asking what is good for Chile, and Chileans, and even more relevantly how Chileans feel about this.

And, I mean, what do you know? The referendum happened and 60% of the voters rejected the new draft. And I know that partisanship and political games, like you said, play not just in economics, it happens in other fields as well. So I'm curious - is this okay? And how exactly did should I say, scholars, particularly in social science, people that have been able to make extraordinary contributions to our body of knowledge and what we know, how have they managed to keep their politics, their personal politics away from their work? Or is it just that everything just used to be easier before we had Twitter?

Oliver;

Politics and economics have been intermixed long before Twitter. So this is not particularly new, and the mechanism itself is also not new. But your starting point is basically, as I said, like, very simplified that the role of academia is to predict the future and to design strategies to reach good futures. So in that situation, it's not surprising that academics take political positions. The problem comes in, of course, that if the ideological mix in academia and the ideological mix in the overall population and the ideological mix in sort of the ruling elites don't line up. This is a tricky situation, but being close enough to the highest echelons of power for long enough to observe what happens. If you have a change in the administration in Washington DC, then usually the new administration brings in economic experts from favourite schools. And then if the administration loses to the other party, then the other party brings in their favourite economists. So in that regard, if you have this semiconstant exchange of viewpoint, an economic viewpoint gets discredited, it gets replaced via the political process with other people, this is usually how you get closer to the view - I used to call it the drunk unicyclist. You're not really moving forward in a straight path, but you're moving around left and right, and you just try to avoid falling into a ditch. And this is what we observe. No political process is perfect. And as long as the political interests of the academics and the political interests of the elite are aligned with population ones, this is as good as we can get it.

I generally have a problem with ideology in economics, but it's inevitable. And my quality is that I be able to read and appreciate writers from the left end of the spectrum, on the right end of the spectrum. I usually deduct points over ideological bent. But good thinkers can make good points even if they are driven by ideology. The problem also comes in when there is essentially no penalty for being wrong in academia. So basically being wrong and being catastrophically wrong externalizes the damage to others. So the worst scenario you do if you're tenured faculty, sort of what I call the endowed chair blue check, like a tenured faculty with a wide reach in social media, you can be dead wrong,you can be persistently wrong, completely unwilling to own up being wrong, and there's no real penalty to it. This is the major problem we're facing right now.

Tobi;

So that then brings me to the question of niches or what I'll call cottage industries in academic research generally. I know recently I did ask you about what you think about the EA movement. I'm not talking about them, but for descriptive purposes we see the behavior of that group, the adherents, the critics and how much commitment, particularly adherents display to their tribe. I see a lot of that too in academic research. One group I am very familiar with is in economic development (development economics) where everything now is about field experiments and randomized control trials. And one of the fundamental ways it biases research in my opinion and also have negative real life consequences is, if you do a field experiment, a randomized control trial on cash transfer, say in a Kenyan village over a period of time and you measure your results and they are positive and say oh yeah, well, cash transfer works.

But the real question that policymakers, whether local governments or central governments or regional governments really deal with every day are sometimes bigger than that. So, like, for example, if you want to choose between building a power station for that particular village at $1 million versus scaling up your cash transfer program, what you’ll find is that development economists in the current paradigm would most likely go for the cash transfer plan. Let's scale it up. We have tested this. It works. Essentially they are biased to what they can measure - like, we don't know the spillover benefits of electrification, it would be difficult to design a study, there are so many externalities. So basically they reduce real-life situations into the parameters of their methods and its limitations. And such behaviour is very, very similar to what you see with other social groups. Whether it is the Effective Altruism movement… I was briefly involved also with the Charter City people where for every problem that they can see, the solution is to build a charter city.

That movement was actually inspired by your dear friend, Paul Romer. So there is this almost blind commitment and loyalty to their method, to their cottage industry. And sometimes I see it as just drumming up support for their tribe, as opposed to a commitment to the truth and finding what works. So, again, pardon my big question, what's going on here?

Oliver;

Okay, two things on the starting point about tribes within academia is…like, one of my favourite sayings is that tribalism is the shared belief in counterfactuals, counterfactual being everything that is unknown. And the less we know, the more unknowns there are, the more we tend to flock with our own tribes. So this is something you see everywhere in academia. That's what we call thought collectives. Ludwig Fleck, one of the guys who influenced Thomas Kuhn, came up with this term, thought collectives, to describe this idea that people that share the same idea of causal mechanisms tend to come together and confirm each other and create this thought collective. And this is, of course, what we see here, especially in academia. Economics has additional problem. I think it's not nearly as strong in development economics as other fields, but it's also visible there. This is very much the way economists are recruited. Economics, especially US and UK-centric economics, is extremely mathematicized. So, like, mathematical skills are basically number one, two, and three and the priority.

And so you have basically a situation where real-world understanding has almost no role in getting accepted into PhD programs or getting promoted within the system. It used to be theory knowledge, formal theory knowledge. Now it's econometrics knowledge that gets you promoted. And this is very far away from qualification to solve real-world problems. And of course, people are impressed by mathematical skills. So this is something that you can play as a trump card. And this is what happens in the field. And the field is closing itself off from all kinds of outside knowledge because of that, especially in the social sciences. And in my world, I use people with mathematical skills, but only for very, very clearly defined tasks. I have my own mathematical skill set, but I also understand what the limitations are, and I think that's a major problem. And basically, if everyone around you came up in this system that promotes mathematical skills over real-world skills, then you believe that this is the only thing you need. And it's been very clear that basically every ten years, economics has a major crisis about being completely wrong in their predictions. And this intellectual monopoly is a major problem with that.

Tobi;

My third question in that line then pertains to the philosophy of science.

Oliver;

Yes.

Tobi;

So there are people who argue that a lot of these problems are also because modern science or the methodology of science today is divorced from some kind of philosophical foundation. I'm familiar relatively mildly with three philosophical approaches to science and let's just say truth finding.

Thomas Kuhn basically puts everything down to competing paradigms. Like my last question, you know, competing tribes. And it's the tribe that wins at the moment that sort of has the monopoly of truth, not strictly, but socially. Then there's Karl Popper, which is also quite popular, that for anything to be valid as truth, it has to be falsifiable. And we've seen this play out so much in particle physics with things like string theory and things like many-worlds interpretation and so many things where their critics are saying, you guys are basically making claims that are not falsifiable, that cannot be tested and what you are doing is not science. And that has been going on now more or less for about three decades, right? And, of course, there's the Lakatos approach, which sort of fits into your own view, correct me if I'm wrong, which is that science has to make novel claims and it has to be predictive, it has to make predictions about the world. So my question then is academia, science, the truth-finding industry, so to speak, or the knowledge production industry, is it having a philosophical crisis?

Oliver;

I think it has more of a structural crisis. I'm not that deep in the philosophy of science I’m much more interested in the process itself. But one of the things that I think matters to me is Milton Friedman's claim that there are no wrong assumptions but whatever assumptions you make about the world has to generate correct predictions. A theory is being evaluated by its ability to produce non-falsifiable predictions, right? Predictions that turn out to be true even if others don't believe them. This is something you see in the arts as well, you see actually in religion as well, this mechanism of belief propagation that starts with one person believing and over time and over time, can be many decades, of something being accepted as true by everyone.

So everyone starts believing in it. Basically, social contagion mechanism. I've always been interested in this. One scenario where this happens or should be happening is science. Right. This is, of course, a process. A process happens via this academic mechanism of peer-reviewed publications, getting tenure based on publication records and so on. And these are all very very imperfect mechanisms. The two extreme versions of that [are] the American system, which is extremely stratified, and the German version is the opposite, it’s non-stratified, [and] we produce a massive amount of mediocrity. So, like, neither of them are optimal mechanisms to create truth. And we've seen that over the last two and a half years that political posturing took precedence over truth finding.

Is it in a crisis? I think, yes, very clearly. We have two and a half years where very wrong, easily debunkable claims were propagated and were not retracted, even after they've been proven to be wrong. And ultimately, we're in a situation where an economic crisis is very clearly caused by misjudgment from people which we support and pay for being less wrong than the overall population. And that just simply did not work.

Tobi;

One last thing I’ll like to get off my chest and then I'll pass them out to you is, I mean, specifically, if we follow from our last two podcast episodes, I'm a bit frustrated that there is a bit of lockdown triumphalism that the people who vigorously and vehemently used their academic or expert pedigree…

Oliver;

Credentials.

Tobi;

Yeah…to advocate for lockdowns are also taking a sort of victory lap. So the pandemic is over. Everything is back to normal. We did the right thing, even though the whole world was against us. That frustrates me a little. I was still watching a clip on YouTube recently because you get even more sensible take from everyday people, people who are experiencing these things than people who are building models and tweeting. One person somewhere here in southwest Nigeria complaining during the pandemic that the government has decided that it is better for us to die at home of hunger than not die from the pandemic. Because this pandemic, we don't know what it is, we don't know how it spreads, but without giving us any information, you basically confined us to our homes with no means of livelihood and nothing to depend on. That makes me sad because in Nigeria here and in many parts of Africa today, a lot of what we are seeing as, and are calling the food crisis, cost of living crisis, whatever it is you want to call it, did not necessarily start, but were aggravated or exacerbated by that approach to the pandemic. And it makes me sad that the people that are culpable, we can have a situation where they can take a victory lap. So that's me. Over to you. What would you like to get off your chest about everything that we have disclosed today?

Oliver;

Number one is epidemiological modelling was clearly an empirical debacle. The predicted epidemic wave that would take five to six months, that would wipe all large parts of the population never happened. And we have, I don't know, how many thousand waves in our database now, they all go for eight weeks. They start declining, acceleration starts declining very early on. And now we had enough scenarios where simple no measures were taken at any time during the wave. The key moment in that case was, I think, Paul Krugman complained that Denmark was removing all restrictions at the height of the epidemic wave and basically the very next day, the Danish wave dropped. Not a lot of people saw it, but it was extremely embarrassing for him. I've been in very much the same situation because I was living in the United States in the early 2000s and I was very clear from the very beginning of the Iraq war that Saddam Hussein did not have bioweapons. And so the whole invasion was built on Untruth. And the United States and the UK back then also knew that.

Back then there was a strong moral panic, especially in the United States, against anyone who was basically speaking against the rationale for going to war. Now, 20 years later, almost nobody is willing to admit that they were speaking up in favour of the invasion back then. This is like a one-generation thing. And we'll see the same thing about the epidemic. This is very clear. The young people who had to carry most of the restrictions…up till now in Germany they’re still forced to wear masks at school. They will have a very different view about what happened than the politicians in power. These are the things that'll evolve over many, many years. So I expect the same thing to happen. The interesting thing is really sort of back then it was more on the right end of the spectrum that drove this moral panic. Now it's moved over to the left end of the political spectrum. This is something that we’re still to be investigated, why these moral panics unfolded onto the ideological spectrum as we know it. But it might be an interesting topic for the next call.

Tobi;

True.

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Welcome to Ideas Untrapped. My guest today is Vincent Geloso who is a professor of economics at George Mason University. He studies economic history, political economy, and the measurement of living standards. In today's episode, we discuss the differences between democracies and dictatorships, and their relative performance in socioeconomic development. The allure of authoritarian governance has grown tremendously due to the economic success of countries like China, Korea, and Singapore - which managed to escape crippling national poverty traps. The contestable nature of democracies and the difficulty many democratic countries have to continue on a path of growth seems to many people as evidence that a benevolent dictatorship is what many countries need. Vincent challenges this notion and explains many seemingly high-performing dictatorships are so because their control of state resources allows them direct investments towards singular objectives - (such as winning Olympic medals or reducing infant mortality) but at the same time, come with a flip side of unseen costs due to their lack of rights and economic freedom. He argues that the benefits of dictatorships are not as great as they may seem and that liberal democracies are better able to decentralize decision-making and handle complex multi-variate problems. He concludes that while democracies may not always be successful in achieving certain objectives, the constraints they place on political power and rulers mean that people are better off in terms of economic freedom, rights, and other measures of welfare.

TRANSCRIPT

Tobi;

You made the point that dictatorships usually optimise, not your words, but they optimise for univariate factors as opposed to multiple factors, which you get in democracy. So, a dictatorship can be extremely high performing on some metric because they can use the top-down power to allocate resources for that particular goal. Can you shed a bit more light on that? How does that mechanism work in reality?

Vincent;

Yeah, I think a great image people are used to is the USSR, and they're thinking about two things the USSR did quite well: putting people in space before the United States and winning medals at Olympics. Now, the regime really wanted to do those two things. [That is], win a considerable number of medals in [the] Olympics and win the space race. Both of them were meant to showcase the regime's tremendous ability. It was a propaganda ploy, but since it was a single objective and they had immense means at their disposal, i. e. the means that coercion allows them, they could reach those targets really well. And it's easy to see the Russians putting Sputnik first in space, the Russians putting Laika first in space. We can see them winning medals. It's easy to see. The part that is harder to see, the unseen, is the fact that Russians were not enjoying rapidly rising living standards, they were not enjoying improvements in medical care that was commensurate with their level of income, they were not enjoying high-quality education. You can pile all the unseens of the ability of the USSR as a dictatorship to allocate so much resources to two issues, [which] meant that it came with a flip side, which is that these resources were not available for people to allocate them in ways that they thought was more valuable. So, the virtue of a liberal democracy, unlike a dictatorship, is that a liberal democracy has multiple sets of preferences to deal with. And in a liberal democracy, it's not just the fact that we vote, but also that people have certain rights that are enshrined and which are not the object of political conversation. I cannot seize your property, and it's not okay for people to vote with me to seize your property. And in these societies, the idea is that under a liberal democracy, you are better able to decentralize decision-making, and people can find ways to deal with the multiple trade-offs much better. Whereas a dictatorship can just decide, I care about this. I am king, I am president, I am first secretary of the party, I decide this and we'll do this regardless of how much you value other things that I value less than you do.

Tobi;

Two things that I want you to shed more light on. Depending on who you talk to or what they are criticizing, people usually selectively pick their dictatorships. If someone is criticizing, say, for example, capitalism, they always point to the Cuban health care system in contrast to the American health care system. How the American system is so terrible, and how capitalism makes everything worse because of the profit motive. And how we can do better by being more like Cuba.

On the other end of that particular spectrum, if you're talking about economic development, critics of democracy like to point to China. China is not a democracy. And look at all the economic growth they've had in the last 40 years, one of the largest reductions in human poverty we’ve ever seen in history. I mean, from these two examples, what are the shortcomings of these arguments?

Vincent;

Let's do Cuba first, then we can do China. So, the Cuban example is really good for the case I'm making. Because the case I'm making is essentially that the good comes with the bad and you can't remove them. So, people will generally say with Cuba, “yes, we know they don't have political rights, they don't have economic freedom, but they do have high-quality health care.” And by this they don't mean actually health care, they mean low infant mortality or high life expectancy at birth. My reply is, it's because they don't have all these other rights and all these other options [that] they can have infant mortality that is so low. That's because the regime involves a gigantic amount of resources to the production of healthcare. Cuba spends more than 10% of its GDP on health care. Only countries that are seven or ten times richer than Cuba spend as much as a proportion of GDP on health care. 1% of their population are doctors. In the United States, it is a third of that, 0.3% of the population are doctors. So, it's a gigantic proportion. But then when you scratch a bit behind, doctors are, for example, members of the army. They are part of the military force. The regime employs them as the first line of supervision. So, the doctors are also meant to report back what the population says on the ground. So, they're basically listening posts for the dictatorship. And in the process, yeah, they provide some health care, but they're providing some health care as a byproduct of providing surveillance.

The other part is that they're using health care here to promote the regime abroad. And that has one really important effect. One of those is that doctors have targets they must meet, otherwise they're penalized. And when I mean targets, I mean targets for infant mortality. [If] they don't meet those targets, the result is they get punished. And so what do you think doctors do? They will alter their behaviour to avoid punishment. So in some situations, they will reclassify what we call early neonatal death. So, babies who die immediately after exiting the womb to seven days after birth, they will reclassify many of those as late fetal deaths. And late fetal deaths are in-utero deaths or delivery of a dead baby so that the baby exits the womb dead. Now, if a mortality rate starts with early neonatal death [and] not late fetal ones, so if you can reclassify one into the other, you're going to deflate the number total. And the reason why we can detect this is that the sources of both types of mortality are the same,[they] are very similar, so that when you compare them across countries, you generally find the same ratio of one to the other. Generally, it hovers between four to one and six to one. Cuba has a ratio of twelve to 17 to one, which is a clear sign of data manipulation. And it's not because the regime does it out of, like, direct intent. They're not trying to do it directly. It'd be too easy to detect. But by changing people's incentives, doctors’ incentives, in that case, that's what they end up with.

There are also other things that doctors are allowed to do in Cuba. One of them is that patients do not have the right to refuse treatment. Neither do they have the right to privacy, which means that doctors can use heavy-handed methods to make sure that they meet their targets. So in Cuba, you have stuff like casa de mata nidad, where mothers who have at-risk pregnancies or at-risk behaviour during pregnancy will be forcibly incarcerated during their pregnancy. There are multiple cases of documented, pressured abortions or literally coerced abortions. So not just pressured, but coerced. Like, the level is that the person wants to keep the infant, the doctor forces an abortion to be made. Sometimes, it is made without the mother's knowledge until it is too late to anything being done. So you end up with basically the infant mortality rate, yes, being low, but yes, being low because of data manipulation and changes in behaviour so that the number doesn't mean the same thing as it does in rich countries. And now the part that's really important in all I'm saying is [that] what people call the benefits for Cuba is relatively small. My point is that, yeah, maybe they could be able to do it. But the problem is that the measures that allow this to happen, to have a low infant mortality rate are also the measures that make Cubans immensely poor. The fact that the regime can deploy such force, use doctors in such a way, employ such extreme measures, it's the reason why Cubans also don't have property rights, don't have strong economic freedom, don't have the liberty to trade with others. Which means that on other dimensions, their lives are worse off. That means that, for example, their incomes are lower than they could be. They have higher maternal mortality. So, mothers die to [a] greater proportion in labour than in other countries or post-labour. There are lower rates of access to clean water than in equally poor countries in Latin America. There are lower levels of geographic mobility within the country, there are lower levels of nutrition because, for example, there are still ration services. So that means that, yes, they have certain amount of calories, but they don't have that much diversity in terms of what they're allowed or are able to eat without resorting to the black market. Pile these on. These are all dimensions of life that Cubans get to not enjoy because the regime has so much power to do that one thing relatively well. Let's assume it's relatively well, but the answer is, well, would you want to make that trade-off? And most people would probably, if given the choice, would not make the choice of having this. So, those who are saying, “look at how great it is,” are being fooled by the nature of what dictatorships are. Dictatorships can solve simple problems really well, but complex multivariate problems, they are not able to do it in any meaningful way.

The other part that is going to be of also importance is when you look at Cuba, before we move on to China, the other part about Cuba that's worth pointing out is, I was assuming in my previous answer that the regime was actually doing relatively well. Even without considering all the criticism, it still looks like it has a low infant mortality rate. But when you actually look at the history of Cuba, Cuba was exceptional in terms of low infant mortality. Before the Castros took over, Cuba already had a very low level of infant mortality even for a poor country. And so with a friend of mine, a coauthor, Jamie Bologna Pavlik, we used an econometric method to see if Cuba has an infant mortality rate that is as low as it would have been had it not been for the revolution. So, ergo, we're trying to find what is the effect of the revolution on infant mortality and we're trying to use other Latin American countries to predict Cuba's health performance. And what we find is that in the first year of the regime's, infant mortality actually went up, so it increased relative to other Latin American countries, but it gradually reverted back to what would be the long-run trend. So that Cuba is no more exceptional today in terms of infant mortality than it was in 1959. That is actually a very depressing statement because it's saying that the regime wasn't even able to make the country more exceptional. So even if it's able to achieve that mission quite well, it's not clear how well they've done it. At the very least, they haven't made things worse in the very long run, they only made things worse in the short run. So when you're doing, like, kind of, a ledger of goods and bads of the regime, all the bad trade-offs I mentioned: lower incomes, higher mortality rates for mothers and maternity, lower rates of access to clean water, lower rates of access to diverse food sources, lower rates of geographic mobility - pile these on, keep piling them on, that's the cost. What I'm saying is what they call the benefits, they're not even as big as it's disclaimed. The benefits are relatively small.

And now with regards to China…

Tobi;

Yeah.

Vincent;

The Chinese case is even worse for people because they have a similar story with GDP. So, in China, a regional bureaucrats have to meet certain targets of economic growth. Now, these same bureaucrats are in charge of producing the data that says whether or not there is economic growth. You can see why there is a who guards the guardian's problem here? The person who guards the guardian is apparently one of the guardians. So you could expect some kind of bad behaviour. And there is an economist, Luis Martinez, out of the University of Chicago. What he did is he say, well, we have one measure that we know is a good reflector of economic growth and it is artificial light intensity at night. Largely because the richer a country is, the more light there will be at night time. And so if you have like 1% growth in income, in real numbers, you should have some form of commensurate increase in light intensity during night time. If the two deviates, it's a sign that the GDP numbers are false, that they're misleading. Because if they deviate, the true number, the always true number will be the light intensity at nighttime. So, when Martinez used the nighttime light to compare GDP in Chinese regions overall and the actual GDP, he found that you can cut the growth rate of China by, maybe, two-fifths, so it is 40% slower than it actually is. So, China is not even as impressive as it is. And the thing is now think about the pandemic, think about how extreme the measures that China deployed to restrain this has been, no liberal democracy would have been able to do that, no free society would have tolerated forcibly walling people into their houses. And there are massive downsides to the communist regime in China. Like, yes, the regime is free to do whatever it wants, but it also means that it can put Uyghur Muslims into concentration camps. It also means that it can wall people into their houses when they do not comply with public health order. It also means that people are under the social credit system where they are being largely surveilled on a daily basis. It also means that the government can allocate massive resources to the act of conquering Taiwan or flexing muscles towards Japan. All things that when you think about it, is that really an improvement in welfare? Obviously, you can say that, oh yeah, they're doing X or Y things really well but here are all the bad things that come with this. And those bad things are on net much worse than the good things.

Tobi;

Now, you keep emphasizing liberal democracy and I want to get at the nuance here because I've seen several results. Either it is from Chile and other countries that say unequivocally that democracies are better for growth than dictatorships, even in the case of Chile, despite all the reforms of Pinochet regime. But what I want to get at is, what exactly about democracies make them better? Because, for example, we can think of Nigeria and Nigeria as a democracy. We've had uninterrupted election cycles for over two decades now, but there's still very weak rule of law. Successive governments still rely on extracting oil rents, basically. And, the degree to which people enjoy rights vary depending on who is in power or their mood on any particular day. And, of course, Nigeria is a democracy. So is it liberal democracy? Is that the key factor?

Vincent;

So, think about it this way.

Tobi;

Yeah.

Vincent;

Think about it this way. Inside the big box of liberal democracy, there is for sure democracy. But the part that makes the box liberal democracy is not only the smaller babushkadal inside that box which is a democracy one, it is the other constraints that we put on the exercise of political power. The true definition of a liberal democracy, at least in my opinion, is that not only are people allowed to vote, but they are restraints on what we can vote on. So, for example, if it's not legitimate for me to steal from you, it is no more legitimate for me to vote with two other people to steal from you. The act of democracy should warrant some acts that are outside the realm of political decision-making. There are also constraints that exist on rulers, so it's not just that there are some rights that are not subject to conversation. There could be also incentives that prevent rulers from abusing the powers they have. That would mean, for example, checks and balances, where there are different chambers that will compete with each other, different regional powers of government that will compete with each other for jurisdiction, and so they will keep each other in balance. It could also be some form of external constraint, because a liberal democracy can also rely on external constraints upon political actors. It could be the fact that people can leave the country, the fact that taxpayers can migrate to another country, puts pressure on politicians to not abuse them. People can move their capital out of the country, [this] creates a pressure on politicians to not try to steal from them, because people will just remove all the productive capital and the ruler will be left with very little to exploit as a result, regardless of whether or not the ruler is elected or not. So the way to think about this is liberal democracy is, you want to have a system where there are rules, incentives, constraints that make it so that we are not betting on a man or a woman, for that matter, being the correct man and woman for the moment. We care about a set of incentives, constraints, and rules that will make sure that even the worst human being possible will feel compelled or compulsed [sic] to do the right thing. So, that's like the old Milton Friedman thing, it’s like “I don't want the right man. I want to have a system that makes sure that even the most horrible person on earth is forced to do the right thing.” That's what a liberal democracy is.

Now, it is a broad definition that I've provided. It is not narrow in any way. It is not specific, largely because I don't think it can be what works. It’s not everywhere the same. The general family to which this belongs is universal. But the way it can work is not the same everywhere. A homogeneous, small, Sweden probably doesn't need as much level of, say, breakdown of provincial versus federal powers. Whereas, from what I understand, Nigeria is a somewhat multinational country, multiethnic country with multiple groups east and west from what I understand the divide is in Nigeria. There, it might be good to have a division inside the country where things that are most homogeneous, you leave to the federal government, to the highest level of power. Then the things that you can delegate to the local level, [it is] better to do it that way. Countries that are incredibly heterogeneous maybe need even more federalism. What is optimal for one place won't work elsewhere. So I couldn't take Belgian institutions and then just dump them in Nigeria. Same as I couldn't just say, well, let's take Swedish institutions and dump them into Canada. But what makes generally Sweden work better in terms of institutions than Nigeria, for example, is the fact that Sweden does fit in that general box of liberal democracy. There are clear constraints, there are restrictions, there are constitutions that are well respected, there's a strong rule of law, and politicians are compelled to not fall prey to their own baser instincts.

Tobi;

A couple of months ago, I had Mark Koyama on the show.

Vincent;

Great guy. He's a colleague of mine.

Tobi;

Yeah. So, we were talking about state capacity. We're talking about his book with Noel Johnson. So I did bring up your paper on state capacity, [in] which, basically, one description that stuck with me is that you never really find a poor, but highly capable state in history…

Vincent;

You mean backwards. A rich society with an incapable state?

Tobi;

Yes, a rich society with an incapable state. Thanks for that. So, I've been trying to disentangle this state capacity thing, I know Bryan Caplan basically dismissed it as a sleight of hand. Right. So, like, how does it work and how is it a necessary ingredient for economic development, so to speak?

Vincent;

I am actually quite respectful of the state capacity literature in one way. So let me do like kind of a quick thing. State capacity says that you want the state to be able to do certain missions. Right, so we're not making judgments as to whether the mission is good. State capacity is about the abilities of the state. The reason why that literature has emerged since the 2000… here's a story of economic thought really briefly: in the 1950s, Samuelson and others show, ‘oh, well, there are market failures’ and then a few years later there are the public choice rebuttals, where the public choice economists say, ‘well, you're kind of wrong. There are also government failures.’ And the state capacity crowd tries to come in between these two and say, ‘yeah, there are market failures and there are government failures. How do we get a state to solve the market failures but not fall into government failures?’ Okay, straightforward, good argument. The part that I'm sceptical of is that the argument of the state capacity crowd is that you will have a lot of rich societies that will have strong states, you will have much fewer societies that have strong states but are very poor (the USSR would be a good example of that), [and] you will have a lot of societies that are poor and have weak state. The thing is that they can't seem to explain why it is under their theory that there are no societies that are relatively weak state but rich. Even though in history we do have many examples of these and they collapse all the time.

The argument that I make with my colleague, Alexander Salter, is that societies that have weak states will fall prey to predation because their neighbours with stronger state will try to capture their wealth by conquest. If they are conquered, they grow immensely poor, they are made poor. Basically, it's a terrible event for them. Or they resist, and if they resist ably, the result from resistance is that they have to build a strong state themselves to resist predation by other rulers. And so in the argument me and Alex build, it boils down to: the state is not necessary for development, but it is inevitable as an outcome. So, the task of political science, of political economy, is understanding if we are going to be stuck with one of them, how do we make it that we get the least terrible one? If it's not necessary, but it is inevitable, then how do we get to one that will maybe do some benefit, or at least, we can get the best kind possible? Well, that's where the liberal democratic answer gets into. [It] is [that] we need to find sets of constraints, rules, incentives that force the politicians to make it too costly for them to engage in predatory behaviour, in redistributive behaviour, and that they concentrate on what you could call productive behaviour. That would be like solving externalities. Like dealing with pollution or producing public goods stuff that markets have a harder time to produce. Getting into that category is the task of what liberal democracies are trying to do. That is a much harder proposition. Daron Acemoglu in his somewhat awful book, The Narrow Corridor, calls it a narrow corridor. (I don't like that book that much. I think it's a horrible piece of literature. He should have kept it at Why Nations Fail, we had everything we needed with Buchanan, and it was much better in the other version. He was a much worse version of that.) So, Parenthesis over on Daron Acemoglu, but his point is still relatively okay. There is a narrow corridor on which we evolve. That is a very narrow equilibrium that we want to stay on to, to avoid veering either into more territorial forms of government or into different types of authoritarian[ism], in a certain way. So the corridor for a liberal democracy is very, very, very, very narrow.

Tobi;

I like that description. The state is not necessary but inevitable. Whereas with the traditional state capacity crowd, the state is often assumed and never justified.

Vincent;

Actually, that's a bit unfair to them. The state capacity crowd, a lot of them are interested in state capacity as a story of the origins of states. That, I think, is a much-valued contribution. However, the issue of whether or not state capacity is linked to growth, I think this is where there's overstretching. My point is “no, there's very little reason to believe that state capacity is related to growth.” State capacity is more the direct or indirect result of growth in the past. So, either you are getting state capacity because you get conquered and you get imposed it by somebody else, or you get state capacity because you want to protect your wealth from other predators.

Tobi;

For the record, I'm not talking about your colleagues. There's this industrial policy school in development economics who are also big on state capacity, who think the state has to do this heavy lifting. They sort of assume the state and not justify it. But I won't let you go without asking you this final question. You recently published a paper - talking about the work of Thomas Piketty, the French economist - with Phillip Magness, I should say. What is your critique of his work? Because so far as I can tell, yes, I read the op-ed in the Wall Street Journal, [but] everybody else is sort of pretending that a critique of Piketty does not exist. And the political coalition around their research, along with [Emmanuel] Saez and [Gabriel] Zucman is moving rapidly apace, whether it is in taxation or other forms of agenda. So, what is your critique? I know there have been others in the past Matthew Rognlie, I'm not sure how to pronounce his last name.

Vincent;

Yeah. Our argument is actually very simple. And to be honest, I don't really care about the political conversation where, [for] the political people who are using Piketty's work, I ignore them. There may be a motivation for doing this work because it tells you the importance of his work, but the person I'm trying to talk to is Piketty himself. And the point we make in the paper is that he [not only] massively overestimates inequality in terms of levels, but he also misses times a lot of changes. In the article that me, Phil, another Phil, and John Moore published together in the Economic Journal, we find that there is a very different timeline of inequality in the United States. The most important part is that unlike Piketty and Saez, who can assign most of, and later Zucman… who can assign most of the changes in inequality to tax policy, we find that actually half the decline in inequality that happens between, say, 1917 and 1960, half of it is because of the Great Depression. And just as good economists, we should not be happy that, okay, the rich are growing poor faster than the poor, but the poor are also growing poor. That is not a decent outcome. So we're minimizing the role of fiscal policy and tax policy in doing inequality, but also the other changes that we find give a very different story of what matters in changing policy rather than being taxes, it has more to do with labour mobility within the United States. With capital mobility within the United States. So poor workers from the south, mostly black Americans, move to richer northern cities where wages are higher. Capital moves from the rich north to the poor south where workers are made more productive. So, the levelling has to do with a very standard force in economics - it's a Solow growth model - capital goes to where the returns are greatest, labour goes where the wages are greatest. Most of the convergence is explained by this, not by tax policy changes. So that's the critique we make of them. And there's a lot of other people who are joining in, Gerald Holtham, David Splinter, a lot of people are actually finding that their numbers don't make much sense and they're actually in violation of a lot of other facts of economic history, even though they're correct in the general idea that inequality fell; fell to 1960 and rose since the 1980. The problem is that all they got right is the shape, but they got wrong the timing, the levels, the extent of the changes. They got most of it wrong. They just got the general shape right. And that's no great feat.

Tobi;

Thank you so much for joining me.

Vincent;

It was a pleasure.

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Welcome to another episode of Ideas Untrapped. My guest today is Charlie Robertson, who is the chief economist of Renaissance Capital - a global investment bank - and in this episode we talked about the subject of Charlie’s new book, "The Time-Travelling Economist''. The book explores the connection between education, electricity, and fertility to economic development. The thrust of the book's argument is that no poor country can escape poverty without education, and that electricity is an important factor for investors looking to build businesses. It also explains that a low fertility rate helps to increase household savings. Charlie argues, with a lot of data and historical parallels, that countries need at least a 70-80% adult literacy rate (defined as being able to read and write four sentences in any language) and cheap electricity (an average of 300 - 500 kWh per capita) in order to industrialize and grow their economies rapidly. Small(er) families (3 children per woman) mean households are able to save more money, which can improve domestic investments by lowering interest rates - otherwise countries may repeatedly stumble into debt crises. We also discussed how increasing education can lead to higher domestic wages, but that this is usually offset by a large increase in the working-age population - and other interesting implications of Charlie's argument.

TRANSCRIPT

Tobi;

The usual place I would start with is what inspired you to write it. You mentioned in the book that it was an IMF paper that sort of started your curiosity about the relationship between education, electricity, fertility, and economic development. Generally. So, what was the Eureka moment?

Charlie;

Yeah, the eureka moment actually came in Kenya, um, because I'd already done a lot of work showing how important education was. It's the most important, no country escapes poverty without education. So I'd already made that clear and there wasn't much debate about that. Perhaps there was a debate about why some countries have gone faster than others, but there wasn't much debate about that. The second thing I was very clear on was electricity, which kept on coming up in meetings across Sub-Saharan Africa, Pakistan, [at] a number of countries, people kept on talking about the importance of electricity. But the eureka moment came when somebody pointed out to me that Kenya, where I was at the time, couldn't afford to build huge excess capacity of electricity, which I was arguing you need to have. You need to have too much electricity, so that it's cheap and it's reliable.

And then investors come in and say, "great! I've got cheap educated labour, and I've got cheap reliable electricity. I've got the human capital and the power I need, that then enables me to invest and build a business here." And the question then was, well, why was it so expensive in Kenya but so cheap in China? Why was the cost of borrowing so high in Nigeria but so cheap in Morocco or Mauritius? And when I was trying to work out where did the savings come from in China, uh, well I was looking globally, but China's the best example of economic success and development success we've seen in the last 50 years. Over half the answer came from this IMF paper saying, actually it came from their low fertility rate. That's over half of the rise in household savings, which are massive in China, came about because the fertility rate had fallen so dramatically.

And I then thought, could this possibly be true for other countries as well? Could this help explain why interest rates are so high in Nigeria or Kenya and so low elsewhere? And the answer is yes. So this book, The Time Travelling Economist is bringing all of these three things together - the fertility rate, the education rate, and electricity - to say not just how countries develop, cause I think I've answered that, but when they develop. Because once we know those three factors are key, we can then work out the when. Not just in the past [of] countries, but also in the future. Um, so that's where this came from.

Tobi;

I mean, we're going to be talking about each of those factors over the course of this conversation, but another question...some would say boring question, but I know how development economists and economists generally always try to defend their turf, you know, around issues like these. So, has anybody like taking you to task on the causal link between these three factors and development? And how would you defend yourself against that were it to be asked?

Charlie;

I haven't found anyone yet who's argued successfully against these points. Um, the closest criticism I get, and just to say, you know, this book came about off the back of three key reports I did in 2017 on education, 2018 on electricity, and 2019 on fertility and savings. So I've now been talking about these ideas for three to five years. The book only came out in July, 2022, bringing them all together. But in five years I haven't had pushback other than people ask, "is it not correlated?" You know, "is it not perhaps economic growth leads fertility declines or boosts savings?" And I think I show really clearly in the data that "no." Um, the fertility declines give us the growth. You don't get growth without adult literacy of at least 40%, you certainly don't get industrialization until literacy is at 70 to 80.

So, you know, I'm looking at the data and I think it's pretty crystal clear that you've gotta get these other things right first before your economy can take off. And I can't find any counter-examples. Except, I mean there's the inevitable few, those countries like Qatar or Kuwait with huge amounts of energy exports per capita or diamonds in Botswana's case. And there you don't have to get everything right before you get wealthier because you just happen to be lucky to have huge amounts of energy exports per person and a very small population. But they are a bit of an exception. I think you could probably argue that they do grow first before they get everything else right. But for the vast majority of the planet and all countries in history, it's the other way around. You gotta get education, power, fertility rates in the right place to take off.

Tobi;

So I mean, getting into the weeds, let's look at education first. Before your book, personally for me, and I should say what I really like about your book is, it's well written, it's an interesting read. It comes across as a bit less analytical, which is what you get from the standard development literature, you know, and I think that's partly because you are writing about a lot of the countries that you have also worked in and interacted with a lot of these factors. So it really gives it a first-hand experience kind of narrative. So I like that very much. So prior to your book, if someone were to ask me about the relationship between education and economic development or catch-up growth, generally, the reference usually goes to Studwell's big claim, Joe Studwell, that: Yeah. You don't really need a super high level of education metrics for a country to industrialize because the standard explanation is that how a relatively poor country starts industrializing is from the low-skill, uh, labour-intensive, low-skill manufacturing jobs, that you don't need a high level of education and skill for you to be able to do that.

So what I wanna work out here is what is the transmission mechanism between adult literacy and industrialization the way you've, like, clearly analyzed in your book?

Charlie;

Well, thank you very much for saying it was nicely written, I appreciate that. I wanted to try and make it as accessible as possible. Yeah, I think Joe Studwell's books are really good and I think he's right that you don't need a high level of education to do that first step out of rural poverty, subsistence farming into a textile mill. I think what's interesting is how many people writing about development forget how important just adult literacy actually is, because we've taken [it] so much for granted. So Adam Smith, who wrote The Wealth of Nations, the father of economics back in the 18th century in Scotland, he didn't make a big deal about adult literacy driving growth. And more recently, you know, people like Dani Rodrik have echoed exactly that saying you don't need any great education to work in a textile mill. You just need to be dextrous with your fingers. Which is almost exactly actually what Adam Smith said 250 years ago. And I was sympathetic to that, but I then kept on seeing in the data, well, first of all, I found this theory written in the sixties that said that no country has industrialized even to that first basic level of textiles without adult literacy being about 70 to 80% of the population. Which means basically all adults, all men, plus well over half the female population as well. And this was the theory written in the sixties and when I looked at the data, it was proven right and I couldn't quite understand why - if you just need dextrous fingers to work in a textile mill, why would there be that link? And I ended up talking to a guy who ran Levi's factories in Asia in the 1980s and he said, “Charlie, just think about it.”

You've got this box of Levi's jeans coming down the conveyor belt. Do you put that box onto the truck labelled United States or that truck labelled Europe for export? And if you can't read and write, you won't even get that right. So the adult literacy thing I think is overlooked. People are focusing on secondary school, high school education, how much [many] university graduates a country needs and they do need graduates too. But until you get to that 70 to 80% adult literacy, textile mills don't go to a country. And we can see that they did go to China in the nineties when they got to adult literacy of 70%. They are in Southeast Asia. They're in Bangladesh since education hit about 70 to 80% in the last 10 to 15 years. But they're not big in sub-Saharan Africa, or at least in parts of Nigeria or the Sahel or West Africa because the education levels still aren't there yet. So, you know, I looked as far back as I could go to the 19th century and even the first non-European country to take off, Japan, had an adult literacy rate of about 70% by 1900 and 20 years later, they had a thriving textile industry. The education always comes first. And Korea copied that Japan model in the 1950s and sixties, Taiwan, Hong Kong, all the rest [of] Southeast Asia's followed. Now, South Asia's doing it and luckily it's spreading across Africa too. But the adult literacy is the first essential step.

Tobi;

One possible objection. And I haven't seen this anywhere, but I couldn't really get it out of my mind while I was reading that part of the book is that some will argue that increasing education also increases domestic wages and that is really a problem for industrializing. And, if I recall, one particular point that the anonymous economic historian on Twitter, Pseudoerasmus, made particularly about Asia, is they were able to combine a very high adult literacy rate - a measure which you use is completion of secondary education…

Charlie;

Yeah.

Tobi;

With very unusually low domestic wages. What role do wages play in your analysis?

Charlie;

I think that's the norm actually. It connects to the fertility thing. And I'm not sure if you want to jump there just yet, but what tends to happen when you've educated your population is that the fertility rate drops a lot. And when that happens, the number of people who have to stay at home looking after 5, 6, 7 children goes down a lot too. Women can go into the workforce and of course cause you've got the education, right? Those women are educated so they can join the industrial workforce as well. So very roughly, if we say there's a hundred people in Nigeria, 50 kids and 50 adults, let's say 25 of the adults have to be staying at home to look after 50 kids, you're talking 25% of the population can go out and work of the overall population. You go to Asia today and it's more like 70% adults, say 30% of kids.

So you need maybe 15% of adults to stay at home. And you end up with something like 85% of the whole population can go out to work instead of 25%. Now, the consequence of that is a massive rise in the working-age population. And I think that that keeps industrial wages low for a few generations, in fact. Or at least three decades. Probably 40 years, where the education's come through, the fertility rates come down, you've got this huge excess supply of labour, which is then joining the industrial workforce and getting jobs. But because there keeps on being more people joining that workforce, it keeps wages relatively low. Now, what eventually happens then after a few decades is that that big increase in the workforce stops increasing as fast. We've seen this in China in the last 20 years. So, 20 years ago China's per capita GDP was about fifteen hundred dollars, $1,500.

Whereas now, now the population has stopped growing. Working age population's shrinking. It's gone up to over $11,500. It's gone up tenfold. So the big reward for industrialization comes later. And we had this in Europe of course in the 19th century, you know, wages were pretty awful and industrial working was pretty awful experience in the 19th century. I mean it paid slightly better than rural subsistence farming, which is why people came to the cities. But London was a horrible place for the vast majority of people. And the industrial workhouses were terrible places as well. And that lasted for generations. It's only when that big population, kind of, boom stories started to shift that labour eventually got any bargaining power. Cause when there was too much labour coming into the market, they had no bargaining power with the factory owners. It wasn't until the 1870s that the trade unions became legal in, say, the United States. Because up till then, you know, "you join a union, I fire you," you know, could be what the factory owner would say in the United States, cause there's always gonna be another person I can employ. But once the workforce starts to gain a bit of bargaining power, cause it's not expanding quite so fast, then finally wages start to pick up. So I think what's happened in Asia is pretty normal and will probably be the experience that we've seen across Africa as well.

Tobi;

Inevitably this will take us into what it means to be educated, really. Because a lot of countries, I mean it's pretty much standard - they say, Oh yeah, we want invest in education. Um, we know it is important for human capital. We know how important it is to have an educated population and all that. You talked about some data challenges also for some countries in your book. So what I wanna ask here is what exactly does it mean to be educated in the sense that you are talking about in the book?

Charlie;

Yeah, this is a really fair question. Why am I talking about adult literacy? The definition is can you read and write four sentences in any language? Sentences like "farming is hard work." So it's not a very high threshold and I wouldn't argue, I don't think you would, that it's highly educated. It's just educated enough to put that box of jeans onto the right truck when it's going to America or Europe. But all that's doing then is taking your country's per capita GDP from your per person kind of wealth from say $500 a year, a thousand dollars a year to the kind of two, $3,000 a year level. It doesn't mean you've got the education levels you need to get to the $10,000 per capita GDP level growth or 20 or 50 or even a hundred. Um, to get to the 10,000 level, I think you probably need very good secondary school education as well.

And to get to the $20,000 per capital GDP level, you're talking a lot of graduates coming out of university and you need to have that education then spreading throughout the population, both broadening and deeper education as well. And that is a process that takes decades. I mean I focused quite a bit on Korea because it was one of the most successful models and then China came along and did it even faster. But what Korea prioritized in the 1950s was getting that adult literacy rate from 35% or so, too low even to grow sustainably, to about 90% they said by 1960. So in about 10 or 15 years they got it from 35 to 90 and that was enough then to have textile mills do really well in the 1960s and they became a manufacturing country, an industrialized country by the early 1970s.

But already then the government said, right, we need more engineers, we need graduates coming out of university to do heavy industry, to do cars, shipbuilding. But Korea had no cars or shipbuilding at the time, nothing significant. So they were changing the university focus from, kind of, the arts or law towards engineering and the sciences before they had the economic sectors that they were trying to promote. And then about 10 to 20 years later, all these graduates were then in the economy and ready to start up companies like Deawoo, Hyundai, Kia, Samsung. And they started small obviously in the 1980s and early nineties. But this kind of sequential thinking about it meant that Korea kept on having the right human capital at every stage of development. So my book's trying to focus on, you know, why hasn't Pakistan got all the textile factories?

Why does Bangladesh have them? Why doesn't Nigeria have them? Why does Vietnam have them? And this is saying first you've gotta get that sequencing right of everybody ideally being literate, everybody having had school up to 11 years old and come out with a good standard of education. On the quality issue you just raised, the problem here is a couple of things. So I mean firstly people sometimes just make up the data and say, yes, my population is literate when it's not. But secondly, when you try and kind of shoehorn a hundred kids into one class to say, you know, they're all going to school now, but you've only got one teacher, you are not coming out with a good education at all. You might not even be coming out literate at all. So that, you know, I'm also trying to warn that governments can't do this on the cheap. Or not completely. They have to take it seriously and say, look, we actually need to make sure everyone really is coming out able to read and write. It's not just trying to tick a box to say everyone's at school.

Tobi;

Hopefully, we'll circle back to policy questions around this later. Let's talk briefly about electricity, which as you say, once you start investigating these factors, then you start teasing out what's what for each country. And the way you introduce that is [that] there are some countries with very high adult literacy rates but still weren't getting the benefits - like [the] Philippines, which was your example in the book. And it turns out what was missing in that particular case was electricity generation. But first I want you to make one distinction for me quite quickly. Cause it's funny, I was reading David Pilling's brief coverage of your book in the FT and he talked about the fertility part being controversial and I wonder that people miss the obvious controversy in electricity, but we'll get to that. So, now, is it really about investment in electricity that is often missing in countries that can't quite manage to get it right or the way their electricity market is structured? I know you are quite familiar with Nigeria and it's really a big, big, big debate that we've been having for, I don't know, like 20 years. So, some people will say you need very large upfront investment, possibly by the government, in generating capacity transmission, machinery and co. We argue, oh no, you really need to restructure the electricity market first. People have to pay for what they use. You need to restructure the tariff system, blah blah blah, blah, blah. What are your thoughts?

Charlie;

Um, big issues. And there is a debate. There're so many debates about this actually. There's the debate about whether you need a big national grid, big national generation and distribution companies or whether you can have localized electricity. Um, you are getting a couple of points though that I think it's easier to say some answers to. And one of them was to do with getting people to actually pay their bills. Certainly a problem in Nigeria, apparently, you know, discos will say that because there hasn't been good metering and despite privatization that those meters have not been rolled out. I know the government's promising to roll it out to all 10 million account holders now, but because there hasn't been metering, you can't charge necessarily the fair price for the amount of electricity people have used. So then people don't wanna pay. So then the discos are losing money, then they can't pay the generators and this then becomes a problem.

And I think there is a case to say that if the generators can sell some power directly to some big companies, that could be one way around part of the problem. So in a place like Lagos, very similar to the Philippines in the 20th century, good educated population just held back by a lack of cheap reliable power. You know, I think if Lagos could have its own electricity story, it would be a phenomenally successful economy. It should be over the next three or four decades. So there is a case about how you structure this. But I found two or three things interesting when I was looking into this issue in 2018. And the first was just clarifying that it really is electricity that people need more than say transport infrastructure. You know, this is a survey the world bank had done and the only countries where they've said transport infrastructure was the bigger problem was countries where there wasn't an electricity problem because there's so much of it.

So countries, where there's a load of electricity, say yes we need more transport infrastructure, but everybody else says we have to have the electricity first. So then it's a question of how do you roll that out in a way that makes money and supports development? And there is a... I think, a problem at the moment with well-meaning policies from people like the United Nations or the African Development Bank saying everybody should have access to electricity. But my point in the book is, and Adam Smith said the same thing in the 18th century, you want your infrastructure to be making money not losing money. You need to make sure that if you're going to supply people with a road or a bridge or electricity, that they can pay for it. And if you start building stuff that loses you money because people can't pay their bills, then you'll end up with an uneconomic electricity system which can't function properly and can't give industry what it needs.

And what I try to emphasize in this is that every country from America and France in the 1920s to Turkey in the 1960s or seventies to Korea in the 1970s, every country has said, okay, let's make sure we've got electricity for industry first. Profitable, makes money, and then households over time? Yeah, okay, we'll connect them over time, but only when they can start affording to pay for electricity. It's not another subsidy that governments can't afford, we just can't do that. [This] is what every other country's done. But at the moment I do see this pressure for electricity systems to try and roll out universal access and so, in places like Kenya that's putting the whole electricity system under financial pressure because it's hurting their profits. And if you're trying to roll out cheap electricity to households, well how do you pay for that?

Well, government subsidies partly, but the other way to pay for it is to make industry pay a high price. But if you're making industry pay a high price industry won't come. They'll go to Asia; where they get a low price for electricity. They're not going to go to somewhere that's got a high price. Cause no company's gonna say, I just wanna subsidize households getting electricity. Companies are coming to build stuff in countries because they'll make a good profit from doing so. So I think you've raised a number of issues there, you know, is localized electricity good, and so on? You know, what should you be prioritizing first - industry or households? And there's a whole host of issues. But I hope I've answered that.

Tobi;

Actually, that's the controversy I was referring to at the beginning of that question because the background that is, it'll be a very, very tough sell in the current political climate, for example in Nigeria, for any person aspiring to public office to make this argument that you have to power industry first. What it's going to sound like is: you are just trying to prioritize the rich and trying to exclude some people from what, like you said, has come to be framed as a universal basic right. You talk to a lot of small businesses, even individuals, like you mentioned with the World Bank Survey, the importance of electricity is so paramount on everybody's mind that if there's stable electricity, I can start X and Y businesses. I could make money and, I mean, no one needs the government for anything else. Just give us electricity.

Charlie;

Yeah.

Tobi;

So my point is practically… thinking about this practically, how do you think a sensible government that is not trying to bankrupt itself prematurely can manage this situation?

Charlie;

Well, I think it's hard work. Um, how did the Koreans do it in the sixties or the seventies or the eighties? They gave you no right to protest - military government. How did the communists do so well at getting this industry first, households later? How did they get it right in China or Russia? Same thing. You've got no rights to protest. "Your interests don't matter, we're thinking 10 to 20 years ahead how to make our country better off and how to make everyone better off. So you suffer now because we are gonna prioritize business." So that is one model. I'm not recommending it, I'm just saying it is a model that can be done. The other way is to allow it to be done by the private sector. And if you let the private sector roll out electricity, they will not supply electricity to people who won't pay their bills.

And that is the story that you saw in western Europe, it's the story you saw in the States, and to some extent you're seeing actually in Kenya. There's quite an interesting company there called M-KOPA. And M-KOPA will sell you, well, they'll lend you, they'll lease you, a solar panel, a little one that you can put on your - actually, a friend of mine was showing it to me the other day in Uganda...they put it on the straw roof of the mud hut and that solar panel, you pay a monthly fee and after about 18 months you've paid for the panel, you've also got energy during that time enough to supply a mobile phone and so on, lights a little bit, and then it's yours and that's effectively privatizing that rural distribution story. But I think the difficulty is that politicians find it really hard to do this.

And part of what I'm writing about in the book is how really hard it is for governments in a country with no savings, big population growth, to constantly meet all of the different demands. With huge population growth you're having to build new schools all the time, you have to hire even more teachers all the time. You've got population pressure, maybe, causing clashes over agricultural land like the Fulani herdsman in Central Nigeria, Northern Nigeria as well. And all of these pressures are on you all of the time. And there's constant demand to spend more on bridges, on hospitals, on education, on security. And what you can't afford to be doing is making a loss. And so I think what politicians need to do is say, we've gotta sequence this right. The same thing as with education. It's no good having a million university graduates if a country isn't literate enough to have an industrial base, you've gotta have the literacy first.

And equally, it's no good having electricity rolled out to every household when there are no factories for people to go and get the jobs they need to be able to pay the electricity bill. And it's not easy. I, I totally understand it's not an easy situation for anyone to be in. The difficulty is [that] because it's not easy, too many political leaders will take what appears to be the easy option of saying, "I tell you what, let's just go and borrow a load of dollars offshore. Nigeria's going to go and issue a lot of dollar debt and we'll use that to try and sort these problems out." Kenya's done the same, Ghana's done the same, Pakistan's done the same. And the risk then is that you end up in default situations. So that feeds into one of the other chapters in the book as well.

But I think it's very difficult. I think realistically governments need to say, what can we do here? And this is how long it's going to take. And it's going to be not a five-year story, it's going be a 20-year story, a 30-year story to get it right. And people, sadly, need to be patient, which is hard; when for generations people have been waiting for things to get much, much better and little progress has been made, relatively little progress has been made compared to Asia and that causes a lot of political frustration. I think.

Tobi;

I mean, speaking about Asia and I mean your point about taking away the right to protest, I think Africa and Nigeria sort of missed that window when we had military governments everywhere. So, uh, let me give you one experience I've had in trying to discuss your book with friends. So I get two reactions to the fertility section.

It's almost automatic, you know, when you discuss fertility being at a certain level and I try to, you know, successfully argue your point, you get two strands of reactions in my experience, one goes immediately to the China issue - the one-child policy; that, "oh, so are you trying to say we should do what China did?" The other slightly more technical objection I get goes to the relationship between population growth and economic growth that is quite pervasive in the growth literature. Did you also experience that while writing the book and debating with colleagues?

Charlie;

Now I'll take each point in turn. Um, the China one-child policy story helps explain this massive rise in Chinese savings and then their very strong growth. What I'm trying to show in the book, of course, is that every rich country has seen a fertility decline. And what I'm arguing is probably the right sort of level for countries to aim for is about two to three kids on average. I don't care if people have five kids or one kid, it's just as a country the average of two to three kids is consistent with a very high, well, a big jump in the level of sayings. And with those savings, you can then industrialize and grow, and grow fast. Um, China I think actually made a mistake. I think China got it wrong by going for the one-child policy because they kind of turbocharged that story, that story that every rich country has got, of lower fertility, it took a really long time in Europe. I mean it took a really, really long time in Europe and that's why Europe had the slowest growth of any industrial revolution. It was done faster by the communism [they had] in Russia and they did faster growth and we've done even faster in China. But the consequence of this one-child policy and what the Chinese have discovered is it's bloody hard to get the fertility rate back up again once you've had one kid. I was talking to a Chinese professor on a plane back from Asia once and she was saying all of her friends, they can't get married, they can't stay married. They get married and they can't stay married because they're all used to being a one-child kind of princess or prince in the family who gets everything they want and then they try married life and they discover as you might well know, that you never get everything you want in a marriage, and you have to compromise.

And it's certainly created a problem now that China can't get the kids, they can't raise the fertility level and it's not just China that's discovered that once you've got a low fertility rate, too low, I think of one, you have a problem raising it. Again, Italy's had the same problem, Iran, uh, Russia. So I think China did it too fast. And you certainly don't need to do it and loads of other countries show you that just aiming for that two to three kids figure really helps your economy and gets you onto the path to being middle-income and then a rich country. So I don't think you need to do the China one child. No. Um, the second issue, the population growth versus economic growth. What I show, what we did in this was we looked back at every country's growth rate since 1960 and I compared the per capita GDP growth, the per personal growth of an economy, it's the best way to measure how well an economy itself is really doing. And I compared that growth rate against the share of adults to kids that I was talking to you about a little earlier.

Tobi;

Yeah.

Charlie;

And where it's 50-50 roughly, between adults and kids, per capita GDP grows at 1% and that was the story of Asia in the sixties and seventies. It's still the story for a good number of countries including Nigeria today. So per capita GDP growth is about 1% when half your population can't work because they're kids. But once you get two-thirds of the population being adults, your average per capita growth in lower-income countries by half of America's wealth level, so not even lower-income, lower or middle-income countries, your per capita growth, and it averages three to 5% a year. So the structure of your population tells you what your per capita GDP growth is. So it's just... I can't see that there's any other way to explain this than you've gotta get that fertility rate down first before you can start to get the high per capita GDP growth. Um, and it's connected to the savings, of course; cause once you've got two kids instead of six, you're saving money in the bank, the bank starts to have more cash to lend out. There's more money for lending for investment. The government can borrow more cheaply so it can build infrastructure, roads and rail, electricity and cheap electricity cause interest rates are low cause the savings are high because most families are able to put some money aside at the end of the week. But that doesn't happen when 50% of the population are kids. They're not earning any money, they're not saving anything and the poor parents are trying to manage to feed five, six kids on average. You know, they've got nothing left at the end of the week to put into a bank.

So the bank's got no cash. So interest rates are really high cause there's no money in the bank. Um, so money's really expensive. So the government can't afford to invest in infrastructure and if it does build electricity it has to charge a lot of money cause it's having to pay a lot of interest on the debt it's taken on. So to me, I've yet to find someone demolish the argument and uh, you know, it could happen.

Tobi;

Yeah.

Charlie;

But so far it seems you've got to get the fertility rate down first if you want to get fast growth. Now if you don't want to grow at three, four, 5% a year, you could do it really slowly like Europe did and you grow at say, one and a half, two, eventually, you get from European farming in 1800 to factories that are producing not great stuff by 1900, a hundred years later. But when I'm looking at Nigeria today, I don't want Nigeria to be waiting a hundred years to be doing what Europe took a hundred years to do. I also don't think the Chinese model of it taking 30 years, 20, 30 years but then having a population problem of being too old, I don't think that's the right solution either. But there's somewhere in between. At the moment though, Nigeria's on that long growth story, it's not yet ready for the faster growth story

Tobi;

On the China question, um, thinking about your answer there, is extremely low fertility or what they say "fertility below the replacement rate" a feature of the kind of explosive growth 30, 35, 40-year trajectory that we've seen in Asia. Because if you look at Korea, Korea even have worse demographic numbers than China and there was no draconian population policy, but it's kind of gone through this explosive growth phase that is even faster and bigger than China's.

Charlie;

Well, it's been going on for longer. So what the Koreans got right was they raised their adult literacy rate to, you know, they said about 90% by 1960. China, despite being communist and communists tend to say they really appreciate education, didn't get to over 70% literacy until 1990, sometime in the early 1990s, which is 25, 35 years later than Korea. Uh, so Korea was already booming in 1970 at a time when China was having the catastrophic mistakes of the cultural revolution and really bad growth and people feared mass famine. Well many, many did die in China in the sixties. So what I would argue is that Korea had a slower fertility decline and the growth rates were not as fast as China's but they've been growing for 50, 60 years already. So Korea's two to three times richer than China is today. But as you say, they're so ageing that they're gonna be the oldest country in the world by 2030.

And what's gonna get interesting then, and I can't really answer this in the book cause we haven't seen it yet, but what's interesting about Korea and we're going to have to watch it carefully, is that you are going to end up with, not 70% adults and 30% kids, it'll be less and less working-age adults, maybe 60%, I dunno maybe eventually 50% and it'll be 50% kids and old age pensioners who can't work. And my guess is that Korean growth is going to slow back to about the 1% per capita growth that Nigeria's got at the moment because Korea's going to be too old. You know, and that's not something that I think people should be thinking about or worrying about. [People should be thinking about] Pakistan, East Africa, Southern Africa, West Africa at the moment. It's [Korea is] just not a...you know, that's a problem to worry about in 50, 60 years. But it is going to be interesting to watch what does happen to growth in really old countries. Um, can pensioners actually still do work? You know, maybe they end up retiring at 70 or 75 or 80, I dunno. It's gonna be quite interesting to see.

Tobi;

So I mean the question then is, uh, for countries that have fertility rates that are higher than what you described in the book.

Charlie;

Yeah.

Tobi;

It then becomes how do we get it to the point where domestic savings start going up, interest rate for the domestic investment environment then benefits from that virtuous cycle. You talked about access to uh, reproductive interventions like contraception, also education, which takes us to where we started this conversation from, especially the education of women and girls, generally. I was taking a look at David Le Bris recently where he was talking about equality between siblings and inequality between siblings and how it affects the overall capital formation, whether it's physical capital or human capital in the society. So my question then is, do you see individual sort of personalized household decision-making affecting this more or it is sort of a national policy thing?

Charlie;

When it's something as important as family, you know, the individual decisions matter a huge amount. And as I said earlier, I've got no issues with anyone doing what they choose to do. But that big family story, I was just talking to a former minister, actually, of a... former finance minister of a country and he's got five kids, he's saying that he's been able to help fund them go to university, but he can't afford to help them buy a house cause he just hasn't got the cash. And I thought that was a really interesting example of even in a wealthier country, you know, it still matters how big that family is. You know, when I looked into this on how do you get the fertility rate down and there's been quite a lot written about it. I don't have a magic or a single answer, but the theories are first: girls if they're staying at school until they're 18, versus girls who leave school at 13. If you leave school at 13, perhaps you have your first kid at 14, maybe a second kid at 17, third kid at 20. But if you stay at school until you're 18, perhaps the first kid's at 20. So already you've reduced the fertility rate by two just by keeping girls at school. And the key figure, but just kind of remind, well tell people is the key figure is at about three to four kids per woman on average, the banking system has got deposits cash in it of about 35% of GDP, at four to five kids, it's around 30, 25 to 30. At five to six kids, which is where Nigeria is, it's about 20% of GDP. Um, so 20, 30, you know, these sort of levels. If you get to two to three kids though, if you get it below three kids, it more than doubles to about 60% of GDP.

That's when banks suddenly have loads of cash. When banks have got loads of cash, there's loads of lending, suddenly access to finance isn't a problem anymore. So how do you get it below three kids? So you educate girls, there's an incentive when women are educated for them to work cause they can start to make decent money in a textile factory that you can't do unless you've got that literacy. Um, the government just telling people that low fertility is a good thing is shown to have some success. From Indonesia to India, these kinds of government campaigns suggesting lower fertility rates have made a difference. The third thing, which really surprised me cause it's such a strong correlation, is [to] stop kids [from] dying. And I was pretty upset, actually, to see the numbers where, for Nigeria, you've got a 10% chance, just over a 10% chance of dying before the age of five because you're born in Nigeria. And when I was comparing that to Covid - which the world spent, what, trillions trying to fight - with a fatality rate of about one or 2%, you think of those with more than a 10% chance of dying just before the age of five in Nigeria. Anyway, it's kind of shockingly high, but when you have such a high chance of losing a child, you tend to have more children and the correlation is really quite strong. So, if you can try and address infant, [and] young child mortality rates, which doesn't cost that much, you can see countries with Nigeria's wealth level that have a mortality rate of not over 10%, but five or even 3%. And usually, countries with such a low mortality rate then have a much lower fertility rate as well. So, people tend to have less kids when they are more confident that all their kids are going to survive childhood. So, some investment in basic healthcare for children, education of girls, contraception availability, yes it does help, and government information campaigns. You put those things together and then you get a country like Bangladesh. Bangladesh which had the same population as Nigeria about 15 years ago. But today Nigeria's got tens of millions more. But Bangladesh is growing as fast as India. Bangladesh's per capita GDP is over $2,000. And it keeps on growing at six, seven, 8% every year. Because they have on average two kids per woman, they've got savings, they don't have much foreign debt because they don't need to borrow dollars from abroad to fund their growth, because they've got their own savings, because the fertility rate is low. Muslim Bangladesh: tremendous success story over the last two or three decades.

Tobi;

You sort of made allowances for countries that can't quite get their savings right up to the levels where they can get the desired domestic savings and really positively affect their investment environment in a big way. And you talked about debt in the book, which would be familiar to anybody that's been in the new cycle about Nigeria currently, which is that government revenue has collapsed. Debt servicing is rapidly approaching a hundred percent of what the government can collect. And it's only a matter of time before we are talking about a debt crisis. But, like you said, a debt crisis is, like, unavoidable if you're trying to grow and you don't have to requisite domestic savings to sort of mitigate that. But this inevitably brings in the question of debt restructuring which, again, some would also argue does not help you grow. So, in terms of just the sheer macroeconomics management of this, how do you go about it?

Charlie;

It's tough. The book's arguing, obviously, that a whole chunk of this stuff is really long term. You got to get the education right. So, you've got to have enough teachers and that takes, well, at best Korea did it in 15, 20 years. But even if you've got the education, then you've got to get the fertility rate down. And that takes at best 10 years to get it down by about two kids per woman. Nigeria's at 5.3 kids or so at the moment. It needs to be below three to have the local savings. So, we're talking at least 15 years, even if every priority was made today to try and improve education, do all this reproductive education and so on. So, the governments then have the choice of what do you do? I mean, if you're going to wait 15 years, you can grow at 1% a year per person. But you'll find the population is getting pretty cross because you've got all these other countries in the world growing at three, four, 5% per person every year. You know, why is my country growing at one [percent]? So, the politicians then...[it] becomes so attractive to go out and borrow and, you know, every country, not every single one, but the vast majority of debt defaults in the second half of the 20th century were in high fertility countries. The fertility rate I think was around, on average, five - five kids per woman was the average fertility rate in countries that defaulted in the second half of the 20th century. Wherever they were in the world. A lot of them were in Latin America in the debt crisis of 1980s. So firstly, debt crises are really common in high fertility countries because governments say I want to speed up my growth and they borrow when the markets let them.

And we've certainly seen that in Africa in the last 10 years too. And then they borrow too much and then they go into default and then they can lose maybe a decade. And that is what happened in Latin America in the 1980s. But the alternative is to only grow at 1% a year. And yeah, you can avoid debt default. I'm not saying every high fertility country defaults. I'm saying almost all the countries that have defaulted are high fertility. So, you can settle for the low growth but if you don't want to settle for the low growth, the debt becomes a very attractive way to try and get faster growth. But it causes a problem. I end up finding roughly two other ways that you can try.

Tobi;

Okay.

Charlie;

And grow faster. Is it okay to jump on to those?

Tobi;

Yeah, go ahead please.

Charlie;

Yeah. First is to try and bring in as much foreign investment as you can. Cause you haven't got enough local savings, you don't want to take on too much debt cause eventually you'll default. So, you can try and make yourself very attractive for foreign investors. Foreign direct investors. The only problem with that model is that those foreign direct investors do also want their cheap electricity and the good infrastructure that unfortunately high fertility countries haven't got the money to pay for. So, it's difficult to get in a lot of foreign direct investment. Foreign direct investment in China, I was just reading a really good book by David Lubin, who's the chief economist of Citi for Emerging Markets and he did a book called Dance of the Trillions. Highly recommend, it's brilliant on emerging markets. And he says FDI suddenly started in China in the 1990s. Now, I know why. My book is explaining why I think, which is you finally had a literate population, 70% literacy and you also had the low fertility rate. So, you had the high savings, you had the good infrastructure. But the FDI didn't come 10 years before into China. It only really picked up in the 1990s. So, the point of then is, I mean yeah, try and get some [FDI] if you can, but the last option that I can see other than to just, perhaps, try to go full Stalinist, kind of communist, take control of every part of the economy. But even that still education and low fertility really helps... Um, the last option which any country can do is to run a current account surplus, I think. Have a currency level that's so cheap that you are running a trade surplus. A current account surplus, which is obviously trade plus services and remittances and so on.

If you've got a surplus on that current account, you are bringing dollars into the economy and those dollars help reduce interest rates. And Nigeria saw that actually in 2005, six, seven and eight when the oil price was booming. Nigeria had that flood of dollars coming into the economy. Interest rates were really low below inflation and investment was relatively cheap and easy to finance. Now it's a problem to manage when it's a commodity-driven boom because commodities then bust. So, all that flood of money that came in suddenly disappeared again, you know, once the oil price collapsed there wasn't that current account surplus anymore. But if you run a cheap currency policy to make sure you always run a current account surplus, then that helps give you that supply of savings that you can then use to start investing. So that seems to me one of the few ways that a low-income country that's got not enough local savings, doesn't want to wait forever until its fertility rate's down [and] low enough to build the domestic savings, this is one way that looks sustainable that can bring in some foreign cash to help support growth.

Tobi;

But one minor aside on FDI and you can really correct me here if I'm wrong, wouldn't that really be a bit unstable? Because if you have loads of FDI, if other indicators are really working in your favour and at the slightest hint of a crisis, all that money then flows out.

Charlie;

Yeah. Well, I'll just differentiate between foreign direct investment and foreign portfolio investment. And, again, David Lubin's book is very good on this because the Washington consensus, which is this set of policies that were drawn up by policy makers around 1989, 1990, it said countries should welcome foreign direct investment. Building factories that it's pretty hard to move out of the country, that that should be welcomed. But when the original guys who drew up the Washington Consensus wrote down the kind of 10 principles, they weren't that keen on foreign portfolio investment. This is the hot money that will include a lot of my investors who will come in and buy shares in companies in the Nigerian Stock Exchange and might come in and buy bonds. And I think it's fair to say that that money can leave in times of trouble and doesn't really support...isn't necessarily as supportive [of growth] and that money we count on the capital account because it is foreign capital.

What I was talking about on the current account surplus was obviously the trade surplus, the remittances, the services and so on. So, I think it's more debatable. I think a number of countries have restricted foreign portfolio flows into equity market or the bond market. And if they've got other things going for them, like a low fertility rate, they can kind of get away with that. Um, what I'm highlighting is that for some countries they just don't have that choice. And when America was short of capital in the 19th century, it was British capital that went over and built their railways, that bought all the shares in their infrastructure companies. The Brits owned America for much of the 19th century and then the French actually owned most of Russia. Uh, the railways and the ports and some of the industry, the coal mines [were] very significantly owned by French investors, portfolio funds, and portfolio guys are there to make money as well. You know, they're there to make profit and if you're making good profit, five, 10% a year or whatever sitting in Nigerian equity market, people will stay, and it won't leave. They'll be happy to stay there for many, many years as people are and have been doing in India, actually, since India's education fertility and electricity numbers have all come together in the last 10 years in a really good way. Foreign portfolio guys are saying, "Hey, we wanna put our money into the Indian stock market too." And Indian shares are pretty expensive right now because of that. But the money doesn't want to leave. It'll leave when policy mistakes are made but fundamentally doesn't want to leave. However, I don't deny that there is a reasonable argument you can make to say we're going to choose foreign direct investment, we're going to be more restrictive on foreign portfolio investment. Because that can be more volatile. It can leave quicker. And I wouldn't argue with that. Well, I mean we could debate it, but I think it's harder to prove that you must have foreign portfolio investments to thrive. I think the current account surplus is a better policy choice because it's in your control. Foreign portfolio investors and what they do, that's not in your control.

Tobi;

One question that stayed with me throughout your book, which is a bit silent in the book itself, maybe it's implied, you can tell me, is that it's really difficult to find a country at any particular point where all these three factors align at the same time. Where you have the requisite adult literacy rate, electricity and fertility, they rarely align at the same point in time in the history of any one country. Because your book did not really distinguish between any particular political preference or institutional arrangements, which I like that, but what institutional arrangement favours the consistency for all these factors to sort of come together, uh, in the economic history basically of a country. Because we know that political leaders tend to favour what benefits their ambition at any particular point in time, you know? And a lot of these things are investments that do pay off in the long run, you know? Like we talked about on savings, a lot of political leaders would want to borrow a lot of money and then leave the debt crisis to the next administration.

Charlie;

Yeah. Yeah. Happens a lot.

Tobi;

Yeah. You know, and so many other things, whether you are investing in electricity or education or whatever, they don't really want to do the hard work. They want to do the easy stuff and just leave it to the next guy.

So, what institutional arrangements have you found in your observation and study of this that favours the patient consistent build-up to the alignment of these three factors?

Charlie;

I think it's really, um, it's kind of interesting actually because in each chapter I try and say which countries are at the right place for industrialization, education, which countries are at the right place for electricity, and which countries are at the right place for fertility. Perhaps I didn't properly bring that together in one chapter at the end to say, "so, who's the fast growth story?" But right now, the countries that have brought them together are Vietnam, India, Philippines, Indonesia, Bangladesh, and I think those five countries, Morocco actually six, um, those six countries should be the countries that will show the really good growth for the next 30 to 40 years. Um it's going to be great. And I'm then trying to highlight who's closest to joining them on a 10 year view. Um, Pakistan and Egypt both got big debt problems right now, but five to 10 years they could be joining that group as well and Ghana and actually Kenya and I would argue southern Nigeria could be, could be there in the 2030s.

Um, so I am trying to say when they come together. The question you are asking, though, about institutions or perhaps leadership and so on, I think is a really important one because I guess this book in lots of ways is an argument against Why Nations Fail, which was a really interesting book; and [it] said it is all about institutions and the right institutions and that's why if you walk a kilometre across the US border into Mexico, things are run so very differently. It's got to be the institutions, that book argues, that makes the difference between a country succeeding or not. And what I'm arguing is that I don't think that's true. I think you appear to have the good institutions when everything else is running well and you appear to have the terrible institutions when you don't have the education or you don't have the electricity or you don't have the low fertility or worst of all, you haven't got any of them.

So, a country that hasn't got any of them, like Niger, Chad, Somalia, you know, these are countries in a terrible place. But I'm saying that they can't have good institutions cause there's no money in the economy, there are not enough educated people in the economy. There's just no way that you're going to get a good setup in those countries. And actually, even at the beginning when, at the first 10 years or so, when you've got these things all coming together, you still don't think the institutions are good. You know, you go to India today, people don't think, "wow, this is a brilliantly run civil service. It's so uncorrupt[ed]." Such wonderful institutions everywhere. They don't say that. They don't say that about Philippines' Duterte, the president who's been just recently retired, by people who were worried the institutions found it difficult to control his populism. And yet Philippines boomed under Duterte, and India's boomed under Modi and countries like Korea boomed even with a level of corruption that means in the last 10 years we've seen four presidents go to jail for corruption.

Um, so I argue that the better institutions come afterwards and that's why four presidents have gone to jail in Korea because they're now getting the institutions better. And I read a really good book about why democracies die by some American academics about three or four years ago now. I recommend it. And they pointed out that Latin America, across Latin America, they just copied the American institutions. They said, look, what's working in the Americas is North America. It's United States, they've got it right. Let's copy their institutions, we'll put them into my country, be it Venezuela, Brazil, Argentina, whoever. And then they discovered that actually if the human capital is not as advanced, people will undermine the institutions. And you arguably saw Trump try it in the United States itself, but the human capital and the rest of the place was good enough to stop him from going too far.

This is all debatable stuff, but you know, this is... So, I think the institutions do work when everything else has been working for some time and before then it's very hard to argue that the institutions work or can make a huge difference. I think the fundamental economic reality of are you growing at 1% a year or three to 5% a year per capita? That isn't about the institutions. Having said all of that? I think there's no doubt that you can have, if you're lucky, very lucky, really good leadership. A leader like Lee Kuan Yew in Singapore, who has got vision, understands or is lucky, but he prioritized education and all the rest, who gets it right and takes the country onto a new path. When I think of some of the most obvious successes, a lot of them are small Singapore, Hong Kong, even Taiwan really.

And maybe it's just tougher to do it in a country the size of Nigeria with over 200 million people or, or uh, India with over a billion, which is why it took India so long or Brazil. But I remember even the French president, Charles de Gaulle, I think in the sixties or seventies said, "how is it possible to govern a country with 350 types of cheese?"

.

Um, and in India you'd say, "how can you govern a country of over a billion people with that many different dialects, different customs, different local cultures?" Um, and it is hard, but once you get these fundamentals of education, electricity and fertility right, suddenly, it looks like you can govern well. So, I want to think there is a role for good leadership, um, and it can make a difference and it does help. I just think history's telling us over the last 300 years that we can't count on luck and that lucky guy who happens to be the right leader to come in, sometimes woman who can come in, and push reform in the right way. What we can count on is that if you get the education, electricity and fertility numbers right, you will get out of poverty, you will get better off and your kids will have a much, much better future and your grandchildren even more so.

So, I think that's probably one area [where] my book differs from many in the last 10, 15 years is saying, "I don't think it is so much about the things that we all like to pay attention to [like] who's going to win the next election and what are their different policies going to be?" And you know, most of the time I'm arguing it doesn't really make as much difference as we'd like to think.

Tobi;

Now, another point that came in the later chapters in the book, which I found interesting, and which is quite also a bit of a political issue right now, surrounds migration. Uh, a lot of Nigerians are leaving, I mean it's become even a social media trend and meme - "who is...

Charlie;

The Japa trend.

Tobi;

Who is leaving next, uh, yeah, yeah, Japa. So, like, who is leaving next, you know? Right. But you argued in the book that as countries grow richer, there will be more migration not less because what you often hear is that the reason why people are living is because the country is so bad and they're looking for a way to make better lives for themselves, which is true anyway. So, and that the way to really stop this migration wave is if you can improve the domestic economy and then suddenly you see a drop, but you are saying no, um, we are actually going to see more migration as countries grow richer. Now, how do you suppose that this can be resolved with the current, should I say, political environment in Europe and to some extent in America that is increasingly seeing migration from poorer countries as a problem, right? Is it a case of as countries grow richer, then the migration demographic just, sort of, changes to more educated people leaving and less tension and political rancour about migration?

Charlie;

Um, I doubt, I mean, I doubt that these political problems about immigration in Europe and The States are going to disappear. Cause we've seen election results just in the last two, three weeks in Italy with the far right becoming dominant, in Sweden as well. Where they took in a huge amount of, I think, it was Syrian refugees and before that Somalian refugees. Um, and you're trying to integrate people coming from a country with very low adult literacy into, particularly in Somalia's case, into a country like Sweden, which had a hundred percent, nearly a hundred percent adult literacy already by 1900. That's an integration process that takes generations. As America's still struggling 150 years after civil war, still struggling to manage integration. So, I think that political problem is going to carry on, but it is going to get more acute for Europe, um, and eventually United States because Europe is this aging old continent that hasn't got enough people.

I was in Germany two weeks ago and there, there was a surprising number of industrialists saying "we must have a much more open border situation." I said, well, you know, that'll be really interesting to see if you do that because the backlash that we're seeing elsewhere says there is a limit to what countries politics seem ready to accept. And, I think, I even think the Brexit vote was about that. It was about the East European migration into the UK, which had the most open approach to east European countries from Poland and Hungary and Czech coming to the UK. Every other country in Europe kept in a border, well, restrictions, but the UK didn't. And I think that backfired on the UK when it had a Brexit vote that said, "oh, we have too many Polish people eating sausage in our supermarkets. And I, I, yeah, I mean really people cared.

I don't understand it. I love the variety obviously, but while I don't understand, while I don't feel the same, [some] people do. So, I think that's the political problem. And even educated people who are needed by the economy might find it hard to integrate, say, beyond the bigger urban centres. I was really shocked when I was writing the book and I was looking at what happens when you've got an educated population but a high fertility rate. What happens across history is people leave. Cause there aren't enough jobs at home. Cause the fertility rate's so high, there's thousands, millions of people coming into the workforce. The savings aren't there to help create the jobs. So, they leave and it's the Philippines, you know, in the 20th century, it's Pakistanis now, where a number of people are well educated, not everyone sadly. But 150 years ago, it was Ireland, and it was Norway, and they were sending their excess population to America, and it caused huge controversy.

There was, you know, rioting between, kind of, the Italian immigrants and the Irish immigrants in New York. There was legislation in parts of America deliberately aimed at Norwegians.

.

I've never heard of anyone discriminating against Norwegians before, but you go back a hundred years ago in the United States, and they really didn't like people speaking foreign languages on trains, they were banned from doing so, they had to speak English. So, I think, first, it's inevitable people will want to move, and I think we're going to see quite a lot of this struggle to manage immigration by countries that really do need it. The problem for a Nigeria, say, is you're going to be educating more and more people to a better and better quality. You know, it's been happening already for more and more people getting access to education for 50, 60 years. That gives them the skills they need to immigrate.

But Nigeria also would benefit from those skills staying at home. So, it's, uh, I don't think there's much you can do about it other than go full communist and not let people leave the country.

But, it’s going to be a challenge. And the numbers do get worse, it’s quite interesting. So, [at] a $1,000 per capita GDP, low-income countries don't see much immigration cause people haven't got the skills on average to be able to leave. But it peaks at about eight, $9,000, quite high levels, kind of where Mexico is, its like the peak. That's when people are really saying, “I've really got the skills to go and work anywhere and I’m gonna go off to America and make my fortune.” And then it [immigration] drops. So, once you get to about $15,000 per capita GDP, people say, “you know what, my standard of living is actually pretty high.” And what we've seen in Poland is that 10, 20 years ago they came to England, they've probably got a better standard of living today, in Poland now, than they do in the UK. Housing's expensive and, you know, everything's expensive in the UK and in Poland you get a better quality of life. So it looks like people finally do start moving back, but only when you get up to that quite, quite wealthy level.

Tobi;

So, I've got two final questions for you. One is hypothetical in a way. As you know, Nigeria has elections next year - February. And, of course, campaign season has started. Now, suppose that whoever of these guys in the election, whether you are at Tinubu or Peter Obi or Atiku and, like, gives you a ring and say, "uh, Charlie, I've won the election. I really want to do good in Nigeria. What and what should I prioritise?" Against the background of this book and your research, what would your answers be?

Charlie;

The first challenge for Nigeria in the long run and the most important is the educational divide in the country. The fact that well under half of adult women in the north, many northern states, cannot read or write in any language, nor has learn anything else. And I just think this is going to ensure that per capita GDP growth in the north will be low until that changes. While in the south, because the education levels are that much higher, the per capita GDP growth can be higher. So, the divide between north and south is just going to get bigger and bigger until every effort is made to get universal basic primary education for all girls in the north, but actually an adult literacy campaign as well. Castro did it in Cuba in the early sixties, Korea did it in the 1950s. You get literate students, and you send them out to the villages, and you get them to teach everybody to read and write.

Even the people who say I don't need to read and write, I've lived my whole life without being able to read and write. Everyone needs to get this. And that would be, I would argue the most important thing for Nigeria in the long term. Second issue is that in itself will then encourage that lower fertility rate and eventually improve Nigeria's savings, um, which will come, but uh, I'd be very tempted to say what's going on with infant mortality and child mortality and why is Nigeria's ratio so much worse than other countries of the same income level like Ghana or Cote d'ivoire. Let's bring in as much support - Medicine San Frontier, whoever it might be, private charity. I don't know. And it doesn't matter who. Anyone who can come in and try and address that, I think that that, again, is one of those very long-term policy choices. But should be a huge focus.

I mean, unfortunately, the state of security in Nigeria means that while I don't like to see a government have to spend money trying to just maintain security because that's not really investment, but unless there's security, you're not going to get that education. So, unfortunately, something has to be done about the security issue too. And I say unfortunately because it just means spending is being spent on that rather than the long-term growth drivers. And then the question comes of what can we do about the lack of savings now? Now, these are all great long-term policies, Charlie, this is fine, but you know, it's not going to sort me out in four years. What can I do now? And I would argue, try the cheap currency policy that will run a current account surplus and help bring dollars into this economy. Because Nigerian needs savings and if the currency's cheap enough, the current account surplus should happen and then there's some savings to be able to invest in some of the infrastructure that's needed to get the economy going.

And at a more micro level, I wonder whether that, for electricity, trying to get Lagos right. Let's try and see if we can get a city with good education and actually relatively low fertility rate compared to the rest of the country, potentially more savings within Lagos state. Is there a way of sorting out electricity here so that this place can show how it can be done? Because the success stories in China, it all began on the coast. It wasn't inland, it was the coast and for 20 years it was the coast that led growth in China. It was only when the coast had done incredibly well - Shenzhen and , all of these cities up and down the coast had done really well. It was only then that money started getting invested in a big way inland and rural, bringing up the rest of the country too. So, if Nigeria can create some positive success stories in [the] Southern states that act as a kind of symbol of what can be done that's, you know, I don't know if it can be done in four years, but on a four to eight year view and one to two terms in office, I think you could start to make a noticeable difference to the growth rates in some of the southern states and that can help be an example for everyone.

Tobi;

My last question for you is, uh, and of course this is a bit of a tradition on the show. What's the one idea - you're not allowed to take from your book, by the way...

What's the one idea? It may be current, it may be past, it may be global or specific, that really gets you excited, and you like to see it become more widely accepted and popular. What's that one idea? Just one idea?

Charlie;

Yeah, that's a difficult one. I mean the book that interested me in terms of the future, over the last two or three years, was Homo Deus and this is the guy who wrote Sapiens as well. But if you read the last third of Homo Deus and he's talking about robotics and genetics and AI and how much they're going to change everything, eventually, for all of us. Um, that, that interested me. I'm not sure that he came out with one specific idea about it, but I would recommend people to take a look at that last part three of Homo Deus and have a read cause it got my mind thinking, not working out the answers either, but it was just something about "this is going to be big. Um, and I don't know quite how it's going to be big." But, anyway, I recommend reading it. I don't know if that's quite the answer you were looking for, but that's totally caught, caught my attention anyway.

Tobi;

Okay, Charlie Robertson, it's been fantastic to have you on the show. Thank you very much.

Charlie;

It's been an absolute pleasure. Thank you for so many thoughtful questions. It's really, um, it's great to discuss it.

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Bangladesh has transformed tremendously in the last twenty-five years. Average incomes have more than quadrupled, and many of its human development indicators have improved alongside. It has also become an export powerhouse with its garment industry, and generally a shining example of development - though things are far from perfect. Five decades ago, when Bangladesh became an independent country, many were not hopeful about its chances of development. So how did Bangladesh turn its story around? Well, it turns out the history of its transformation is longer than credited - and the process is more complex than what is cleanly presented.

I could not think of a better person to help me unpack the Bangladeshi miracle than Dr. Akhtar Mahmood. He is an economist and was a lead private sector specialist for the World Bank Group - where he worked in various parts of the world for three decades on privatization, state enterprise reforms, investment climate, competitiveness, and more broadly private sector development. He has written some excellent books (see embedded links), and his column for the Dhaka Tribune is one of my wisest sources of economic development commentary.

Transcript

Tobi;

Welcome to the show Akhtar Mahmood. It's a pleasure talking to you. I am very fascinated and curious about Bangladesh, and you are my number one option for such a journey. It’s a pleasure, personally, for me to be having these conversations. I've been reading your column for about a year now with the Dhaka Tribune, and I've learned so much. They are very perceptive, and I'm going to be putting up links to some of my favourites in the show notes for this episode. Welcome once again, and thank you so much for doing this.

Akhtar;

Thank you very much for having me. Thanks, Tobi.

Tobi;

There's so much that I want to talk to you about, as you'd imagine, but let me start right at the end, which is now. There has been a lot of attention on Bangladesh, recently, at least in my own orbit, there have been two quite detailed and interesting columns in the Financial Times about Bangladesh. There is also Stefan Dercon’s book, which used Bangladesh as a positive case for what he was describing about the development process. But also, there's the issue of what's going on right now with the global economy. First, it started with COVID and how the economy suddenly stopped, and all the reverberation that comes with that - the supply chain, and now, a lot of countries are going through a sort of sovereign debt crisis and Bangladesh, again, is in the spotlight.

So, I just want you to give me an overview, and how this, sort of, blends with countries that put so much into development…you know, in terms of policy, in terms of the things they are doing right, in terms of investment and attracting investment, and the exposure to these sorts of global economic risks and volatility. [This is] because, usually, what you get in Western discourse is that a lot of countries are victims of some of these risks because of some of the wrong policy decisions they make. But in the case of Bangladesh, at least to my knowledge, nothing like that is going on. And yet, it is usually talked about as a very exposed country in that regard. I know you wrote a column recently about this. So I just want you to give me a brief [insight]—is there anything to worry about? How do countries that are trying to get rich, that are trying to do things right, how do they usually manage these sorts of global risks?

Akhtar;

Right? I think, inevitably, we'll have to go a bit into the history of how we came here. But since you started with the current situation, let me briefly comment on that, and then maybe I'll go to the history. Right now, yes, like most other countries, we are facing challenges, but I think there has been a bit of hype about how serious the challenge is, in terms of the risk of a debt default, the risk of foreign exchange reserves going down very sharply. And I think there is a bit of the Sri Lanka effect, and then also the Pakistan effect, as people are trying to put Bangladesh in the same bracket, which I think is very, very misplaced. I think the IMF has made it clear, [not only] in its latest country report, which came out in March 2022 but also in many recent statements, that Bangladesh has both a solvency situation and a liquidity situation. As you know [that] the solvency is typically measured by the external debt to GDP ratio, one of the ratios is external debt by GDP and the liquidity is measured by debt service requirements - the external debt service requirements by the export earnings ratio. And there are these certain thresholds, and if you go beyond that, it's considered a bit risky.

Bangladesh on both these accounts is much below the threshold. So there's already a lot of headroom in the sense that even if things get worse over the next few months and maybe a year or two, Bangladesh would still be able to manage the situation. So I just wanted to make that clear at the beginning. Now, that doesn't mean that there aren't other issues in Bangladesh, issues which have been brewing for quite some time. For example, many of us are concerned with the efficiency of public expenditures. We know of projects where there have been cost overruns. Some of it may be for genuine reasons, some of it may be related to corruption, which sadly still remains a serious problem in Bangladesh. I feel that I've written about it, and you may have read some of these articles about the spectre of rising cronyism, which, again, is not surprising; when an economy grows as fast as Bangladesh's has, there are certain people who become economically powerful. And at some stage they acquire political power as well, and then you start seeing the problem of cronyism. So we have that, we have a serious problem in the banking sector with a lot of non-performing loans. I'm not suggesting that we don't have serious problems, we do. But there is a disconnect between the typical headlines and where the real problems lie in Bangladesh.

Now, this may be a good moment to bring up a little bit of history, and I can go deeper into it. The Bangladesh economy has certain resilience. And I just want to comment on that. One which is not discussed much, because the story often is about garments and remittances, is the transformation that has happened in the rural areas. It started with agriculture, it actually started with rice production, which is the most important crop in Bangladesh. And then it expanded into other crops, and then even non-farm activities in the rural areas, we can go into the details of this later. But agriculture provides a certain resilience. And we saw that again during COVID. Because the agricultural activities in Bangladesh were not affected that much by COVID, and that was a big benefit.

The other is the unleashing of an entrepreneurial spirit in Bangladesh. And this spirit has been unleashed across the board, so it's not just some large conglomerates or some large government manufacturers who have become entrepreneurial. This is something which has happened across the board, from small farmers to large conglomerates. And that, I think, is a big asset for the country. Because we don't have natural resources; unlike Nigeria, we don't have natural resources. In some ways, it's actually a good thing. Because then we are forced to use other assets and latent entrepreneurship… you know, Albert Hirschman, the famous economist, wrote a book in 1956, which is a classic, on the strategy of economic development, and he made a very interesting comment. He said, in developing countries, you have a lot of latent resources. In developed countries, the task is how to allocate the resources you have; how to best allocate them. In developing countries, it is about bringing out the latent resources you have; and entrepreneurship is one of the latent resources developing countries have, but many countries have not been able to bring that out and make use of it. Bangladesh has, and that gives a certain resilience to the economy. So yes, the shocks are going to affect us, especially because our major industry, in fact, is export-oriented, which is garments. So that is affected by the shocks, but unlike commodity prices, export earnings don't fluctuate that much. And the industry has proven to be resilient over the years.

Tobi;

Yeah, I'm glad you touched on history because, really, that's where I wanted to start. But I just want to get the pulse of the moment and how to make sense of all the headlines that we're seeing around. So usually, and I’ll refer to the two pieces I've read in the FT [Financial Times] recently that I referenced in my first question. The development trajectory of Bangladesh is usually dated as something that started around 1990. But Bangladesh became an independent country two decades before that. So my question then is: that intervening period before that sort of consensus about the takeoff point, what were the things that were brewing in the background that culminated in that takeoff? I know a lot of things went down, and just to mention that one of the reasons I’m very interested in Bangladesh is that it sort of defies some of the seductive examples of development and progress - the Asian tigers, you know, so to speak - where things seem to be very clear, the prescriptions are very precise, you need to do this and do this.

Bangladesh seems like a regular country - like Nigeria, with its history, its complexities, its problems like every other country in the world, but that has also managed, despite a situation that has seemed hopeless, at first, to people who look at these things in terms of hard boundaries - that has emerged as this fantastic example of economic growth and development. So what were the major things that happened before 1990 that sort of made this takeoff possible?

Akhtar;

Now, one may debate on whether 1990 is the point of the takeoff. In any case, it's very difficult to pinpoint. But anyway, it's good. So 1990, twenty years after independence and also a transition to democratic rule after fifteen years or so of military or quasi military rule. So that's another reason people take that as a counterpoint. But it's a good counterpoint to start discussing these things. Professor Stefan Dercon, whom I think you had on your show recently, who wrote this book Gambling on Development; he has been saying that actually, in some ways, it's a Bangladesh experience which may be more relevant for many developing countries than the East Asian [experience]. And one of the reasons he mentions is, I think, what you just alluded to - that there is a certain messiness, and yet Bangladesh developed. So countries which think that they are also in a somewhat messy situation, or whatever dimensions, say in governance or other dimensions - whether it's possible for them to develop. And that's why the Bangladesh example may be more relevant and encouraging than the East Asian, where one common characteristic has been the strong capabilities of the state. In China, it has been there for hundreds or more, thousands of years. In East Asia, yes, I'm sure they also have that but they certainly acquired that quite fast. So how do you develop in a country context where the state capacity, the governance quality are not that great, and then you have many other problems as well. So you're right. In that sense, Bangladesh may be very relevant.

I think I'd like to first start with, um, even deeper history, because if you look at the region which now constitutes Bangladesh, it used to be part of a province in British India. So it was East Bengal, and then you had West Bengal and then together it was Bengal. Now there was a time in history when Bengal including East Bengal was supposed to be reasonably rich, perhaps the richest province in [the] whole of India before the British came. But if we go back to the beginning of the twentieth century, East Bengal was actually quite backward economically and in many other ways. And if you look at the political discourse in the first half of the twentieth century, before the British left, the political and intellectual discourse in what is now Bangladesh, you’ll see there's a lot of talk about peasants being exploited. We were a very peasant dominated economy and society. In many ways we still are, although there has been a lot of urbanisation and industrial activity. At that time it was very much peasant dominated, and the theme which dominated the discourse was exploitation of the peasants. And the aspiration that the leaders whether political or intellectual had is how can we improve the conditions of the poor people. And that sort of got ingrained in the minds of the leaders, and that continued during the time when we were a part of Pakistan. Because you may have heard that there was a lot of disparity and there was a lot of discriminatory treatment by the Pakistani establishment.

So that theme was there. When we became independent in ‘71, you could think of the political leadership, you could think of the professional leadership, the bureaucracy, the intellectuals, the media, this theme of doing something for the poor, was actually very strong. So right at the beginning, and, I heard somewhere that our first prime minister, Sheikh Mujibur Rahman, was asked by a foreign journalist: what is the number one problem of your country? And he said, I actually have two number one problems. One is food security, and one is population. And we need to take care of that. So right from the beginning, even in the midst of all the turmoil in the first few years, and all the challenges of relief and rehabilitation, work had started on ensuring agricultural growth and food security. And we were fortunate that the HYV rice, the high yielding variety of rice, had been introduced just before independence, so we had something to work with. So that was very important. And there was a strong program to bring down the rate of growth of [the] population and we succeeded on both counts. So by the time we come to 1990, agriculture is taking off. Rice production had taken off significantly, farmers were diversifying into other crops. And we had started to see the beginnings of a rural non farm sector. So agriculture and non agriculture together. And, Bangladeshis had been going out as migrants, and they're sending back remittances, most of it going into the rural areas. So there was a vibrancy in the rural area by the time you come to 1990.

Secondly, sometime in the late 70s, the government decided that not only should we move away from the early talk about socialism, [but] towards a more private sector-oriented or market-oriented economy. They also understood that industry has to grow to absorb the surplus labour in agriculture, and export orientation has to grow, because the market in Bangladesh is simply not large enough. So there was an early emphasis on exports. And of course, fortuitously, you know, the South Koreans were running out of their garment quota, so they wanted to relocate some of the production to Bangladesh, but we were ready to take advantage because by then the government and let's say the elite of the class had decided that we need to industrialise and the major driver of industrialization is going to be exports. And then throughout the 80s, we saw the takeoff of the garment industry. The third thing which happened was the liberalisation of policies, mostly in the 80s. So, privatisation was done, the banking sector was open to the private sector. The agricultural input market, which was previously dominated by the government, was gradually liberalised and towards the late 80s, there was a significant liberalisation of that. And finally, as remittances started coming in, our foreign exchange constraint was relaxed. So that also gave government some comfort that we can decontrol certain things. And we can allow industry to move ahead without too many controls. So all these things coming together sort of created the context in which we entered the 1990s. So a lot of the preconditions - the population growth rate had fallen significantly by the time it came to the 1990s, agricultural growth had taken off, industry was taking off, especially the labour intensive garments, which is export-oriented, that industry was taking off.

Tobi;

That was such a loaded answer, which has preempted some of my further questions. But let me quickly make one digression on agriculture, because over the past seven years or so, in Nigeria, there's been this debate. There's been a huge debate about agriculture, the current administration sort of prioritised agriculture and a lot of resources (capital) was allocated to that sector. And there's been challenges and there's been critics, sometimes I've found myself on the critic’s side of things. Now, what I want to know from you is that,the link between agriculture, especially investment and the agricultural productivity that is necessary for the vibrance of that particular sector, how was the Bangladeshi experience? How did Bangladesh achieve food security, especially in terms of improving yield and productivity?

Akhtar;

Right, so a few things. Firstly, as I said, the high yielding variety of rice had been introduced in the late 60s, and then just after independence, government continued, but more vigorously with a model of… it was more [of a] public sector driven model, where the public sector would import the major inputs. One is irrigation equipment, because this rice needed irrigation, and the other was fertiliser. So, they're imported by the public sector, then they're distributed by the public sector going all the way to the farmers. Maybe at the last mile, there were some private traders who act as dealers on behalf of the government. So, the government took that responsibility. Later on, as I said, in the 80s, they started liberalising it. We'll come to that later. Second is, there's been quite a bit of investment in agricultural research. Now the HYV rice came from abroad, but as it was being applied in Bangladeshi farms, in many cases, we realised that there was some adaptation needed, because the conditions were not always well suited for this variety. The crop conditions varied even within Bangladesh, even though it's a small country, lots of variation. Later on, for example, salinity became a problem, because a lot of water was coming from the Bay of Bengal into Bangladesh. So there are all kinds of problems - there's flooding also. There were many areas where after floods, the waters don't recede that fast, so they remain underwater for a long time.

So the agricultural scientists in Bangladesh, and they were all in the public sector, they came up with innovations to come up with rice varieties and later other varieties like maize varieties or vegetables, which are better suited to the conditions in Bangladesh. And then the public sector effort was also complemented, supplemented by NGO efforts. You may have heard about BRAC [Bangladesh Rural Advancement Committee], which is the largest NGO in the world, and we often talk about their activities in the health sector, in education, in microfinance. They were actually doing a lot of work in the economic sphere as well. R&D in agriculture was one of the things that we're doing, in collaboration with the government often, so there was R&D. Another thing happened, which I forgot to mention, when I mentioned sort of the run up to the 90s. In the 80s, the government started a massive program to build rural roads, connecting the rural areas to the small towns and the small towns to the bigger towns. So,a huge rural road network was built starting from the late 80s. And it continued into the 90s, which broadened the markets of the farmers. So in all of this, the core player was the small farmer. As I said, Bangladesh is a peasant, small farmer dominated economy, so it is remarkable that these farmers were willing to innovate, they were willing to move away from what their parents and grandparents had done for many, many years, and adopt these new varieties. So the combination of the government with some NGOs and the farmers, I think that created the basis for productivity improvements in agriculture. And that was sustained because the market was sustained. There were lots of public policies. And at some point, when the government thought the public sector delivery model was not working that well, they allowed the private sector to come in.

Tobi;

I don't want to infer anything, but from your answer, I can tell what Nigeria is doing wrong, but maybe we'll get to that later. So let's talk about the conditions, which you've also sort of answered for me but I want to know if there is more. Dercon in his book, I'm talking about Professor Stefan Dercon, talked about elite consensus that sort of becomes the bedrock of deciding to pursue economic development. So this broad consensus amongst the Bangladeshi political elites to improve the conditions of the poor, and, which, I'm speculating sort of enabled an ecosystem of policy consistency, even if there are deviations at the margins, how did it emerge? And how was it sustained?

Akhtar;

Okay, as I had mentioned to Professor Dercon ‘cause I also had a conversation with him for our Bangladeshi group. And I said that – and, he agreed that, it's really difficult to define if there was an elite consensus because it's not that the elite are sitting in a room discussing and bargaining and one day they come out and say, okay, here is an agreement, we have agreed on these three things, it doesn't happen. And there is a bit of tautology in his book as well. And he agreed with that, that in his country chapters, he says, these countries had an elite bargain. And then he says, Okay, this is how the countries grew. And if they have grown, therefore, they must have had a bargain. So there's a bit of tautology there. But coming back to this, I think, I started giving you a flavour of that when I brought in history, even before the British left and how in East Bengal, there was this deeply ingrained feeling that something has to be done for the poor people. And then just after independence in ‘74, we had a big famine. And that sort of strengthened this feeling amongst Bangladeshis. And you know, you mentioned the word elite and it's a bit difficult to define the elite. I would say that it's a broader… I'm talking about people who can influence policy, both the formulation and the quality of implementation.

There are a lot of people in the bureaucracy who may not, in that sense, be called part of the elite, but they do have some authority. Now, most of these people, they actually are not too far away from the poor people of Bangladesh. Many of them still have very strong connections with their villages. They go back regularly. They know what the conditions are there. And in a densely populated country like Bangladesh, you see poverty all around you. So all these things, I think, have ingrained in the minds of the elite, however you define it, this commitment to doing something to safeguard the interests of the poor, but that is the security side - food security, [to] address the vulnerability. But somewhere down the line, people started recognizing that Bangladeshis also have an entrepreneurial potential. And there was a feeling that we should try and help unleash that potential. So, as I said, it's difficult to pinpoint a particular period where there has been a consensus but in a subtle way, there has been this consensus that to achieve food security, to help take advantage of the latent entrepreneurship of Bangladeshis, we should be focusing a lot on growth and more generally on development. And that has survived the transitions in administrations, from one government to another, that common element has been there.

Tobi;

It's not exactly a push back, and I should note that there is a lot more; there's vastly a lot more to Bangladesh than Dercon’s book. So, and I don't want to be caught in debating his book. But, why I find that particular line of thought relevant is that, from what you have described, it's amazing to me, so maybe you can help me understand the difference. Now, how a country can set out to do some of these things; invest in agriculture, agricultural R&D, and all these other support programs with big macro effects. Whereas a Nigeria can set out to do those same things and then you find divergent outcomes in their implementation, particularly the inability to execute. You know? There's always a plan. We want to improve the lot of the poor. We want to invest in agriculture. We want to improve productivity. We want to build infrastructure, you know, this, that, they are always so nice and interesting. But the difference is always at the end of the day, countries often don't do these things, right, they never stay true to these things. And of course, we can talk about various reasons why it fell astray - corruption, state capacity, and all that. But what I… which you mentioned in your last sentence [is] how policies survive, even though there are political transitions, election cycles come and go, the particular direction that policy goes, survives this transition, I think that's really what I'm trying to get at.

Akhtar;

Okay, so I don't know that much about Nigeria. Now, people say that the fact that you have natural resources may have been in some ways a curse, I don't know if it's true or not, but certainly, that sometimes gives governments a sense of complacency and therefore, even if they start on a certain course, they may not have the discipline to stay that course. Now Bangladesh, we never had the advantage of having natural resources. Nowadays, certain things have improved, you know, foreign exchange reserves have been at comfortable levels for several years. So, that may induce a certain degree of complacency, but for a long time, the government knew that we were operating with very narrow degrees of freedom. So that was the context in which Bangladesh had to operate. Which also meant that we were somewhat dependent on donors and that certainly imposed an additional set of disciplines on Bangladesh. But later on, I may come and comment on exactly the kind of relationships I think existed between donors and Bangladesh. But maybe the best way to answer your question would be to say a little bit about the way in which policies have evolved in Bangladesh. And in a sense, it's a bit of a “muddling through” process. And I wrote a blog for the Brookings Institute a year ago, where I said that Bangladesh did it, alluding to that famous song of Frank Sinatra - “I did it my way.” So what was that “my way?”

We all know that the Bangladeshi Government has never been tremendously competent, there's always been corruption problems as well. So the way it has happened is the following. Things happened in the economy, let's say agricultural productivity is improving. But then it hits certain constraints, and the economic actors, or people acting on behalf of the actors; like academics, donors, journalists, will bring up those issues. And they will probably say that, “here are ten things which need to be done.” Now what the governments in Bangladesh have done, successive governments, [is] they have responded to that, not by doing all the ten things. No. They may have picked up two or three things. And they may have done a little bit. Why a little bit? Because they were risk averse. They wanted to test out what would happen in the market, how the market players respond. [As the government], if I do just three or four things and not everything, and then see the response…and here comes the entrepreneurial side - the response was usually quite good, and when the response was good, the government felt encouraged. And then the government said “okay, let's do a few more of the things that were demanded.” The other thing which happened was, as the response came, newer constraints were revealed, or constraints which were not binding before became binding.

For example, initially when the agricultural growth was not that great, when production wasn't that huge, the fact that we did not have a good rural road network connecting the rural areas to broader markets wasn't that big a constraint, because you're not producing enough to go out in a big market. When you started producing a lot of marketable surplus, you needed a broader market. And that's when you started feeling the constraint. And people started talking about the need to build up the rural road network. And to the credit of the government, they responded. So, this is what I call the sort of back and forth, policy dynamics - things happen in the economy, government notices it or it is brought to their notice, they react not in a grand way, just doing a little bit here and there;nd then the market responds, may be much more than in many other countries, because of the entrepreneurial spirit, and then the government responds. And that process has gone on uninterrupted throughout the last fifty years. And so, once you accumulate, even if these are modest steps, once you accumulate all of that, you'll see a tremendous result. And that's what we're seeing here. So, what it means is countries – the governments don't have to be very competent, they just have to pick the signals. So, you know, you have this phrase called “picking the winners” and a lot of people say, no, governments should not be in the business of picking winners. I say, in Bangladesh, that what the government just does is pick signals. They’ve picked signals from the private sector, from the farmers, and they have acted accordingly. And I think the accumulation of all these, the synergies created by all these is, I think, what has made the difference.

Tobi;

That's interesting. So, generally, the usual story with development is structural transformation. That is, for you to grow rich, the economy has to transform from a largely agrarian, low productivity economy to preferably an industrial high productivity economy. And, I mean, to an extent, we've seen the same process also in Bangladesh. Manufacturing, particularly the garment industry, is eighty or so percent of exports and employment is largely created also in that industry. Now, what I want to ask you is, the role of foreign direct investments in that cannot be understated. You talked about South Korea earlier, and how it played a role in that. For South Korea, so many other scholars would cite the role of Japan in kickstarting the South Korean garment industry; garment and textile industry itself. So, my question then is, is there a link here? I mean, also in your columns, I've read about the role of Samsung, and the electronics industry in Vietnam. Right. So the role of FDI in development, and especially getting industrialization started, what are the favourable conditions? To what degree is it external and internal? I guess that would be my question.

Akhtar;

Okay. Well, you use the term kickstarting, because in Bangladesh, in the garment industry, a foreign investor helped kickstart that industry, but didn't do much beyond that. So, Bangladesh’s Government has been largely domestic…[it is] a case of domestic entrepreneurship leading the sector to the heights that it has achieved now. Yes, we have some Export Processing Zones where we have a number of foreign invested garment factories, but the bulk of it is domestic entrepreneurship. But you're right. The initial thrust came from this partnership with Daewoothe IU. It was a five year partnership. Daewoo trained Bangladeshis, (they) took them to their plants in Korea, trained them. They obviously had the market connections and market knowledge, all that was very useful. But what many people don't know is that the Bangladeshi partner actually quit that agreement just one year into that five year period. So after one year, he thought that he had learned everything that needed to be learned. Now, if he hadn't done that, I believe Daewoo had other plans of coming into other sectors, which we may have lost. But then we did end up with this vibrant mostly domestic-owned garment industry. But foreign investment had a role in jumpstarting that. If you go a little beyond industry, think about sectors which facilitate industry. The entire mobile phone development in Bangladesh, which is also remarkable, was foreign investment led. So, foreign investment played a major role there.

So, I agree that foreign investment can play an important role in kickstarting industries, and that is something very important now that we want to diversify our exports, make them more sophisticated, we can come to that subject later. Now, you asked me about what are the conditions which are conducive for foreign investment. And this is where I would say that in Bangladesh, the conditions are still not that conducive. In the case of garments in the late 70s, it was the exhaustion of the South Korean quota of garments, which was the major inducement for them to come in. But also, as I said, the new government, which came into power in ‘75 was talking a lot about export promotion. So, that was there. But the most important constraint that Bangladesh faces, and it's true of many other countries, is policy and regulatory uncertainty. So, Bangladesh often says that we have got a policy regime which is very friendly to foreign investors. And that may well be true. But the execution has problems. And there are a lot of case by case decisions which are taken, which affect the foreign investors adversely. And that creates uncertainty. And those stories are told to other prospective investors. And when they hear those stories, they get discouraged. And the World Bank where I used to work, in fact, the last unit that I worked on, they did a survey of CEOs of multinational corporations just a few years ago, asking them about what are the factors which are very important for you when you decide to invest or not invest in a country, and policy and regulatory uncertainty was top of the list. So that is where Bangladesh still has got a lot of work to do. It is attractive in many other ways - very large domestic market, relatively cheap labour, the labour is quite fast at learning, a lot of good things there. But I think the policy environment, particularly the implementation, the certainty, that has to be ensured.

Tobi;

I have a further question, particularly on that point, and referencing another one of your columns, I think I'll just stick to your columns today for all my questions. For example, in Nigeria, I'll give you an example. In Nigeria, recently, foreign airlines are threatening to quit. Over the past three, four years, foreign investment (FDI) has plummeted. It's barely a billion dollars, currently, one of the lowest even in Africa. And of course, a lot of these things you mentioned are the problems that investors and business people talk about - policy uncertainty, especially around the control of the exchange rates and inability of companies to repatriate their capital, and to fund their operating expenses, and so forth.

So, I mean, that's one constraint. But one distinction you made is like the types of FDI. There are different categories of FDI; market-seeking FDI, natural resource-seeking, efficiency-seeking [FDI]. And the reason I'm asking this is that there seems to be one problem, which, to my mind, Bangladesh has solved, it's not perfect, that Nigeria is struggling with, which is this inertia to get things started, you know, once you start on a journey, you can muddle through, but the inertia to get that process going is still something that Nigeria struggles with, in my opinion. So, now talking about FDI, if I were a policymaker today talking to you; advise me, what kind of FDI should I prioritise in trying to lure investors into my country, for them to create jobs and [create] a nest of high productivity manufacturing industry? So is it market seeking? Is it natural resources seeking? Is it efficiency seeking? Which one is the best in terms of the necessary incentives for sustainability?

Akhtar;

Okay, so one of the articles, not as part of the regular column, I think, but I wrote for the same newspaper a few years ago, was titled “investment for what?” So that's a question the governments have to ask. Because everyone talks about attracting FDI. It's a mantra all over the developing world. But governments need to ask why exactly do we want FDI? How is it aligned with our development aspirations and development programs? I wanted to just emphasise that because often governments just go blindly trying to attract foreign investors. And whoever comes in, we welcome that. That's not necessarily a good strategy always. For example, in Bangladesh, if we now have a lot of foreign investors coming in, to make jeans and T-shirts, using the same technology as before, we don't really need that, we can't afford to give our scarce land and utility and other things to do things which our domestic entrepreneurs have become reasonably good at doing. So it has to be something new that comes in. Now, at the same time, we also have to recognize that the foreign investors also have their own interest and their own calculations. So we have to come to a balance between the two as well. Now, it's difficult to say a priori that we prefer market-seeking or efficiency-seeking. On a natural resource, it's a slightly different issue if you have natural resources, and if you don't have the capacity to develop them yourself, you may need foreign investors. And obviously, we all know why foreign investors are often very attracted to that. But let me confine my answer to the choice between market-seeking and efficiency-seeking.

Now, let's take the case of Bangladesh. We are now talking about diversifying our exports. And we are talking about going into more sophisticated products like electronics. If that is our objective, we may want to target some people who come and make electronics. Now they may come for two reasons. Bangladesh has a huge market, our per capita income may not be that high, but our total economy size is actually pretty large. We are amongst the top 40 economies in the world. And if you look at the size in the purchasing power parity terms, we're actually in the top 30. That's a very large economy. So, naturally foreign investors would come in looking at the market as well. But if our objective in this sector is to make a breakthrough in the global value chains, and not just serve the domestic market, then we'd like to have foreign investors come in with an efficiency-seeking objective that, in Bangladesh, we can make these things more efficiently, at lower cost, than in other places. So that Bangladesh then can ride on the backs of the foreign investors, who know the markets, who have the brand recognition and show the world that things can be made efficiently in Bangladesh. And, then once we have shown that with the help of foreign investors, maybe Bangladeshi entrepreneurs can also start doing it. So here you see I give you an example, where you have a strategic objective, and you attract foreign investors of a particular type.

Now, there are also many needs in the domestic market. Bangladesh needs to develop a very good logistics system. And we may need foreign investors to come in and invest there, but will be more market-seeking. I mentioned the case of mobile telephones, that was not an export-oriented industry, although it may have facilitated exports, that was domestic market-oriented. And we encouraged foreign investors to come in, who were obviously coming in as market-seeking investors. So the answer would vary depending on the sector or the activity. But that brings me back to my first point, the government should have a clearer idea of what is the role of foreign investment in implementing the various dimensions of your development strategy. And accordingly, you're going to target efficiency-seeking investors in some cases, and market-oriented investors in other cases.

Tobi;

So, now, from a policy perspective, because really, that's what's sort of dominating this conversation. One thing that keeps coming up is the role of government, the strategy it pursues, you know, this, that. But inevitably, that leads to the question of what… in terms of economic development, what role does the government play by itself? Now, China, and, of course, other East Asian economies are very, very popular in the development discourse and these are largely autocratic governance. Right. And, to an extent the gospel of state-led development has travelled far and wide, sometimes in contrast to what is generally called the neoliberal or the Washington Consensus-type policies. But at the same time, at the nexus of all this is the role of markets, how the economy is regulated, liberalisation. How does a government approach regulation and policymaking generally, with the right incentives for the government to take the lead in areas where, maybe because of access to market or not seeing the prospect of returns, private actors are reluctant? And also at the other end, this sort of control, excessive control, that you see in so many developing countries, like Nigeria, and so many others in Africa, where government sees itself as the primary player in the economy, right? What is the balance? What is the heuristic generally, in trying to, [or] should I say, make policy and regulations to encourage economic development, and, of course, your Bangladeshi experience of that?

Akhtar;

Okay. So, when you say state-led, there are many ways you can define that. One is the direct participation of the state in productive activities. And in China, that is still pronounced, there are different models of state-owned enterprises, including public private partnerships, but the state plays a dominant, or at least an important direct role in the production of activities. That's one thing. The other is playing a direct role, not in production, but in things that facilitate production. So I had mentioned the case of research and development in the agricultural sector of Bangladesh, which was there right from the beginning. It was largely a private sector activity, but that was meant to facilitate productive activities by the private sector, in this case, thousands and thousands of farmers. So, the whole spectrum of things that the government does and, of course, there is the whole regulatory function of the government. And I think in choosing the balance, and the balance itself may shift over time as the economy develops. And I give an example of that, again, from the agricultural sector of Bangladesh, how the government moved away from the direct import and distribution of agricultural inputs, giving more and more space to the private sector over time. So initially, in the 70s, maybe that was the right thing to do. And then later on, the right thing to do was to withdraw and create space for the private sector. So the balance, (a) has to be thought of carefully, in terms of the capacity of the government, that's very important. And, again, if I [could] mention Stefan Dercon, he talks about the self awareness of [the] government. Are governments aware of what they can do and what they cannot do? And that answer would vary by country. Often governments make the mistake of thinking that they can do a lot of things, and therefore they; (a) go into productive activities themselves directly, and (b) also controlling too much the activities of the private sector. Controlling is not that easy. It requires a lot of skills, and many governments actually don't have the skills of doing that.

The thing that may have happened in Bangladesh is the government has been more or less self aware, not always, but more or less self aware of what they can do and what they cannot do. And that has led to a certain division of labour between the government and the private sector, and the NGOs. With that division of labour also changing over time. That's very important. So the government needs to be aware of where its capacities are, and they need to also have some faith that the private sector, if given the opportunity, can come and do certain things. Because governments often say, okay, but if we don't intervene, the private sector is not going to come in. Or we have a big factory, if we close it down, then a lot of people will lose their jobs, and the private sector will not be forthcoming to create jobs for them. If you want, I can give you a good example of that kind of thinking. In Bangladesh, we had the world's largest jute mill called the Adamjee Jute Mill, and it was bleeding like hell, and every year the government had to subsidise. So there was lots of debate on whether the factory should be (a) privatised, and there was no taker, then the question is whether it should be closed down. Then, about 20 years ago, exactly 20 years ago, a very bold decision was taken to actually close down the factory. It was a controversial decision. About 26,000 workers lost their jobs. Some of them were ghost workers, maybe 20,000. Now the story of what happened after that is very interesting. That land was converted into an export processing zone. And now the latest figures are that about 65 to 70,000 jobs have been created there. So you had lost about 20 [thousand jobs] and you have created so many. These are all private sector firms, they're all export oriented firms, the government doesn't need to subsidise them. So you can see once given the opportunity what the private sector can come and do. So you don't have to hold on to a loss making enterprise just because you're worried about job losses.

Tobi;

Let me sort of ask you a big picture question on this particular point, which is the role of democracy in development, generally. Democracies have been taking a beating recently, so maybe you can speak up for it, somewhat. Do you think democracy has some kind of unique weakness in terms of trying to engineer economic development, particularly because of elections? I mean, to cite the example of the jute mill you mentioned, some regime that is sensitive, maybe in an election year, or maybe that wants to appeal to a particular constituency, or, maybe workers Union or something might actually kick the can down the road. An example is (fuel) petrol subsidy in Nigeria, which the bill keeps increasing, but I mean, each government promises to remove it or reduce it, and then kicks it to the next government because nobody wants to annoy the workers union, nobody wants to lose votes, the party wants to remain in power, you know, and these incentives that are common in democracies. So, do you think this makes democracies weak in a way, in trying to develop the national economy? Because a lot of people will say that's why China has developed much faster than India, for example. What's your take?

Akhtar;

Okay, let me start by giving you an anecdote. So this is from about I think it was 2008 or so, 2007 maybe. Bangladesh then had a quasi military government, it was called a caretaker government, whose major responsibility was to conduct free and fair elections. So they were in power for about two years. And I was actually working in Bangladesh at that time. And we had, I think we had a natural disaster, or maybe we had floods. So conditions were pretty bad. And one of the… well, they were called advisors, but they were de facto ministers, who was having to deal with this problem of getting food to poor people, dealing with rising prices [and] all that; he said to me, “I can feel a certain handicap being part of this kind of government.” What is the handicap? Right now what I need a lot is information from the grassroots, I need to know what is happening in different parts of the country, and I need that information very fast. I need it right now, about what's happening earlier today, or what has happened yesterday. Fortunately, I have some connections in the NGO world, this gentleman was an academic. I'm getting some information. But if this was a political campaign, I would rely on my political network, my workers, my small town leaders, and within a few hours, I'll be getting information from all over the country on what the conditions are. Now, why do I mention this anecdote? Because in a democratic system, your feedback mechanisms may work very well. Yes, there can also be a lot of noise. But otherwise, the feedback which is very, very important for government, they need to know what's going on throughout the country with different groups of people, with different localities etc. That is something that autocratic governments lack. Yes, information flows, flows from lower level bureaucrats, but I'm sure they are modified on their way. Because, the boss often doesn't want to hear certain things. It may happen in political democratic setups, but generally, the flow of information is much better for politicians. Now, how they act upon that information is another issue, but that's very important. Secondly, politicians operating within a democratic setup, (a) they develop a lot of empathy, because of their interactions with people, [b] they also get a good idea of what the trade-offs can be. And these are very, very important in decision making. So those are the good sides of democracy. Now, yes, in democracy, you also need to cater to your political constituencies, and that may lead to certain decisions, which technocrats may feel are sub optimal. But that is the price you pay for democracy. Compared to the gains for having a democratic system, that is sometimes a small price to pay, although sometimes that can get out of hand. But if it gets out of hand, it’s usually where you may in name have a democracy system, but in practice, you don't. So the kinds of disciplines that democracy imposes on the government are lacking there. So that is my answer. Now, as you can see, implicit in my answer was some definition of democracy. It's not just about electoral politics. It's not just about having regular elections and free and fair elections. It is the monitoring mechanism. Are governments picking the signals, are they getting the information? How wide is the information that they're getting? That's a very important characteristic of development.

Tobi;

So another one of my sort of big picture questions to you, and in this case, using the Bangladeshi experience and example, is, in the last couple of years, there has been this big debate in development over, oh, do you prioritise the big things or the small things you can measure? You were with the World Bank, I'm sure you have some familiarity with the so-called empirical revolution and how it has sort of taken over the field of development economics where, yeah, there is a lot more preference in terms of international aid funding for interventions, things that you can measure. So, the RCTs, or, whether it is conditional cash transfers, and all these things – and the atmosphere with which this debate happens sometimes, personally, I find it frustrating because it makes it seem like a zero-sum kind of thing. Like, you can either have one or the other. You either pursue growth, or you forego that and choose to do all these small scale, local and domestic interventions. But Bangladesh, like you mentioned, the issue of BRAC and also people like Naomi and co. have written about – Naomi Hussein [that] Bangladesh managed both. There was a sort of productive combination of both frameworks, that is, the role of non governmental organisations who were able to provide some support for the rural communities. And of course, there was the big macro policies that were explicitly designed to pursue economic growth, get businesses going, create jobs, you know, and all the other things that happen in the private sector.

So, my question would be, how did that sort of synergy happen in Bangladesh? How was that cooperation, so to speak… I mean, you talked about the role of BRAC in R&D and agriculture, you know, how did that happen? How did, perhaps, it wasn't intended, but in practice, how does it work?

Akhtar;

Okay. Let me start by recounting something I heard Abhijit Banerjee, the Nobel laureate, who got a Nobel prize for his work on RCTs, said something about the rationale for going into RCTs. And he's saying that the kinds of interventions that we talk about in the context of RCTs, they're not the only interventions that bring about development. In fact, the most profound development impact may come from other kinds of interventions and policies, and other factors. But his point was that, let's say, as a development practitioner, we are not able to influence these big things. So I'm going to focus on the things that we can influence. So I'm doing a project here, a project there, and we can change the parameters of the project in certain ways that we achieve the most significant impact. And how do we change the parameters or what parameters we choose or how do we design the project? That's where randomised control trials can give us very useful insights. And we can get more bang for the buck from the development expenditures in those kinds of projects. Now, he never said that that's all about development. There are many other things that need to be done. And governments, in their collective wisdom, may have a better idea of what those things can be. And that's different from a particular project team trying to do a project. They won't have all that knowledge, which can lead them to think about much bigger things, but governments can; not perfectly, but governments can. Or large organisations like BRAC can within certain spheres of operation. So, yes, I agree with you that this is a false dichotomy, that you either completely forget about RCTs or you get completely immersed into RCTs. So, one has to find the right places where the randomised control trials, which are after all an instrument, one of the tools in your toolbox… which is the best time and place to deploy it.

I would say in Bangladesh, yes, the scope for applying them is more than the actual application so far, which means that we have a scope to improve the efficiency and effectiveness of public spending by using these techniques judiciously in certain areas. Now, coming back to, I think you mentioned the question of BRAC in the context of R&D, but also BRAC has played an important role in market development through their social enterprise world. So, as I said before that the part of BRAC’s work which is not discussed much is the work on the economic sphere. So what happened there? I’ll just give one or two examples. I think giving concrete examples is the best way to illustrate this. So, they got into, let's say, they got into dairy [farming]. Actually, the way BRAC started most of these activities was from a livelihood concern. They wanted to create livelihood opportunities for the poor people in the rural areas of Bangladesh. So they said, okay, we have dairy farmers whose incomes are limited, we want to do something to help enhance their inputs [output]. So they came up with certain small interventions, which helped improve the productivity of their dairy farming, and they ended up with more production, then they had a problem. Now, milk is not something that you can preserve for a long time, you need to have some cold storage facilities, some refrigeration facilities, and that was lacking. So a lot of these increased output was actually being wasted. That led BRAC to start thinking about what else it needs to do. So then it went into refrigeration plants. So, they set up refrigeration plants, where the dairy farmers would come from adjoining villages and store their milk. And that led to other things also down the road. So there are many examples of BRAC where they went into a certain activity, they went into poultry, for example, and then discovered that there isn't a good supply of day old chicks, which is an important ingredient in poultry. So they went into that. And the interesting thing is, in many cases, BRAC was the first one to go into that, later the private sector came in and came in in a big way. And when they did, BRAC withdrew. Because BRAC thought, okay, we have played the role of a pioneer, we have catalysed the entry of private enterprises, we can now withdraw and attend to certain other things.

So what's going on here? What's going on here is, you have value chains, which are underdeveloped - there are gaps in the value chain. And one aspect of development is to make the value chains more complete. And here you have an actor, BRAC, which has entered the market… [enters] one part of the market, trying to do something, discovering that there is not much it can do unless it intervenes in other parts of the value chain. Well, it can do something but the impact will not be that great, so then it intervenes. But at one point, it realises that other players who are better at scaling this up have entered the field so let me withdraw. So judicious entry, and judicious withdrawal. And that is also true of the government. It's also true of BRAC. I think that's the kind of dynamics of development which is very important. And somewhere there, yes, you may have some trials, which may be randomised control trials, it may be just informally observing from your own experience of what is working, what is not working, but this idea of learning by doing, learning by doing, the government has done it in Bangladesh, BRAC and other BRAC-type institutions have done it. The private sector is also doing it.

Tobi;

The last of my big-picture questions to you is– Another dichotomy that I have observed is the business cycle concerns of an economy and policy and these sorts of other long-run development growth policies. For example, in Nigeria, it's a common refrain that we had growth in some years, but we never really had development. Income didn't grow as fast as GDP, and growth has been cyclical, it's not sustained. And some of the issues that really plague governments and policymakers is that even in trying to make policies that are tolerant and favourable to long-run growth, there are short term issues that you have to deal with [like] foreign exchange policy, inflation, and sometimes I've heard people say that, Oh, as a developing country, you have a lot more tolerance for inflation than developed economies. I think you’ll have to tell me whether that's true or not. Because inflation does not happen in a vacuum, it affects the purchasing power of people, poor people even more so. Right. So how do policymakers in growing countries manage these tensions in terms of – and, I'm working my way through your book with Gustav Ranis on this – how policymakers mine through these everyday concerns of the economy, versus the long-term prospects and the projects you are trying to put forth as a government?

Akhtar;

Okay. Well, since you alluded to that book, I will first briefly mention the main theme of the book, and then come to this specific [question]. The main theme of the book, which we illustrated through a comparative study of East Asian countries and Latin American countries, [was that] we talked about the East Asian pattern of government behaviour and the Latin American pattern of government behaviour. And the period covered was from the mid 60s to the mid 80s so things may have changed after that. And in any case, it's difficult to talk about (a) East Asian pattern, and (b) Latin American pattern. But what we were talking about is that during the course of a business cycle, or terms of trade cycle, as your terms of trade improve, your foreign exchange reserves go on increasing, obviously, growth accelerates. The question is what does a government do when things are good? Do they let growth accelerate according to some normal – “normal trajectory”, or they get excited, and they try to push growth beyond the “normal trajectory”-- making it higher than what the good times normally would make it? So, in the “Latin American” scenario, when things were good, growth was happening, government wanted to have more of it. So they went for expansionary fiscal policies, expansionary monetary policies to push growth beyond what the natural trajectory is. And then inevitably, because we are talking of cycles, inevitably a time came, where things started going down. And conditions were not as conducive as before. At that time, what the East Asian countries did– but first– they never tried to artificially push growth above the natural level. When the downturn came, they allowed the growth to fall. So they went for contractionary policies, they allowed the growth to fall. But in the Latin American scenario, having pushed growth beyond the natural path, it's almost like being intoxicated, you could not get rid of that habit. So, you try to artificially maintain growth even though the signs were all pointing downwards. And then the time came when things just crashed. And you fell into a deep crisis. Whereas the East Asians, they had their ups and downs, but they didn't have a serious crisis at that time. They had later, but not at that time. So that was the main thing about how you conduct your policies during the upturn, and then also during the downturn.

Now, coming back to the specific situation like the one we observe now, when there are many economic challenges facing countries, and what can governments do to ensure that the course on which they had been before the crisis started, or the challenges started, and hopefully it was a course of development, how can they stay on that course as best as they can? First is, governments should look for existing inefficiencies. For example, in your public expenditures, there may be a lot of inefficiencies, and if you can identify those and get rid of those [inefficiencies], then you can bring things under control in the context of the challenges without sacrificing growth. Most developing countries, including Bangladesh, do have inefficiencies in their public expenditures. So the question is, do you target those inefficiencies and curtail them? Or, do you target those parts of expenditures which are actually very useful? So that's number one. And that's why we often have this phrase, “don't let a crisis go to waste.” Because a crisis can often focus attention better than good times can. And a crisis can also create the political and social consensus to take some tough decisions. So that's one thing. Second is the importance of social protection. And we must remember that for people at the margin, and in our kind of countries, Nigeria, Bangladesh, a lot of people are still at the margin. Even a small shock which takes them below the threshold is not a temporary damage that after some time they can come back [from], often it's a permanent damage. They have to sell off their productive assets, which means even when things start improving, their conditions won’t improve. So that's why it's very, very important to have good social protection systems in place.

Third, coming back to a point I made earlier, it's very important to have good monitoring systems. ‘Cause we really want to know what's going on, how the lives of different people across the country is being affected by the tough conditions in which you are, without that your policies will be suboptimal. So that monitoring is very, very important. And it's very important to engage different stakeholders in society. And for two reasons. One is part of the monitoring, because economists, business people, journalists, and others, would know a lot beyond what the government knows and it's important to tap into that knowledge, but also to build consensus about some of the tough decisions that need to be taken. So, at the end of the day, it is a lot about governance. It's a governance challenge that countries face when they're facing an economic challenge.

Tobi;

My final question to you, I have a couple of other questions, but… from a policy-making perspective, how do you then make knowledge count? Because from everything you have talked about, the role of knowledge… which takes me back to where we started, you know, talking about agriculture. The role of knowledge is actually very important. But you have situations where you can have knowledgeable people in government, world class economists, and the government itself might be making policies that are clearly wrong, which means there's a disconnect somewhere. And I mean, in Bangladesh, it's often talked about how there is a policy knowledge ecosystem that informs the public and shapes their accountability and expectations, and also informs policymakers at the other end of that spectrum. How does a country build and nurture that? Especially, how does knowledge of, whether it is knowledge of economics, whether it is knowledge of society and other programs, how it transmits to the key decision makers, and influence some of the actions or policies, or regulations, that are taken? How does that happen?

Akhtar;

Okay, so you mentioned the sort of the ecosystem linking policy and knowledge in Bangladesh. We have an ecosystem, I wouldn't say it always functions very well. And we do have many instances where people in government feel that they know the answers to all the problems. They know the problems, the issues, and they know the answers to the problems. The question is whether they will do something with that or not. That depends on various calculations. So that happens, we have that problem. And some would say that problem may have become a bit serious in recent years, especially because the economy is doing well, and when the economies do well, governments often suffer from a certain degree of complacency. But it is true that we do have a good system. We have some good research institutes [and] think tanks who work on economic issues, and they have a very good tradition of doing surveys where they go and get information from rural areas as well. We have had that tradition for a long, long time. And that has informed the policy debates.

Now, how do those insights enter the arena of policymakers? This is where the role of policy intermediaries is very important. So the researchers themselves may sometimes be able to play that role. Or if they're part of an institute, there may be some people in the Institute, who are particularly good at taking the findings of their researchers, their colleagues, and taking it to the government. So you need to have that kind of capacity. There can also be specialised institutions. In Bangladesh, we have an institution called the Center for Policy Dialogue, which is created with that objective - that they will pick up the research being done by other think tanks, and they will create platforms where policymakers, politicians, journalists, and researchers can come together, donors as well and discuss these issues. And that has been going on for more than 20 years. They get a lot of publicity in the media, so the role of the media is extremely important, and the quality of the reporting in the media - is it data based? Is it logic based? - that's also very, very important. But one important thing for people outside the government to understand is that politicians will seek out advice from experts when they have a strong need to do so. If they don't have a felt need, you can still try and create that need, but that requires a lot of creativity. Otherwise, you can invite them to seminars, they will come out of politeness, they will say the nice things, they will listen to you, but then they will go back and forget that. So the first thing to do is to identify what is keeping the politicians awake at night? What is the need that they feel? They may not have articulated that very well, but once you understand that, then see, what do you have in your knowledge base, which will be useful for the politician? (b) What is the best way to transmit it? So what is the language that you're going to use? Because the language of the politicians is different from your language. And third, you have to understand, in fact, let me mention an anecdote here.

Many years ago, Sheikh Hasina, who is now the prime minister, but was the opposition leader came to Washington and there was a meeting with a group of Bangladesh economists. And there was a World Bank macro economist who started talking about the importance of trade liberalisation - the usual World Bank mantra of trade liberalisation. She stopped him midway and said, look here, there was a time when I was living with my husband, who is a physicist, in a border town, the border of Yugoslavia in Italy. Three days a week, the borders were opened up. And I saw people from this part going to the other part, and the other part coming to this part, exchanging goods. So I saw firsthand the benefits of trade liberalisation. But if today we liberalise trade, some industries may go down under, what will happen to their workers? The workers are going to come to me, they're not going to come to you in the World Bank, but they will come to me, whether I'm in government or opposition, and say, what do you do about us? Right? So the interesting thing is that the politician had reached the same conclusion, like the technocrats, that trade liberalisation is good, but she has come from a different route, and she had different concerns. And technocrats need to understand the concerns that the politicians have. They need to understand the world views of the politicians. They need to understand that there is a method in the madness of politicians, and only then you can communicate well, and only then your knowledge will be taken seriously by politicians.

Tobi;

On that note, and this is a bit of a tradition on the show. What's the one idea that you feel most passionate about, it may be recent, it may be in the past, it may be from your work, or any other field that you would like to see spread everywhere?

Akhtar;

I think the idea of, as I said, the notion of picking signals. If I'm talking about the government, so if I'm in the government, the idea of picking signals from the people, and then acting upon it, and then seeing the reaction of the people and then acting upon it again. So this idea of synergy of interaction between the government and the marketplace, and continuing that over time, is an important idea. I don't know exactly what you meant by an idea, or what kind of idea you're talking about…

Tobi;

It could be anything.

Akhtar;

I don't know if this satisfies it. But for my own study of the history of policymaking in Bangladesh and economic transformation in Bangladesh. This is, I think, [an idea] I have found to be at the core of the success of Bangladesh. Which is this kind of interaction between policymakers and economic actors, and the repeated playing out of this interaction. And that is, I think, one idea that I'd like to leave behind.

Tobi;

That's a fantastic idea. In your experience. I mean, Bangladesh gets talked about a lot. What are the common misconceptions about your country?

Akhtar;

Okay, so I often see notes on Bangladesh. And we saw a lot last year when we had the 50th anniversary of Bangladesh's independence. So people talk about the good things that have happened in the economy. And they will often say, despite the government, and I know The Economist had an article about two or three years ago, “Bangladesh has done well, despite the politicians.” And I think I've made it abundantly clear in the conversation, Tobi, with you today, that the government had a role. And I've given you many examples of what the government did, including the withdrawal. Now, withdrawal also is important because it's not easy to withdraw. We may think it's easy to withdraw. But when you have had a system for many, many years, withdrawing is not that easy. So, the government has done so. And in many, many ways the government has played an important role in Bangladesh's development. So, the development has not happened despite government, that's a big misperception. And that's why we need to know what exactly was the role the government played? And that's why, as I said at the beginning, maybe, that has more relevance than the East Asian experience for many developing countries, because the government in Bangladesh, the initial conditions, were probably similar to that in many developing countries. So if Bangladesh can do it, others can do it. So that's one thing. The other misperception is that it was all about garments and remittances. But as I said, agricultural transformation in Bangladesh has played a very important role. And the third could be a smaller misperception that NGOs like BRAC, their contribution is limited to the social sectors - of course, [a] very, very profound contribution, but limited to the social sectors. As I've said, I've given examples of how they had also operated in the economic sphere, and how that has also had profound implications.

Tobi;

What are you most proud of when you think about Bangladesh’s journey in the last 50 years? What are the things that you're most – I visited Dhaka about 10 years ago, I love the food, but the traffic congestion reminds me far too much of my own city, Lagos.

Akhtar;

I went to Lagos about 20 years ago, and Lagos reminded me of Dhaka. I think the thing to be proud of is the thing I mentioned earlier, the fact that Bangladesh’s in general have become entrepreneurial. And in some ways, there’s an audacity, which I'll say it's a sweet audacity. The audacity that yes, we can do it. We can do this. Whether in Bangladesh or abroad. You know, the writer Amitav Ghosh, he said in an interview that Bangladeshis are probably the most globalised nation in the world, because anywhere in the world you go, maybe with the exception of that in America but that may also change, you will see Bangladeshis there. So there is a certain degree of audacity that yes, we can do it. I think that's what we should be proud of as Bangladeshis - that we have shown that we can do it against tremendous odds. So that confidence, that audacity, which I think is very sweet, is what we can be proud of.

Tobi;

Fantastic. Thank you so much, Akhtar, for this conversation. I enjoyed it so much.

Akhtar;

Thank you so much for inviting me. It was a pleasure talking to you.

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Bangladesh has transformed tremendously in the last twenty-five years. Average incomes have more than quadrupled, and many of its human development indicators have improved alongside. It has also become an export powerhouse with its garment industry, and generally a shining example of development - though things are far from perfect. Five decades ago, w…

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We often speak of economic development as a phenomenon of sovereign national countries, but the process by which that happens is through what happens at individual firms in the economy. The decisions by firms to upgrade their products (services), export, and adopt new technology are the most important determinants of economic development. The incentives and conditions that shape these decisions are the subjects of my conversation with my guest on this episode. Eric Verhoogen is a professor of economics at Columbia University school of international and public affairs. He is one of the leading thinkers and researchers on industrial development.

TRANSCRIPT (edited slightly for context and clarity)

Tobi;

Usually, in the development literature, I know things have changed quite a bit in the last few years. But there is a lot of emphasis on cross-country comparisons and looking at aggregate data, and a lot less focus, at least as represented in the popular media on firms. And we know that, really, the drivers of growth and employment and the source of prosperity usually are the firms. The firms in an economy, firms are the ones creating jobs, they are the ones investing in technology, and doing innovation. So firms are really important.

One of the things you often hear a lot is that one of the reasons poor countries are poor is that the firms are not productive enough. So that's sort of my first question to you, how exactly do we define and also measure productivity, you know, for us to be able to distinguish why firms in the developed countries are more productive than the lower income countries?

Eric;

Yeah, this is a big important question. So I agree, in principle, that firm productivity is very key. So countries that are going to be doing well are countries that are populated by firms that are being very innovative, and their productivity is rising, they're learning how to do new stuff, they're producing new products, etc. And so there's a reason why people are very focused on this conversation about firm productivity. The sort of, I would say, dirty secret of economics is that it's very hard to measure productivity well, right? And so the productivity measures we have, I think, are very noisy, and most likely fairly biased. But basically, the way you estimate productivity is you run a regression of like sales on inputs, okay, so on how much you're spending on labour and how much you're spending on materials, and then the part that's left over, we call that productivity. So it's like unexplained sales, you know, sales that can't be explained by the fact that you're just purchasing inputs and purchasing workers.

But that is actually a very noisy measure of productivity. And so I've been working on a review paper, and a separate research paper kind of pointing out some of the issues with productivity estimation. So in principle, it's exactly what we want to know; in practice, it's very hard to measure. So one argument I was making in that paper is we should go to things that we can actually directly observe. Okay, so sometimes like technology adoption, we can often directly observe whether the firm has adopted this particular new technology, or if they're producing new products, we can directly observe that. Sometimes we can observe the quality of products that can be measured. Now, the standard datasets that we have typically don't have those things. It is possible now, in many countries, to follow manufacturing firms or even other sorts of firms, [to] follow them over time, which is great, at a micro level. But those that have the technology, they don't have quality, they do it now increasingly have like what products they're producing, often they don't have the product people are producing and so it's harder, you have to go out and you have to talk to people, you have to access new sorts of data, there's a lot more work, a lot more shoe leather - we'd say you wear out your shoe is going to talk to people trying to get access to other datasets in order to have these measures that you can observe directly.

But I think there's a big advantage to that. Just in terms of measurement. Like, can we measure these things, and record that technology quality and product innovation together? I'm not sure that's answering your question. But, you know, I mean, I totally agree that what firms are doing, that's crucial, right? So the big macro question is, why are some countries rich and some countries poor and how can we make poor ones richer? That's the big question. I think that's kind of too big to be able to say much about. The much more concrete thing, which we need to be focusing on is how can you make firms in countries more innovative and productive. That's the absolutely right question. But that's just hard. There are challenges and research about, you know, how you actually analyze that, and it has to do with these issues of measurement.

Tobi;

I understand the measurement problem, and of course, TFP, the residual, and so many things like that. But practically, I want to ask you, what can you say, maybe if you have a handy checklist or something? what distinguishes firms in rich countries from firms in poorer nations?

Eric;

Yeah. So let me say what I don't think first, and then I'll say what I think. So it's become increasingly common to say that firms in poor countries are just poorly managed. The firms in rich countries have better management, and the firms in poor countries have poor management, right? And partly that's coming from the influential paper by Nicholas - Nick Bloom - and others, and David McKenzie and John Roberts. You know, they had consultants go to some factories in India. In some they camped out for four months, some they were there for only one month, and the ones where they camped out for four months ended up doing better, right? And they say that that's because these consultants improve the management of the firms and management matters. And I do agree that sometimes these management practices matter, but I don't think... sort of, one kind of implication of that line of work is somehow, like, the firms in a developing country are just making mistakes. They haven't gone to business school in the United States, and so, therefore, they don't know what they're doing. And I think that's incorrect. I think that's incorrect. I think the problem is, firms in developing countries face many, many constraints that firms in rich countries don't face. Right. So often, for instance, gaining access to high-quality inputs can be very difficult, right? That you just don't have the supply chains domestically producing high-quality inputs. Often skilled workers are very expensive relative to unskilled workers, and even relative to the price that you might pay in rich countries. Having skilled workers, including skilled managers, is very expensive. In addition, you have all these frictions on trying to get your goods to market or trying to, you know, trying to access export markets, often there are, you know, their costs involved in that.

In addition, being productive requires know-how and often firms lack that know-how, right and so the question is, how do you get that know-how, you know, like, the distinction I'm trying to make is, it's not that they're making mistakes, it's just that they're doing the best they can given know-how they have, and given the constraints that they face. And so in that sense, I would sort of point to those constraints, right, those constraints both in know-how and both in the input and output markets, rather than just failure of management. So now, one of the constraints I should say, actually, so is often, you know, legal and regulatory institutions are much weaker in many countries. It is true in Nigeria, and it's true in many places, right? And so then that does create a complicating factor also when you're trying to do business with somebody, but you don't have the legal recourse of going to court to enforce whatever contract you write down. And so that creates friction. So then you have to do things differently in part because of that. And so you're likely to be much more based on, like, networks of various types. It might be ethnic networks, or it might be people that you know or that you have long-term relationships with. But then that means you can't necessarily just find the best supplier of something, you actually have to find someone that you trust, and that can complicate your life, basically, if you're trying to do business and develop.

Tobi;

So one thing I want us to discuss is the issue of firm upgrading. I mean, one of the things that have helped me in reading your work and taking this firm-level view of development is that, okay, on the one hand, if you look at a country like Korea, we can say the average income, the income per capita for Korea 40 years ago versus now and compare with say Nigeria, but also we can look at Korean firms 40 years ago versus where they are today. Today, Korea have global firms that are at the very frontier of technology. Companies like Samsung are innovating and making chips and making electronics and making smartphones and you compare with firms in Nigeria who have not been able to upgrade their products over that same period. And now what I want to ask you is how important is a firm's ability to upgrade productivity. I take your point on the measurement but controlling for that, how important is a firm's ability to upgrade its output? Its products on its productivity?

Eric;

No, no, I think upgrading is crucial. And upgrading in various ways, you know, more specifically technology, producing higher quality products, producing new products, new innovative products, you know, you might be reducing costs, right, all those things. I do think that's crucial. I think that's crucial to the development process. I mean, much of the conversation in development economics has often been not about firms. It's about, you know, social policy, or it's about education. It's about human capital accumulation. But I'm with you on that, the firm-level upgrading is totally crucial. You know, the question of like, why isn't it happening? Or how could you promote upgrading? That's a very difficult question. There are lots of papers that are sort of speaking to that subject. And this review article I was trying to write was basically all about that. So Alexander Gerschenkron way back in 1962, is a historian writing about late industrialization had this phrase, not very politically correct phrase, but basically, advantages of backwardness. So in principle, if you're a developing country, you should benefit from the fact that technologies have been developed in rich countries, and you should be able to go and adopt them off the shelf. But for some reason, that's difficult, right? It's hard to do. Partly, it's difficult because of, you know, know-how reasons. So I'd say that often, much of the knowledge that you need in order to implement these technologies is not written down anywhere, it's not really in the manual, right? You have to kind of talk to people who know it, rather than just downloading the instruction sheet. That's one reason.

It's also true that many times, machines or processes, actually, may be context specific. So like the picker machine, in a very humid environment, they operate differently than in a non-humid environment. And so, you know, there are things that you need to learn. So I'd say that kind of like gaining the know-how is an important kind of constraint on upgrading. And partly that happens through networks or through... there's a ... Juan Carlos Hallak, who's in Buenos Aires (who would be a good person for you to have on your show, actually, I think that he'd be an interesting person to interview) as a very interesting paper. It's basically on like Argentina, looking at industries that have done well, they've been able to upgrade essentially and looking at what was it about them that made it possible, and especially the leading firms, what were the leading firms doing? And what we're basically finding is that often the key person in the firm, like, had been embedded in markets in rich countries, maybe in the US or in Europe or someplace. So they understood very much how those markets work and what consumers want. So one was like making boats, sailboats, or motorboats right, that was one of the interesting things he focused on. But knowing sort of what the people who are buying those boats really want to see in their boats ended up being important for what they're doing. And so that's an important part of the know-how. It's like, yeah, understanding the customer understanding also how if there are firms that are producing there, understand what the competition is. And so that's know-how that often has to be sort of gained in person rather than, you know, just reading a book or talking to somebody on the phone. And so when I think about... I don't know Nigeria very well, but when I imagine, you know, Nigerian producers, I think, partly what might be holding back is, sort of, maybe not having the understanding of what are the requirements, what are the expectations of consumers in the export markets, right, in the rich countries that they may be selling to?

We've talked about the barrier, we can talk about the driver of upgrading. So then, like, gaining know-how would be a driver. So that's one. I think, and part of a lot of my work has been about quality upgrading, you know, producing higher quality. And I think that's in part driven by who you're selling to, right? So Mexican firms, you know, if they're selling to Mexican consumers, they produce different products than if they're selling to us consumers, which is their main export market, right? And so, you know, and if you're selling to Mexican consumers who have a certain willingness to pay for quality, we would say, right, they have a certain level of, you know, demand for certain characteristics, the optimal thing to do is keep producing that kind of lower quality stuff, right, rather than producing the higher quality. So I had this famous example of a big Volkswagen factory in Puebla, Mexico, which for a long time, it stopped in 2003, but for a long time been producing the old beetle. The old beetle that had first been produced in 1940, or certainly the 1950s. But for a long time, in the Mexican market, that was the main car that people were buying, and they were happy with that because it was cheaper. It was like, you know, it's very reliable. But that same factory started producing the New Beetle, basically, for the US market, right, for the US and European market, which is much more sophisticated, but also much more expensive. So it depends a little bit on which market you're selling into and whether you're going to upgrade or not. And so accessing export market can, in some sense, like pull the upgrading process, you know, once they access these export markets, they'll start producing higher quality stuff for these consumers. And that I think, actually, generates some learning, and I can talk about one paper that shows that a bit. But it seems to be that by gaining access to markets and producing high quality, then firms learn how to do stuff better. And so that can be an important driver of upgrading.

And conversely, not having access to export markets or having a hard time breaking into export [markets] can be a reason why firms failed to upgrade. Let me tell you about one paper that, you know, demand effects can drive learning.

Tobi;

Yeah. Go ahead.

Eric;

Okay. It's a paper by David Atkin, Amit Khandelwal and Adam Osman. It's in Egypt. Okay, it's an RCT experiment, a randomized controlled trial. And it's among rug producers, producing rugs. What they did is they randomly allocated initial export contracts, right? So if they work with an intermediary, like a buyer of rugs, you know, among several hundred rug producers, they say, Okay, some guys are gonna get an initial contract, and some guys not. And so that was a way, this is a way of investigating basically what's the effect of exporting on the decisions and in a very clean way, and they found a couple of things. So one is those guys who had the export contracts and started producing higher quality stuff. So that's sort of consistent with my Volkswagen story, too, right? So increasingly, export markets produce higher quality and they did lots of measures of, you know, how thickly packed the rugs were and how straight the edges were - the very dimensions of quality of rugs. That was one thing. And then the other thing that they found which is very interesting is that you know, these weavers of rugs got to be better at producing rugs, basically. So then, when they took them into a laboratory, and they say, okay, produce this identical rug to a whole bunch of producers, both in their treatment group, and in their control group to produce this identical rug, and they found that the guys who had gotten the export contracts were better at producing that rug, they produce sort of higher quality rugs than the other guys. This suggests that demand can drive upgrading, right, in the sense that it induces firms to produce higher quality, but there's also learning involved in that process. These Egyptian rug producers became more productive as a result of having access to these export countries.

Tobi;

Yeah, I mean, listening to you, I can think of a few things that click in place. When I look at, say, a country like Nigeria, I think about the way the central bank has been running the exchange rate policy, which is messing seriously with the way firms actually source inputs. Some firms actually don't have access to the foreign exchange quota to actually source quality inputs. I mean, from manufacturing firms to agribusinesses who want to buy high-quality seeds overseas, I see how that can be a constraint. But two things I want to get at. Also, if you look at Nigeria whose industrial policy is really about domestic self-sufficiency, you could see that there isn't really an incentive for upgrading, and therein lies my question. If we talk about upgrading and how important it is, even though it's not really discussed as it should, what role do you think industrial or state-directed policies can play in this? Why because industrial policy is back in fashion, you know, it's being discussed everywhere... but usually, at least in my experience and in my opinion, what most scholars and advocates are focused on are [things like] state investments, you know, how the state can put money in one sector or the other. There really isn't so much focus on this sort of micro-level detail and what happens at firms, which your work is about. So for practical purposes, do you see industrial policy as something that can really, really, play a role and incentivize domestic firms to upgrade? For example, something like export quotas, you know, for firms?

Eric;

I mean, in terms of your question, do I think industrial policy can be helpful? I do. I do think that industrial policy can be helpful. Basically, I think that learning generates spillovers that firms themselves can't fully capture. And so I think there is a role for government to promote learning, basically, in a way. To subsidise learning such that - the socially optimal, or - the best sort of amount of investment in learning for society is more than individual firms to do on their own. And so there's a role for industrial policy. But I agree that it's got to be smart industrial policy, it's not just any old industrial policy. And so many countries have this idea...it's a little bit of nostalgia for import substitute industrialization, or it's very much like inwardly focused industrial policy. We're going to try and guarantee a domestic market for our producers, something like that, right? I'm not a fan. I'm not a fan of imports substitute industrialization or these very inward-focused strategies because then you get to the point where there's just not a lot of pressure on domestic firms to be more productive. They become kind of in a comfortable situation where they have kind of protected markets, not very competitive, they have a lot of market power in that market, and so that is a recipe for stagnation over the long term.

So I think the crucial thing is that the targets for industrial policy be export-oriented, you know, outwardly oriented. You want your firms to be successful in world markets, right? I think that should be the key, rather than domestic self-sufficiency. Or rather than just the government investing in well, okay, so I don't have a problem with the government investing in infrastructure, investing in things as long as the aim is always ''what's going to facilitate our firms being successful in world markets'', right, I think that's a good target. Because those world markets are competitive [and] for firms to be able to be successful there, they're going to have to up their game and be more productive and be more innovative, subject to the measurement constraints we talked about, right and to upgrade. And so I think that the smart industrial policies are going to be things that sort of push firms to learn and to be more innovative and to be successful as exporters.

Now, the other thing we have to keep in mind in thinking about industrial policy, is that [for] the governments, it's just very hard to [know] in the future what are the sectors that are going to be successful. What are the activities that are likely to have a future? It's just very hard, it's very hard for people who are, you know, private equity firms embedded in the sector... it's very hard to know, it's gonna be even harder for a government official or someone making government policy to do that. So I think we need to think about policies that have this effect of promoting learning or subsidizing innovative activities, but that, you know, don't require too much knowledge and understanding of the future on the part of the people setting the policy. Right. So things like collaborations between universities and firms for, you know, how to train workers to have the skills that the higher tech firms in your country need. That's something that seems like a good idea that's probably going to promote upgrading without having to pick and say, I think this product or this sector is the future of the Nigerian economy and therefore we're going to subsidize that thing. And you also want policies that are somewhat flexible, right, so that if something happens... so I'm working on a project in Tunisia, where the Tunisian Government was trying to promote exports. But the issue that they've had, and it's a matching grant program where sort of half of the costs of exporting of a certain category of costs of exporting will be paid by the government. The problem with that program, though, has been that it was somewhat inflexible. So basically, if something happened, you know, there's a big shock, and in fact, COVID shock, you know, and that changes what firms want to do. And it's very hard for them to switch gears and say, now I want to spend money on something else, can you please subsidize this other thing, and there were a lot of frictions in the program. And so that's often the case for government programs. The government sets a policy and then the world changes, firms want to do something else, but the policy is still stuck, you know, in the old world. So we need to think about how to build in, you know, flexibility into the programs so that if firms decide, actually, the market is moving in this direction, rather than this direction that we were expecting, that the support that they receive could move in the same direction.

Tobi;

Yeah, I agree. And I don't mean export quotas as hard targets. So I'll give you an example. Nigeria has this policy that we've been running for about six to seven years now, where there are multiple exchange rate windows for different parts of the economy or sectors that the government deems should have priority, you know, to import. And I recall a paper where Korea had a similar arrangement, but it was focused on firms that export. Firms that export to world markets sort of get priorities so that they can source inputs at a very low cost and seamlessly, you know, but it's not just something that we really think about in Nigeria, because we are so focused on the domestic market and how large the population is not minding, you know, how much of that population is poor.

Eric;

Yes, no, absolutely. So, certainly, Korea did this. But the Korean model, a key part of it, and they definitely picked sectors in a way that, you know, it's, there's a little bit of tension with what I just said about, you know, the government officials are not going to be very knowledgeable, there they seem to have done a good job of picking sectors to advance. But the key part was it really was oriented towards success in export markets. And the industries that were not successful on the export markets, they pulled the plug, they removed the, you know, they removed the support, which is politically hard to do, you need a fairly insulated, like, secure government in order to be able to do that. Because, otherwise, you start providing support, and then the industry lobbies a lot to maintain that support, you know, and so then it becomes politically very difficult to remove it. But I think if the government is committed to ''if these industries are not successful, we're gonna pull the plug on the support'', then this can work. Right. But you're absolutely right, in the Korean model, the key thing is the export orientation rather than the import orientation. And what you mentioned about exchange rates, I didn't comment on that. But I think it is an issue, you know, especially for a resource-rich economy, that the exchange rate can be, you know, highly valued, arguably overvalued, which makes it hard to develop the domestic industry. And so I think that's a real issue that, you know, some countries seem to be able to handle that, you know, ''what do we do with the natural resource wealth a little better than others'', if you just let it accumulate and people are going to spend and that leads to devalues your currency to increase that's going to make it harder to achieve export success in export markets for manufacturing goods or other exporting services. And so that is something that needs to be a focus of thinking about how to upgrade.

Tobi;

Yeah, I want to talk about technology for a bit. You had this very, very, an interesting paper on the soccer ball, we call it football, the soccer ball producers in Pakistan. And in a bit, you're going to tell me some of the interesting things you learned about that study. But first, Dani Rodrik and Margaret McMillan had this interesting paper about industrialization in Africa, and how domestic manufacturing firms are now shifting more towards capital-intensive technology. So hence, manufacturing firms are not creating jobs as much as historical patterns should suggest, do you see this as sort of a problem? I know so many other people have this worry about automation and how this technology can be exported everywhere, which is really a concern for maybe a continent like Africa with a large, jobless, and young population. So do you see this as a trend that we should worry about, you know, more capital-intensive technologies, or are there opportunities?

Eric;

Yeah. So I do see it as a trend. I do think it is something to be worried about. You know, Dani Rodrik recently organized a panel with the International Economics Association I participated in, along with Daron Acemoglu and Fabrizio Zilibotti and Francis Stewart from Oxford. And I sort of had two points there. One point was, yes, I think this diagnosis is correct. Basically, economists refer to it as appropriate technology. But the idea is that many technologies are developed in rich countries, you know, given factor proportions, we would say in those rich countries, so basically, skilled workers are more abundant, unskilled workers are less abundant, and so people develop machines that kind of conserve on unskilled workers. That's, in part, the background to the story that Dani Rodrik and Margaret McMillan are saying that in Africa, many firms are using this technology that's been developed in rich countries, that's very skill intensive, but it's not generating a lot of them. Right. So I think the diagnosis there is correct that that happens, right? And so the technology often is inappropriate for poor countries given, you know, their supply of unskilled labour, given how many workers they have that could use employment. On the other hand, the other question, though, was, what do you do about it? And so I was less convinced. So my worry about that. There are two versions of that concern about what you do about it. One is, given the set of existing technologies, you could try to encourage firms to use more labour-intensive technologies. Okay. But the problem is that you may encourage them to be less productive. Maybe they might generate more employment, but they'll be less productive, right? There was an interesting paper that I cited in Brazil by Gustavo D'Souza, which was sort of saying the Brazilian government basically put a tax on international technology licensing. And he shows that sure enough, firms were less likely to use International Technology. They're more like to use domestic technology. They actually generated employment, but they were less productive. Right, and they overall did worse. So there's a worry that you're gonna make firms less productive in an immediate sense. The other worry is that, like, if the Nigerian government starts encouraging Nigerian firms to develop new technologies, which are more labour intensitive, you know, then they'll generate more employment, the worries that you're gonna get sort of fall behind the world technology trajectory, I'll call it that. Like, you can think about the world frontiers moving in whatever, pick an industry, and the world frontier is moving at a particular place, and then, you know, firms are competing with each other and they're, you know, someone gets a patent, someone comes up with a new idea and sort of technology moves in a certain direction. And then Nigeria says, no, no, we want to be on a different trajectory that generates more employment, right? The problem is, you're going to be permanently behind where the technology curve is, right? Where the world frontier is. And I feel like that's worrisome, right, you're likely to have less learning, right, there's gonna be a gap between where the Nigerian firms are and where, you know, the world frontier is that it's gonna be hard for them to catch up afterwards. So in the short term, you might generate more employment, but you're gonna have a less dynamic industry as a result. And so I think, my own view, and this is, it's a feeling rather than something that's very research based at this point. But my own view is, even though it means that firms are not going to generate that much employment, they have to try and stick as close to the technology frontier as possible, or, you know, catch up as quickly as possible to where the world technology frontier is.

Tobi;

And so talk to me a bit about lessons from your walk with the Pakistani soccer ball manufacturers. What did you learn from that particular experiment, especially on the role of appropriate technology and technology use and the incentives that surround it for firms and investors?

Eric;

Yeah, so it was a study of technology adoption, what are the factors that encourage technology adoption? And what made it possible was that the football producers, I'll use that word football instead of the soccer ball, these football producers, there are a lot of producers using the same simple technology, right? And this football design is, you know, 85 or 90% are just these hexagons and pentagons. If you can imagine a, you know, a football, it's got hexagons and pentagons. And so the simple technology involves cutting out hexagons and pentagons and then stitching them together. And there were a lot of those and what made the project possible is we came up with a new improved technology, which is basically a way of cutting pentagons from these sheets. The main costs, you know, 50% of the cost are the sheets, they call it rexine. It's like artificial leather, that's the exterior of the ball. But they were cutting pentagons in a way that was wasting some material. Wasting more than they need to and so the new technology is a way of cutting these pentagons so that you can fit more into a given sheet so that you can get basically 8% more pentagons which ended up being about a 1% reduction in total costs. Which wasn't enormous but on the other hand, it's a pretty competitive industry, profit margins are about 8% so we felt like they shouldn't have been paying the 1%. And actually, when we started out, we thought we were gonna be studying technology diffusion, right, which is, you know, one person adopts, then is that their neighbours who adopt or is it their cousins? Or is it the, you know, people who share suppliers, and what are the channels of diffusion, right, and we're trying to keep everything secret, and we thought, okay, when we let it out, it's obviously the people we give it to who are gonna adopt right away, and then it's gonna spread. And so then we gave out this technology, for free, we gave it to 135 firms.

And then, you know, we had a few firms adopt, and they started using it, and including one big firm that was producing - I can tell you the name later, but basically had like 2000 employees and is producing for Nike, and as a big producer adopted this technology, and, you know, is basically cutting all of its pentagons using our design and our die for cutting rather than the old one. So after, you know, 15 months, there were six total firms that had adopted. And that was puzzling and thought, you know, why is that? So then we started asking firms, we started talking to people and basically, it was revealed that the reason was that the guys doing the cutting... so the cutters are basically paid piece rates, they're paid per pentagon or per hexagon, or essentially per ball like, which is, you know, 20 hexagons and 12 pentagons they're paid. That was what their salaries were based on. And they didn't have the incentive to reduce waste, like, they weren't penalized if they wasted the material, right? And so they just wanted to go fast. And our die was slowing them down, right, made them go more slowly because they had to be more careful how they placed it and also, it was a different design, it was the design that they were used to. Now, it turns out that within about a month, they could get back up to speed, to the speed they were at before but they didn't know that, and in any case, for that month, their salaries would be way down, they'd just be slower and knowing that if the firm didn't change the contracts, their salaries would be lower. And the workers were figuring this out, the cutters are figuring this out, they said, this is not good for me, right, that my salary is gonna go down if I use this thing, I have no incentive to use this new technology. And so then they started telling their firms, you know, this is bad, bad technology, it doesn't work, it's dangerous, it has all these issues.

Okay, so then we realized that this was happening and we said that we were going to do a second experiment. So, you know, half of the people we originally gave the technology to who hadn't yet adopted, we did a second experiment where we said to workers, we're gonna give you a month's bonus, which is not very much it is about $150 US dollar. So these guys are not paid very much we said ''a month's bonus if you can demonstrate to us and the owner of the factory that the technology works.'' And actually, that was enough. The workers were excited about that, you know, they got paid for doing this. Everybody who did it then subsequently passed the tests. So they demonstrated that the technology is working, and then a statistically significant share of the firms that they worked at ended up adopting the technology as a result. So those were the two experiments, those were the facts. What are we learning from that? I think we're learning that, basically, the lack of information flow from workers to their owners, to their managers, was what was getting in the way of technology adoption in this case. Like, the workers knew that the technology was working, but the owners didn't know because they sort of delegated the process of cutting the pentagons to the workers, and given the contracts, the workers didn't have the incentive to share the information. Right. So I think those sorts of, like, information flows or barriers to information flows are actually very important in the learning process. And kind of what our second experiment did when we did this bonus of a month's pay, which induced the workers to share the information and that was sufficient to make the technology be adopted. And so I think the punch line or the one-sentence version of this is, workers need to see that they're going to benefit from the adoption of new technology or from upgrading generally in order for the process to work well. They have to buy into the process. And they have to see that they have the incentive to do so. One recommendation coming out of that would be some sort of profit sharing, or some sort of gain sharing between workers and firms would actually be very useful. And will it help there be more innovation?

Tobi;

It brings me in a way to another very interesting paper of yours which [they] also had a summary essay about, I think, in VOX or something, which is about wages in poor countries. And I mean, thinking about the soccer ball story and the lesson. One issue and this has generated quite a number of debates between I think Rodrik and a bunch of other scholars who are thinking about Africa, is that the reason Africa is not really industrializing, or firms are not creating jobs is because wages are too high relative to the level of income. But what I learned from your paper, and you can correct me if I'm wrong, is that paying higher wages in poorer countries is not really a disincentive to creating employment and even generating productivity and profit. Tell me a little bit about how that works. Because, usually, we've gotten familiar with this logic that for you to be able to industrialize, if you think about China, and so many other countries, you need to have access to low-wage workers, you know, you need to be able to do very cheaply, and labour is where you can really cut a lot of your costs. And then it becomes a problem if your domestic wages are too high for the level of your income or what firms and investors are willing to pay. So tell me this high-wage, low-wage dynamics, especially... I remember the famous Paul Krugman was it article defending sweatshops in Bangladesh, where if you force firms who are outsourcing to pay higher wages or impose certain conditions, poor people in those countries will lose jobs, and they will lose their livelihoods. And so you should not mess with that process. What are your thoughts on these [issues]?

Eric;

Yeah, very interesting. So I think the article you were thinking of, it's related to the specific case of the football producers and seal coats. In Pakistan.

Tobi;

Yeah.

Eric;

There was a very interesting thing that happened. I mentioned that one firm adopted this new technology. And you know, one very large firm and it was producing for Nike, it's called Silver Star. The interesting thing about that firm is that because they're producing for Nike, which had had sweatshop scandals in the past, Nike required them to do a bunch of things, basically, so that Nike wouldn't be vulnerable to a further scandal, right? And among the things that they had to do was make sure they were paying the minimum wage in Pakistan. And the only way this firm could guarantee that they were paying the minimum wage in Pakistan, which many firms were violating basically, the only way they could is to say, we're not going to pay a piece rate, we're going to pay a fixed wage. Right. So this firm was paying a fixed wage rather than a piece rate. And actually, we talked to them about when they first won the Nike contract. They said their labour costs went up 20 to 30%. So they did a bunch of things. They had this fixed wage, there was a medical clinic on the factory grounds. They had sickness pay, they had some retirement benefits. So a bunch of things, they did raise wages. But the advantage of that was that the workers were much less likely to block the adoption of this new technology. Because in a specific way, they did not have a disincentive, you know, their wage was going to be their wage no matter what happened, rather than in other firms [where] what was happening is that the worker can see if they adopt this technology, their wage would go down. And so we believe, and I wrote this in an article that you saw in the Harvard Business Review, I think that's where it was, that those wages, you know, higher wage payments and fixed wage payments, which were imposed by Nike actually contributed to the process of innovation. The title of the article is how labour standards can be good for growth, and also in the process of upgrading. So that's an example of how having higher wages can actually be good for this upgrading process.

Now, there are factors going in both directions, right? On the one hand, you know, the 20 or 30% higher labour costs, I think they did contribute to innovation. On the other hand, 20 or 30% higher labour costs may mean that firms will hire fewer workers or that the industry will be less competitive. So it's not that, you know, this innovation effect is all powerful and it's going to overwhelm anything that's about labour costs. But I think it is something that we need to take into account. And so, you know, labour market institutions that, you know, maybe promote profit sharing with workers, that promote longer-term employment so you have people who are around for longer, that have some job security, the sorts of things that often labour unions want to negotiate, can actually be good for this innovation process. And that's one factor that should be weighed against this issue of, you know, how higher labour costs and how competitive is the sector going to be. You often hear, like, the World Bank or the USAID, the development agencies will often say, you just have to be cheap. Like, you know, the competitive advantage of Nigeria is cheap labour and therefore, you should be focusing on having low wages and producing, you know, garments and textiles and toys and low-end manufacturing. But I think that's kind of a low-road model. You know, and I think that there are viable high road models, which would involve somewhat higher wages, some sort of gain sharing or profit sharing, and being more innovative at the same time. I can't tell you I have it all worked out exactly what that model would look like, I think it's going to vary by country. But I think we need to try to think about and push in that direction of where you can have, it may not be high wage, but it's gonna be higher wage than the market by itself maybe would bring about. So I am optimistic that that can happen. But again, the devil's in the details, you know. So Nigeria needs to think about what are we relatively good at doing right now and let's think about how can we be more innovative and move up to the quality ladder, the technology ladder in those industries. And then how can we get our workers on board to the process of moving up that ladder? And that will probably involve paying those workers more, rather than just trying to cut wages to the extent possible.

Tobi;

Before I let you go, let me... I know you're a relatively quiet person so let me draw you in a little bit... yeah, I know you're not active on Twitter or anything like that. Let me draw you into a little bit of professional controversy. And one of the things that I admire most about your work, I should confess, is that it's methodologically diverse. You know, you do structural econometrics, you do RCT, you do regular modelling and so many things. So there's this huge debate currently that I think, a lot of my colleagues may not think so but I think has important consequences for the policymaking process on development, which is that - is development research right now focused on the right things? You know, RCTs are like the standard tool for the investigation of development questions. Empirics have sort of taken over the field.

But on the other hand, you have folks like Lant Pritchett who are constantly pushing back that this is encouraging researchers to think too small, they are researching cash transfers, and so many other key interventions, whereas we really should be focused on the big questions. And in my experience, these have real-life implications, especially in poor countries where they have budgetary constraints. We might say this is due to corruption, and that will be true, but sometimes they have a real balance of payment crisis, because a lot of these countries are resource-dependent, and it's often cyclical. So a policymaker may really want to know where to spend the most resources to have the maximum benefit for the citizen. So I find these questions very important. What do you think about this debate? As someone who transverses the field very often in your work, how have you been able to navigate this debate? And what do you think is the, maybe right is not the right word here...what do you think is the useful approach going forward?

Eric;

Yeah, good question. Yeah, in my own work, I've been very question driven rather than methods driven. Right. So I've always thought, you know, I'm interested in this question of from upgrading, what are the barriers to upgrading? What drives upgrading? How can we, you know, learn about that, and if we can learn about that using an experiment, that's great. If we're in about that using other methods, that's great, too. So I, sort of, don't have a dog in the hunt, as Bill Clinton would say about, you know, the methodology. And I'm kind of in the middle of the road, I think, in terms of this debate between, you know, J-PAL and Esther Duflo and Abhijit Banerjee and Lant Pritchett or others on the other side. I think, you know, in situations where you can run an experiment, I think that is the most credible source of information. Okay, so I'd rather have a randomized experiment than do a correlation and put some causal interpretation on a correlation. At the same time, I do think that there are many questions, either that can't be answered with an experiment, or that are just very, very costly to answer with an experiment, right? And so it's very hard to run, you know, it's running experiments on firms. I've tried to do it, but it takes a long time. It can be very costly. You have to give much bigger shocks to firms to get them to react, etc. And so, I've heard Abhijit Banerjee articulate that, like, we should never do a policy that hasn't first been evaluated by random experiment, I think that's too strong. Because we're gonna be waiting years and years and years to get the experiments and with a huge investment of resources in order to get the experiments that would then inform the policy. So we're going to have to make policy and, you know, make decisions based on other sorts of information. And so there, I do think we need to be like small ''c'' Catholic, allow for lots of different types of methods, quasi-experimental methods, you know, even structural methods, and then also experiments. There's this famous joke about the drunk guy with a streetlight, you know, he's looking for his keys, and he's looking under the streetlight, because that's where the light is, maybe not where the keys have been lost. And so I take that point, like, maybe we really care about these big questions about, you know, what's going to drive growth, then in that sense, I'm sympathetic to the sort of the Lant Pritchett view. On the other hand, under the lamppost, we actually are learning stuff, right, I feel like we're more confident that we're making progress by looking under the lamppost. And so I think the, you know, the trick, the art here is to sort of stay near the edge of the lights and we're getting closer to the big questions, but in a way that's still credible, and that we're still, you know, we can believe the answers that we're actually given.

To sort of counter the Lant Pritchett view, you can post these big questions, and you can, you know, think big thoughts. But at the end of the day, you have to be able to convince, you know, you have to show us the data, right, you have to show that this is really correct. And that's just very hard to do for many of these big questions. So we need to incrementally build up based on this work. That's why I kind of like this work on firms, we're getting towards these big questions about growth, but in a way that you can actually have some confidence that you understand what's going on.

Tobi;

In your experience doing this work, what are misconceptions that you have encountered in the field that either the professional development industry, so I'm talking about aid and the think-tank and all the other folks, or it may even be your academic colleagues, what are the common misconceptions that you have encountered?

Eric;

Yeah. I mean, so one big thought [is] I think that the of field development agencies, right, it's like, how are we going to spend aid dollars in a way that's going to have a positive effect? And I think there's value to that. All right. I'm all in favour of spending, you know, aid dollars, in the most effective way. But I think that you know, a set of questions does limit to some extent the impact of the field of development on the development process. So I actually think we could spend every aid dollar in an optimal way, and would it have a meaningful effect on the material standard of living of people in poor countries? I'm not sure. I mean, maybe a little bit, maybe marginal, right? I think what's really going to matter is, do these countries start getting industrialization happening? Are they getting upgrading? Are they growing? And so in that sense, I sometimes get a little bit frustrated with the development discussions, it's all about this, you know, how do we spend aid dollars, and let's do RCTs to figure out how to spend the aid dollars, rather than these bigger questions, which are going to have a longer-term effect on people's living standards. You know, that's changing a little bit. I'm encouraged. There are more and more people talking about firms, there are more and more people taking sort of industrial policy ideas seriously. They're talking about bigger-picture questions in a kind of micro-founded way. So there are some encouraging signs. But I think a lot of development is still about that issue of like, what's the right way to do social policy? What's the right way to do, you know, aid spending, rather than trying to understand deeply why is it that Korea was able to make this transition from a poor country to a rich country, essentially, in a generation? And why is it that many countries in Africa are not? What is it that's actually getting in the way? And for that, that's not really like how to spend aid dollars question that's more about how firms behave. What are the factors that constrain them? And those sorts of things.

Tobi;

This is a show about ideas. So I want to ask you, what's the one idea? Just one. One idea that you think everybody should think about and adopt, that you would like to see spread everywhere. What's that idea? It may be from your work, or it may be from other things that inspire you. What's that one idea?

Eric;

I think the one idea I would choose is, uh, workers have a brain. This goes back to the soccer ball study, that there's knowledge and information that, like, workers have or people who are lower down in the hierarchy have, which is not being taken advantage of. Right, the soccer ball thing was an example. The workers were understanding the technology, but because of the way they were paid, and because of the, you know, institutional arrangements, they didn't have the incentive to share that. And I think the world, including the economics profession, tends to undervalue the intelligence that people have. Even the people who are actually, you know, on the frontlines doing the work. And if we can figure out ways to harness that knowledge and give people incentives to share it and give people incentives to develop their own intellectual thinking about whatever it is they're doing, I think that'll have a big payoff. And so I'm interested in sort of investigating what are the sorts of arrangements, what are the sorts of policies that can lead that to happen more?

Tobi;

Yeah. Thank you so much, Eric. I mean, tell me a little bit about what you're working on right now.

Eric;

What am I working on right now? I mean, so one thing related to what we've been talking about that I'm excited about is, again, a paper on technology adoption. This is in Bangladesh, with an energy-efficient motor like sewing machines. They're different sorts of motors that the traditional ones they're kind of spinning all the time. And then people have the foot pedal they like to press the foot pedal and then the needle comes down and stitches right but they're actually wasting a lot of energy because these motors are spinning all the time. And so there's a new type of motor called a servo motor which spins Only when the needle is moving, right, so it's energy efficient, energy efficient motor, but it can just replace the old motor, you don't have to change anything else about the machine, you just put this new servo motor to replace the old clutch motor. And we're studying when new managers or when new owners, when do they make those decisions. And so we're trying to track we're giving them information in different intensities, like including installing the machines in their factory one is just showing a video when it's just providing information, but one is actually installing their machines. And we're seeing how they react to that information. So I think that's a big topic. It's like what's getting in the way of the adoption of energy-efficient technology? These are the people who are making mistakes, or they just don't have good information. Or that basically, maybe if they have the right information, they actually will adapt very quickly. So that's one thing I'm thinking about.

Tobi;

It's been fascinating talking to you, Eric. I enjoyed it so much.

Eric;

Thank you, Tobi. Good questions.

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My guest on this episode is Stefan Dercon - author of the recently published and most excellent book ‘Gambling on Development: Why Some Countries Win and Others Lose’. Development scholars have produced many explanations for why some countries did better than others after the Second World War. Factors like geography, quality or type of institutions, foreign aid, and protective trade policies, have been argued as what explains this divergence in national prosperity between countries. Dercon's contribution will no doubt be plugged into this long-running debate - and in my opinion, he comes closest to having a ‘‘first principles’’ explanation than anyone I have read on the subject. Other theories leave you with nagging questions - Where do good institutions come from? Are countries condemned by their histories? Why do some countries use foreign aid better? Why are some countries with rich geographic endowments doing worse? Why does protective trade lead some countries toward becoming industrial exporting giants, and some others into a macroeconomic crisis?

Dercon argues that countries that have done better do so by working out a ‘development bargain’. This comes about when the people with power and influence (elites) in a country find a cooperative agreement (bargain) to consciously pursue economic development and national enrichment. Development bargains are not simple, they are often messy. And elites are not a bunch of altruistic do-gooders. Rather, through many complicated networks of intra-elite competitions and cooperation, they decide to gamble on the future by betting that economic development will deliver the biggest win. Dercon does not claim to have found the holy grail of development - and there are still many questions to be answered. But his argument does lead to one inevitable conclusion. Countries and their people will have to figure out what works for them and how that delivers prosperity.

Stefan Dercon is Professor of Economic Policy at the Blavatnik School of Government at Oxford University. He was the Chief Economist of the UK’s Department of International Development (DFID).

Transcript

Tobi;

Was your experience really what inspired you to write the book?

Stefan;

Well, you know, what inspired me definitely is just the contrast that I've had in terms of things I do. Because I've been an academic for a long time, I have more than 30 years writing and studying and, you know, I was one of these academics who like to, as one sometimes puts it, you know, like, likes to get mud on their feet, you know, mud on their boots. I used to work mostly on rural households and in most countries, these are amongst the poorest people, and you just get to know what's going on there. I have a policy interest, and I was just lucky 10 years ago, a bit more than that, I got a job as a Chief Economist in the UK aid agency, and it's just that contrast of having had the chance and the opportunity to get involved on the policy side, on meeting all the more senior people...and it's just that contrast between still enjoying being surrounded by people and what they do and understands livelihoods of poorer people, combined with being in the policy space, I felt like, you know, I have a unique perspective that I wanted to communicate. And it was just a quest to communicate, actually. If anything, I wanted just to tell more of these stories because I think, from all sides, we tend to misunderstand a lot of what's going on and how things work in practice. And that's definitely the case on the academic side. We're so far sometimes from reality that I wanted to tell that story a bit more.

Tobi;

And I mean, after you wrote the book, and after publication, I presume from some of the feedback that your book is actually quite successful. I gave so many copies away, right, I can't even count. I think at some point, I temporarily bought out Roving Heights' entire stock. So how has the reception been generally?

Stefan;

I mean, look, what you just told me makes it much more worthwhile than if white kids in Oxford are buying the book. So what I'm really pleased with is that it appealed to a much broader group of people. And actually, you know, if I'm really honest, I hadn't expected that people like you or I was in Bangladesh last week that young people there would actually appreciate the book, you know, that you would actually get people that think about these problems in these countries are actually interested in it. And I'm very pleased that people find it both worthwhile to read and quite interesting. Of course, I get some academics. One story last week in Bangladesh, I had a question, you know, how Lenin fitted in my book. Now, I had to struggle with the answer of how Vladimir Lenin would actually fit into the book and thinking, you know, that's an academic typically responding to, you know... I don't know, I'm not a deep theoretician but it was written out of a kind of pragmatic sense of what can I learn from economics and politics that actually is worthwhile communicating.

So it's well received. And if I'm really honest, I don't mind that there are pdf copies circulating as well and things like that. Actually, as long as it's read, you know, you write a book, not because you want the highest sales, but you actually want it to be read, and that actually makes it really interesting that people seem to be able to relate to it. Another group that, actually, I found really interesting that can relate to it is people that are either civil servants working in governments like - in yours, as well as maybe aid officials and International World Bank officials, IMF officials, who actually find it helpful as well. You know, and there's usually a huge bridge between them, there's a huge gap between how in Washington when we think about these things, or in London or in Abuja, and so that's pleasing as well. You know, I don't give a solution to the things but I think I touched on something of where a big part of the problem of development lies is that actually, we are, unfortunately, in quite a few countries, still with governments that fundamentally are backed by elites that don't really want to make the progress and do the hard work. And that's an unfortunate message. But at the same time, you have other countries that are surprising countries that make the progress. And so clearly, there is a lesson there that it's not simply like the problem is simple. Actually, the problem is to some extent, simple. It's about, fundamentally, do you want to actually make it work, make this progress work? And I think that echoes with quite a lot of people - the frustration that many of us have, that some countries seem to be stuck and not making enough progress and we need to be willing to call it out for what it is that it's not entirely the fault of those people who are in control, but they could do far more for the better than they actually do.

Tobi;

For the purpose of making the conversation practical and accessible, in the spirit of the book itself, I'm going to be asking you some very simple... and what I consider to be fundamental questions for the benefit of the audience and people that probably have not read the book. So there have been so many other books on development that have also been quite as popular as yours, Why Nations Fail comes to mind, and so many others, The End of Poverty by Jeffrey Sachs, some of which you actually reviewed in the opening chapters of the book. And at the heart of most of them is some kind of fundamental concept that then defines how the body of work itself or the central idea itself works, whether it's institutions, or culture, or industrial policy, or whatever. For your book, you talked a lot about the development bargain, what is the development bargain? And how does it work?

Stefan;

So the way I look at any country in the world, and I mean, any country, rich or poor country is that one way or another, there is a group of people, which I call for convenience, ''the elite.'' It's not like a pejorative title or a title to applaud them, but simply as a descriptive title. The group of people, in politics, civil service, in business definitely, maybe the military, maybe even civil society, key universities, public intellectuals, I talk about the group that I refer to as the elite, these are the people that have power, or they have influenced one way or another, that can be quite broad. Now in every society, I think it's that group that tends to determine what politics and the economy will look like, what the direction of a country will look like, in any society. And I call that underlying idea [as] they have essentially a form of an elite bargain, a bargain between the different people, they don't have to agree on everything, but to have some kind of an agreement that this is the principle by which, you know, my country will be run in politics and in the economy. Now we could have lots of these elite bargains. We could have an elite bargain that, for example, is based on: if I happen to have power, then everything that I'll do is to reward the people that brought me to power. I'll give them jobs in government. I'll give them maybe contracts, I'll do something, you know, technically, we call this Clientelist. You could have another one where he's saying, Look, no, we're going to run this country, totally, where everybody gets an equal right or equal opportunity, and in a particular way. And so you could have political systems that are around this. Now you could have all these things coming together. You could have also regimes that basically say, Well, the main purpose for us is to keep us as a small group in power, you know, he could have a particular way of doing it. Or indeed, to make sure we use it entirely to steal anything we can get and we'll actually put it in our own pockets, you could have a kleptocracy. You could have lots of these different things, you know, you could have different societies.

Now, what I mean by development bargain, is actually fundamentally where that underlying elite bargain values, the underlying idea is that we want to grow our economy, and we want to do this in quite an inclusive way. We want to have developmental outcomes as well. And we make this a key part of the elite bargain. So basically, I define a development bargain as an elite bargain - the deals that we have in running our economy and our politics, that fundamentally, one big way we will judge it is that when we make progress in the growth of the economy, and also in development for the broader population, and I call that the development bargain. And I want to actually go a step further and say if you don't have this, you will never see growth and development in your country. You could have leaders talk about it. They could make big development plans, but if underlying all this there is not a fundamental commitment by all these key players that actually it's worthwhile doing, we're not going to achieve it. And maybe I'll make a quick difference here with say, how does that difference...(now, you mentioned Why Nations Fail.) Now, that underlying elite bargain, of course, the nature of your rule of law, your property rights, all these things, they clearly will matter to some extent, but Why Nations Fail puts this entirely into kind of some historical process. And a lot of people that talk about getting institutions right, they say, Well, you need to get institutions right before you can develop, and they seem to come from a long historical process. In my concept of elite bargain, I would actually emphasize [that] even if your country is not perfect in these institutions, even if there's still some corruption left, even if there are still some issues with the political system, even with the legal system, we actually have countries that can make progress if, fundamentally, that commitment is there amongst the elite. So you don't have to wait until perfection starts before you can start to develop. And that actually [means that] I want to put much more power into the hands... sorry, agency is the better word, I put much more agency in those who at the moment are in control of the state. History may not be favourable for you, there may be a history of colonialism, there may be other histories, factors that clearly will affect the nature of your country at a particular moment in time. But actually agency from the key actors today, they can overcome it. And in fact, in the book, I have plenty of examples of countries that start from imperfection, and actually start doing quite interesting things in terms of growth and development, while other countries are very much more stagnant and staying behind.

Tobi;

You sort of preempted my next question. I mean, since say, 1990, or thereabout, when the results of some of the ''Asia Tigers'' started coming in, maybe also through the works of people like Wade, Hamsden and co., countries like South Korea, Taiwan, Hong Kong, Singapore, have become like the standard for economic development, and subsequent analysis around issues of development always look at those countries and also their neighbours who have actually made some progress, maybe not as much as those specific countries. But what I want to ask you about in your book is, you talk about some of the works on development trying to reach for some kind of long history or some kind of historical...I don't want to say dependency or determinism, but you get my point. So my point is, if we go outside of these Asian Tigers, if we go back to say, Japan, or even the second industrial revolution, America, Germany, the Netherlands, can we observe the development bargain as you have described it? Is it also consistent through history?

Stefan;

I would say Absolutely. I mean, one of the things with when we look at these countries with longer-term success, you mentioned correctly, you know, the Koreas and also Japan, or going back in time to the Industrial Revolution, the second industrial revolution and so on, actually, we take for granted that actually they really wanted to succeed. And it's actually one of these things, and especially in recent history, [South] Korea came out of deep conflict, of course, it was also called War so they got certain support as well. But it was really important for both Japan and Korea after the Second World War, for Japan to re-emerge and for Korea to emerge. It was a form of also getting legitimacy towards their own population. So it was a real underlying deep commitment by that elite in these countries to try to make a success of it. We take it for granted, if we go back in history, take England in the 19th century...I mean, it was a very strong thing, it's like, you know, we wanted to show that actually, we are ruling the world on commerce and all the kinds of things, there was a deep motivation. And of course, also the pressures, you know, remember, the society was being very fractured, and we can't call growth in the 19th century in Britain very inclusive. [There was] a lot of change happening, and indeed, you know, very poor people I think actually initially didn't manage to take up. But especially if we come to the early 20th century became this kind of thing surely [where] development in the form of growth was also when it's a little bit broader shared, became quite part of it. And it's one of these things that when you look at politics, whether it's in the 1930s or 40s or 50s or now, whether it's in England or in America, actually growth and development, I won't take it for granted. People are voted out of office because they are not managing the economy well. There is a lot of political pressure in Europe now. And it's really political because ''oh you're not dealing with the cost of living crisis right or you're undermining the real income increases.'' You know, the US election, we ended up interpreting Trump as an election that actually [served] people [who] had stayed behind in the process of growth and development. Actually, in the politics of most richer countries, it's so much taken for granted that that's a big part of the narrative.

So it's an interesting one (maybe, if I may) just to [use] China, I find it a really interesting one. Because, you know, the historical determinism is problematic there. And of course, some people would say, China should never have grown because it has the wrong institutions. But of course, it is growing fast. But if you think of a bit of what would be historical institutions that are relevant? China has had centralized taxation for 2000 years, a centralized bureaucracy for 2000 years, a meritocratic bureaucracy for 2000 years, you know, it actually had a history that actually acquired strong institutions. But funnily enough, when did it start? Just at the moment of deep weakness in the 1970s. When the Cultural Revolution had destabilised the legitimacy of the state, ideology was totally dominating, Mao died in the early 1970s and mid 1970s the Gang of Four came up, which was his widow, it was all turbulence. And actually lots of people thought China would disappear. It's at that moment, it picked up that kind of thing, you know, and actually, fundamentally, if you read all the statements of that periods, they became fundamentally committed, ''we need to make progress in our economy, that's our source of legitimacy.'' So even there there, that's where you see that actually really emerges and this became something that they needed to achieve - a fundamental commitment to growth and development as a form of getting legitimacy to the population. So in a very different way, as some of the other countries, but it's the same principle. Legitimacy of a lot of countries is equated with progress and growth and development, which is essentially a feature of a development bargain.

Tobi;

Obviously, all societies have some form of elite bargain. Not all elite bargains are development bargains. That's the gist of your book, basically. Now, what I'm trying to get at here is elite bargains that are not for development, that do not benefit the rapid progress of a society, how do they emerge? You talk about the agency of the people that are running the country at a particular point in time. To take Nigeria as an example, a lot of people will blame Nigeria's problems on colonialism. And I'm also quite intolerant of such arguments, at least up to a point. But what I'm trying to get at is that how do elite bargains that are not for development, how do they emerge? Is it via, also, the agency of the elites of those societies? Or are there features of a particular society that kind of determine the elite bargain that emerges? For example, sticking with Nigeria, a lot of people will argue that our elites and our institutions will think and look differently if we don't have oil.

Stefan;

Yes.

Tobi;

Right. The state will be less extractive in its thinking, the bureaucracy will be less predatory, right? A lot of people would argue that. So are there other underlying factors or features in a society that shape the kind of elite bargain that emerges, or this is just down to the agency of the people who find themselves with power and influence? They are just the wrong type of people.

Stefan;

So, Tobi, you make an excellent point here, and, so let's take this a little bit in turn. Leonard Wantchekon, the economic historian at Princeton, from Benin… he gave a nice lecture not so long ago, at Yale, it's on YouTube. And he made this very helpful statement, and he said, you know, if it's between history and agency, I would put 50% history 50% agency, okay. And I will actually add to it [which] is that depending on where you are, history is a little bit more or a little bit less. And so clearly, and he was talking about Africa in general, colonialism will matter. It has shaped your institutions and, you know, the way countries have emerged and the way they decolonized, all these things will have mattered, and they make it harder and easier and so on. But you alluded to it as well [that] at some level, it's already a long time ago now. Of course, it's still there, but it's a long time ago. So over time agency should become much more important. The point though, that you raise about oil makes a lot of sense.

So the problem with a development bargain is that actually for a political elite, and for a business elite, dare I say for a military elite, the status quo is, of course, very convenient. Status quo is something that is very convenient because it involves very few risks. So the problem with growth typically is that, actually, new elites may emerge, a new type of business elites may emerge, they may question the economic elite that exists. As a result, it may change the politics. And in fact, if you go back to history, as we were saying, of course, that's the history of Britain where all the time, you know, there has been a shift of who is the elite, there's always a new elite, but it's shifting. So growth is actually a tricky thing. Because it actually, in that sense, changes relative positions in society. Now, that's obviously the case in every society. But it will even more so if the status quo is actually quite of relative affluence, if the status quo is actually quite a comfortable position to be.

Now if you have natural resources, you don't need growth, to be able to steal. You can just basically control the resources that come out of the ground. And so your supply chain for stealing money can be very short, you don't have to do a very complicated game. If you need to get it from growth in the economy, it's much more complicated, and it's much more risky. Okay. And so it's not for nothing, that actually clearly, more countries that didn't have natural resources in recent times, over short periods of time, managed to actually get development bargains and basically leads gambling on it. Because actually, the status quo was not as lucrative as the status quo can be if you have a lot of oil or other minerals. And so you're right, and it makes it just really hard...and it actually means in fact [that] even well-meaning parts of the business elite in Nigeria will find it very hard to shift the model entirely. Because you know, you are a business elite, because you benefit from the system one way or another. I'm not saying that you steal, but it's just [how] the economy is based in Nigeria on a lot of non-tradables, is helped with the fact that you have so much to export from oil and so you end up importing a lot, but you can also keep your borders closed or anything you feel like keeping the borders closed for. And that helps for a lot of domestic industries, because protectionism, you know, you do all the things. So the system self sustains it. And with oil, there is not that much incentives to change it. So yes, it is actually harder if you have natural resources to actually reengineer the system to actually go for growth and development. So yes, it is the case. But it hasn't stopped certain countries from not going that route.

You know, Malaysia has oil? Yes, it's not a perfect development bargain. But it has done remarkably well. Indonesia, in its early stages, also had oil in the 1970s as an important part, it managed this kind of relationship, and then maybe come the agency in it, you know, do we get enough actors that actually have the collective ability to shift these incentives enough to start promoting more outward orientation, try to export some new things from your country, all that kinds of stuff? And that is indeed what happened in Indonesia. There in the early 1970s, they had oil, but they also learned to export shoes and garments early on, they took advantage of good global situations. And Nigeria didn't, you know, and then agency comes into it, you know, the managers of both the politics and the relationship between politics and business, including from the military, they went in a particular route, and they had choices and they didn't take them. I'm pretty sure if you go back and, you know, there will be moments of choice and we went for another - as people call it - political settlement... another equilibrium that actually didn't involve development and growth as the key part. So yes, it makes it harder. But the agency still, still matters.

Tobi;

From that point, my next question then would be, what shifts an elite bargain more? That's kind of like do question, right? What shifts an elite bargain? These questions do sound simple. And I'm sorry, but I know they are incredibly difficult to answer. Otherwise, you wouldn't have written an entire book about it. Right. So what shifts an elite bargain more towards development? I mean, you talked about China, we've seen it also in so many other countries where the country was going in a particular direction that's not really pro growth, pro-development, and then there's this moment where things sort of shifts. So it may be through the actions of particular actors or events that inform those. So what... in your experience as a development practitioner and looking at all these places...What are the factors that have the most influence in shifting the elite bargain? Is it just luck? I mean, when I think about China, what if Deng Xiaoping and his colleagues had actually lost that particular power struggle after the death of Mao? So did they get lucky? Is it luck? What's going on?

Stefan;

You know, I wouldn't use title of gambling but there has to be a little bit of luck involved as well, you know, the circumstances have to play in your direction. But it's not just luck. Okay. So it's an interesting thing when you look at a couple of the countries, what were the moments that people within the elite managed to shift it in another direction? So. China is interesting because it was going through conflict, not deep conflict or violent conflict, but there was a lot of instability in China at the time, at the end of the Cultural Revolution in that period. Other countries like Bangladesh came out of conflict. And so conflict, definitely, or coming out of conflict creates a moment. But of course, there are lots of countries that come out of conflict that make a mess of it. It's a window of opportunity. And it probably is linked with something related to it, which is legitimacy. When you come out of conflict, most of the time, leaders need to reestablish legitimacy. This is clearly something that happened to Rwanda coming out of the genocide, Kagame clearly had to establish legitimacy, you know, he represented a very small group of people within the country and he needed to get legitimacy overall and he chose growth and development to doing that. I think Ethiopia is similar, that actually Meles Zenawi coming from Tigray, he needed, you know, post 2000, coming out of the Eritrean war at a time, and all kinds of other crisis that he was facing in his own party even, he needed to get legitimacy, and they thought he could get legitimacy for his regime through growth and development.

So legitimacy-seeking behavior can be quite important. Now it has another side to it. If there's a crisis of legitimacy, that's the moment when the leader can actually take advantage of it. A crisis of legitimacy is actually saying, ''Well, look, we better go to something that begins to deliver to people.'' And why I'm actually suggesting it is that actually, there are in certain countries, a bit of pressure from below also seems to be quite useful. But there is a role there and I find it very hard to define exactly because I'm always scared of autocrats and so on. But the point of leadership is there. So I don't mean it as the strong leader, but more to do with the kind of group of people that manages to take other people along and convince them that is the kind of thing that they need to do. So if you go to Indonesia, I don't think it was Suharto personally, who was the great thinker there that did it. But he clearly surrounded himself with a group of people that included technocrats and also other people from politics, that actually managed to push this in a particular direction in doing it. So how do we get it? While it is actually people taking advantage of windows of opportunity to actually nudge towards it? Okay. But it's hard. We’re talking Nigeria, other people have asked me questions about Brazil, about India, you know, large countries like yours with very complicated elite bargains that have national and state level things and so on... it's really complicated. Rwanda in that sense is well defined, you know, we have one well-defined problem and, you know, we could go for a particular model. It can be quite complicated to have some ideas on that on Nigeria, but maybe we can come to that a bit later.

Tobi;

So, I'm curious. I know you didn't cover this in your book. So let me let you speculate a bit on the psychology of elite bargains or development bargains specifically now. Given that I've also tried to look at some of the societies that you described, and even some others that you probably didn't mention, I don't think there's been a society yet where this is a gamble true, but where the elites have sort of lost out by gambling on development. So why don't we see a lot more gambles than we are seeing currently?

Stefan;

Actually, unfortunately, we see gambles that go wrong. I mean, for me, and I've worked a lot on Ethiopia, Ethiopia as a gamble that went wrong at the moment. And Ethiopia... you know, just think a little bit of what happened and maybe typify a little bit in a very simplistic way the nature of the gamble. You know, you had a leader under Meles Zenawi, under the TPLF - the Tigray and rebel group - where in the end the dominant force in the military force that actually took power in 1991. And they stayed dominant, even though they only represent, you know, five 6% of the population, they remain dominant in that political deal. Though other groups joined, but militarily, it was the TPLF that was the most powerful. So it also meant that the political deal was always fragile because in various periods of time, you know, my very first job was teaching in Addis Ababa University so I was teaching there 1992 93... you know, we have violence on the streets of students that were being actually repressed by the state, they were demonstrating against the government. You know, over time, we have various instances where this kind of legitimacy, the political legitimacy of that regime was also being questioned.

Now, one of the gambles that Meles Zenawi took was to actually say, look, there's a very fragile political deal, but I'm actually going to get legitimacy through growth and development. So he used development as a way of getting legitimacy for something that politically and you know, just as Nigeria is complicated, Ethiopia is complicated with different nationalities, different balances between the regions, that he actually wasn't quite giving the space for these different nationalities to have a role, but he was gambling on doing it through growth and development. How did this go wrong? You know, I kept on spending a lot of time, but in the 2010s after Meles Zenawi died, very young from illness, the government still tried to pursue this. But actually, increasingly, they couldn't keep the politics together anymore. They were almost a different nationality, they were always on the streets, there was lots of violence and so on. And then in the end, you know, the Tigrayans lost power in the central government, and then, of course, we know how it escalated further after Abiy. But in some sense, the underlying political deal was fragile and the hope was that through economic progress, we could strengthen that political deal to legitimacy. That gamble is fine. Now it's a very fractured state and unfortunately, all the news we get from the country is that it's increasingly fractured. And I don't know how we'll put it together again. So that's a gamble that failed. Now, we know more about it. And it was very visible because it lasted quite a long time. Many of these gambles may actually misfire if they don't pick the right political moments. You know, if you don't do it at the right moment, and if you're a little bit unlucky with global circumstances, you fairly quickly could get into a bit of trouble politically, and whatever. For example, with the high inflation we have in virtually every country in the world now, it is clearly not the moment to gamble. It's extremely risky, [and] fragile, and your opponents will use it against you. So it's another thing like, you know, we don't see them gambling, you know, there are relatively few windows of opportunities at which you can gamble. And there are some that will go wrong. And even some that I described as successes, you know, we don't know whether they will last, whether they will become the new Koreas. I'm cautious about that. So, we need to just see it a little bit. Although I don't see Nigeria taking that gamble. So that's another matter.

Tobi;

No, no. I mean, that's where I was going next. Let me talk to you a bit about the role of outsiders here. We're going to get the aid discussion later. So currently in Nigeria, obviously, the economy has been through a lot in the last several years, a lot of people will put that firmly into the hands of the current administration. Rightly so. There were some very terrible policy choices that were made. But one point that I've quite often made to friends is that, to borrow your terminology, I don't think Nigeria was under the influence of a development bargain that suddenly went astray seven years ago. We've always been heading in this direction, some periods were just pretty good. And one of those periods was in the mid to late 2000s, when the economy seemed to be doing quite well, with high oil prices and also, the government actually really took a stab at macro-economic reforms. But if also you look carefully at the micro-history of that period, you'll see the influence of, should I say, outside legitimacy, you know, trying to get the debt forgiveness deal over the line and, you know, so many other moves that the government was making to increase its credibility internationally was highly influential in some of those decisions and the people that were brought into the government and some of the reform too. And my proof for that when I talk to people is to look at the other things that we should have done, which, we didn't do.

We had the opportunity to actually reform either through privatization, a more sustainable model of our energy policy - the energy industry, generally. Electricity? People like to talk about telecommunications and the GSM revolution, but we didn't do anything about electricity, we didn't do anything about transportation. Infrastructure was still highly deficient and investment was not really serious, you know. So it was not... for me, personally, it was not a development bargain. Now, my question then would be, could it have been different if some of the outside influences that are sometimes exerted on countries can be a bit more focused on long-term development, as opposed to short-term macro-economic reforms on stability? You know, institutions like the IMF, the World Bank, I know they have their defined mandates, but is it time for a change? I think they actually have a lot more influence than they are using currently.

Stefan;

You make extremely valid points. And I think I will broadly agree with you with what you just implied. And I'll take a stance on it now. So the first thing, of course, and you correctly saw that something very misleading in Nigeria's growth figures is that periods of high growth are not at all linked to much action by economic policymakers. But it's still largely linked to oil prices. And we have this unfortunate cyclical behaviour in policymaking. Where the behaviour when prices are really good, is just always missing taking advantage of the opportunity. While when things are bad, we're talking about all kinds of things one ought to be doing but then saying, ''we can't do it because the prices are low.'' And so there is this kind of strange, asymmetric thing about policymaking that we always have the best ideas when we can't do them, and then we don't have the ideas we should have when the going is good. And this is in a way what you're alluding to. Of course, the role of outsiders that gets very interesting is what these outsiders were focusing on, actually, I think it was in the interest of the, call them, semi-outsider inside government...some of these technocrats that were brought in. And I can understand it entirely, you know, there were some really sensible finance ministers at various moments and so on. They were focused on actually things that were relatively easy in that period. So they were actually relatively easy, because the going was quite good. And so actually you created that strange impression, and it's a little bit like together with the outsiders, with World Bank, IMF, but actually, we're dealing with something really dramatic but, actually, we were not at all setting a precedent because it was actually, relatively... relatively politically low cost to do these things at that moment. Okay.

So it was progress of sorts, you know, getting the debt relief, and so on. But arguably, you know, it's not a bad thing. But this actually was quite a low-hanging fruit and many of these organizations like these ideas of low-hanging fruits, because actually, politically, it played well, it increased the stature internationally of Nigeria...but, actually, it didn't really cost the elite much. It wasn't really hard for the elite to do these things. [If they did] the difficult things, they would really have started to change Nigeria. And so there is something there that I'm struck by the last sentence you said that some of these outsiders may be focusing on the wrong things. I think it has to be the insiders wanting to focus on these things, on these more difficult things. And then I do agree with you, the outsider should be smarter, and better able to respond to this. There's a problem with the outsiders here as well, take something that clearly you still struggle with and struggled forever with - electricity reform, the electricity sector. It's so complicated, and it's set up so complicated in all kinds of ways and whatever. So much inefficiency, so much waste that then it doesn't function and everybody, you know, complains about it. But it becomes politically very sensitive because there are definitely vested interests linked to it now and it becomes very hard to unravel it.

Now the problem is if you ask typically a World Bank or an IMF for advice, they will make it very simple and say, Oh, just privatize the whole thing and do the whole thing. Now. You know that in a politically sensitive environment, you just can't privatize everything, so you privatize a little bit, but anything that's really with vested interests you won't touch. But these are the inefficient bits. So the easy prey, you privatize, and that's someone else making even more money off it because it's actually the efficient part of those systems that gets privatized, and then the inefficient part is still there and costs even more money. And so what I think these outsiders could do better is to have a better understanding of Nigeria's political economy, which is complicated at the best of times, but really understand, where can we start actually touching on something that we are beginning to touch on something vested interests that we begin to unravel a little bit some of the kind of underlying problem of, you know, politically connected business, you know, all the way to party financing or whatever...that you need to start unraveling somehow, where actually the underlying causes of inefficiency lie. Because the underlying causes of inefficiency are not just technical, they're actually not just economic. The underlying causes are these kinds of things. So I think why the outsiders did what they did at that time, it actually suited the government at the time, the technocratic ministers, that's the best they could do because that was the only mandate they had. Together with the outsider, they'd say, Well, that's certainly something we could do. But actually, fundamentally, you didn't really change that much. You don't still have then wherever it goes a bit bad, I'll get six or whatever exchange rates, and I'll get all kinds of other macroeconomic poor management, and, of course, nothing can happen when there's a crisis. There's no way we can do these more micro sector-specific reforms than doing it. So yeah, you're absolutely right. But let's not underestimate how hard it is. But starting to do the things that you refer to is where we need to get to to doing some of these difficult things.

Tobi;

The way I also read your book is that the two classic problems of political economy are still present, which is, the incentive and the knowledge problem. So I want to talk about the role of knowledge and ideas here. Let's even suppose that a particular group of elites at a particular time are properly incentivized to pursue a development bargain. Right? Sometimes the kind of ideas you still find floating around in the corridors of power can be quite counterproductive. A very revealing part of your book for me was when you were talking about the role of China. Also, I have no problem with China. The anecdote about Justin meme stood out to me quite well, because I could relate to it personally because I've also been opportuned to be at conferences where Justin Lin spoke, and I was slightly uneasy at how much simplification happens. I mean, just to digress a little bit, there was a particular presidential candidate in the just concluded primaries of the ruling party, I'm not going to mention the name, who is quite under the heavy influence of the China model. Right? Always consults with China, always meeting with Chinese economists and technocrats. And my reaction when he lost the primaries was ''thank god,'' right? Because what I see mostly in development thinking locally, I don't mean in academic circles, a lot of debates are going on in academics... is that the success of China and Asia more broadly has brought the State primarily into the front and centre.

If you look at this current government, they will tell you seven years ago that they meant well. You know, judging by the Abba Kyari anecdotes where government should own the means of production. He may not believe that, like you said, truthfully, but you can see the influence of what has been called ''state-led development.'' In a state where there is no capable bureaucracy. The government itself is not even optimized to know the problem to solve or even how to solve that particular problem. Right. So broadly, my question is, if an elite chooses to pursue a development bargain, how does it then ensure that the right ideas, which lead to the right kind of policies, and maybe there might not even be the right policies - one of the things you mentioned is changing your mind quickly, it's an experimental process - but, you know, this process needs people who are open to ideas, who change their minds, who can also bring other people in with different ideas, you know, so this idea generation process in a development bargain, how can it be stable even if you have an elite consensus is that chooses to pursue development?

Stefan;

Look, it's an excellent question. And last week, or 10 days ago, when it was in Bangladesh, I was very struck that, you know, as a country I think that has the development bargain, there was a lot of openness. And you know, I was in the Ministry of Finance, and people had a variety of ideas, but they were all openly debated, there was not a kind of fixed mindset. And it is something that I've always found a bit unfortunate dealing with both politicians and senior technocrats in Nigeria. Nigeria is quickly seen as the centre of the world, there's nothing to learn from the rest of the world, we'll just pick an idea, and then we'll run with it and there's nothing that needs to be checked. And, you know, I love the self-confidence, but for thinking and for pursuit of ideas, you know, looking around and questioning what you hear whether you hear it from Justin Lin, who by the way, I don't think he's malign and he means well, he just has a particular way of communicating but it is, of course, a simplified story that you can simply get, and then you'll pick it up. And of course, if you ask the UK Government, the official line from London, they will also tell you there is only one model when they're purely official, but privately they will be a bit more open-minded, and maybe Chinese officials don't feel they have that freedom to privately encourage you to think a bit broader and so you have maybe a stricter line. So how do we do that? I think we can learn something here from India in the 1970s and 1980s. So when India after independence, it had a very strict set of ideas. In that sense, India was as a child of its time as a state, you know, state control, state-led development, there were strong views around it and India ended up doing a lot of regulation. They used to refer to India as the License Raj. Like a whole system based around licensing and everything was regulated by the state. So the state had far too much say in terms of the activity, despite the fact that the underlying economy was meant to be very entrepreneurship and commerce-led, but you had a lot of licensing rules, and so on. And of course, its growth stayed very low in the 1970s and 80s, it was actually very stagnant. It changed in the 1990s. Partly came with a crisis - in fact, a balance of payments crisis - it needs to reform and Manmohan Singh was the finance minister, then, later on, he became maybe a less successful Prime Minister. But as a finance minister in the early 90s, he did quite amazing things. And then during the 90s, gradually, every party started adopting a much more growth-oriented, more outward-oriented type of mindset.

Now, why do I say this? Because actually, during the 1970s, and 80s, you had think-tanks, all the time pushing for these broader ideas. It took them 20 years. But there were really well-known think-tanks that kept on trying to convince people in the planning commission, economists in the universities and so on. And to critically think, look, there must be other ways. So actually, funnily enough, in India, it has a lot to do with the thinking and the public debates, that initially the politicians didn't take up, but actually found the right people to influence... you know, you actually have still in the civil service some decent technocrats there, they don't get a chance. But there are decent people, I know some of them and so on. But there needs to be a feeding of these ideas. And actually, this is where I would almost say there's a bit of a failing here, in the way the public discourse is done [in Nigeria] and maybe voices like you, but also more systematically from universities from think tanks and so on to actually feed and keep on feeding these ideas. There is a suggestion [by] Lant Pritchett - you know he's a former Harvard economist, he is now in the UK - [who] wrote this very interesting paper and he said, some of these think tanks who are actually getting a little bit of aid money here and there and he said, that's probably the best spent aid money in India ever. Because the rate of return and he calculates this number is like 1,000,000%, or something. Because he basically says the power of ideas is there. And I do think there is something there that I'm always surprised by that there are some very smart Nigerians outside the country, they don't really get much of a hearing inside the country, then there are some that are actually inside the country, the quality of debate is maybe not stimulated to be thinking beyond. It has to do probably with how complicated your country is, and of course, the Federal status plays a role. I just wonder whether maybe this is something that needs to start in particular states. You know, there are some governors that are a little bit more progressive than others. Maybe it is actually increasing and focusing attention over this on a few states to get the debate up to a high level and to actually see what they can do and maybe it's where the entry point is, but you need ideas I agree with you and I do worry at times about the kind of critical quality... there are some great thinkers in Nigeria, don't get me wrong, but the critical quality of ideas around alternative ways of doing the economy and so on, and that they get so easily captured by simple narrative, simple national narratives that are really just too simple to actually pursue. I mean...yeah.

Tobi;

That's quite deep. That's quite deep. I mean, just captures my life's mission right there. It's interesting you talked about Lant Pritchett and the question of aid, which is like my next line of question to you. There was this brief exchange on Twitter that I caught about the review of your book in the guardian, and the question of aid came up. I saw responses from Martin Ravallion, from Rachel Glennerster, I'm not sure I'm pronouncing her name right. So it's sort of then brings me to the whole question of development assistance, aid, and the way intervention has now been captured by what works. One fantastic example I got from your book is on Bangladesh, and how both systems work. You know, there's a broad development bargain, it's not perfect, nothing is, no society is. And there's the pursuit of economic growth. And also, it's a country where aid money and all forms of development assistance is quite active, and is quite huge, and it's actually quite effective. Now, my question is that basic insight from your book, which is for aid spending to be a little bit more biased, not your word... a little bit more bias to countries that have development bargains broadly? Why is that insight so difficult for, I should say, the international NGO industry to grasp? Why is it elusive? Because the status quo, which I would say, I don't mean to offend anybody, but which I will say is also aided by development economists and academics who have sort of put methodology and evidence above prosperity, in my view... because what you see is that, regardless of how dysfunctional the country is, broadly, the aid industry just carves out a nice niche where they do all sorts of interventions, cash transfers, chickens and, of course, you can always do randomized control trials and you say you have evidence for what works. But meanwhile you don't see the broad influence of some of these so-called assistants in the country as a whole. And these are institutions who proclaim that they are committed to fighting extreme poverty and we know what has vastly reduced poverty through history has always been economic growth and prosperity. So why is this elusive? Have those agencies and international development thinking itself been captured?

Stefan;

Look, I think I should make you do my interviews in the future. Yeah. So I've got to hire you to give...Because, look, I've been inside the aid industry and, in fact, the two people that you mentioned, you know, I would call them my friends, although one of them clearly is very cross at me at the moment. But you know, these are people I've worked with, and so on. And I am worried that there is such an obsession within the aid industry to prove their effectiveness. And I know I've been under pressure, you know, I've worked in it and sitting in London and getting your newspapers to say you're wasting all this money. It's really affecting a lot of people. And it was really hardwork for these 10 years that I sat inside it. But it's about just the humility that you just described, you know, and I want to make this distinction between...I'm about to make two distinctions. So the first one is - you made it well, even Bangladesh, something is going on. And you know, with all the imperfections, the government is trying to do something, and largely by staying to some extent out of the way. And there's some good stuff happening. So there's growth picking up and so on. So you can do all kinds of things. And I think aid in Bangladesh has been great at trying to make sure that the growth that was taking place in that country was a bit more inclusive than it probably would have been. I think it's great. And I think the aid industry should be proud of it. There is a great book that I quote as well also by Naomi Hossein and she calls it The Aid Lab and this is a bit like in praise of it. You know, if we do it carefully with some community and complement what's going on in a country that is deeply poor, you know, you can actually do really good things. Because in the book, I also mentioned Ghana that, actually, aid has been pretty effective because something had begun to change in the 90s, and so on. And we can question that to some extent and, of course, it's none of this perfection.

But if you then come to a country where, you know... probably the two of us agree [that] there is some form of stagnation in that kind of [country], there's no development bargain, the elite bargain doesn't really push everything forward. Just be humble to say, look, I have a little niche, and there will be some chicken farmers that are happier, we'll do some good things in health... in health, actually, it's quite straightforward to do good things. But they are to call these good things, don't classify this as if you are leading the fight against extreme poverty, leading the fight against the change in these countries. Because, actually, if the local elite is not leading their change, and those people who have the power and influence not leading their change, the best you can do is doing good things. So I'm happy for us to be able to say we do good things. And it led me in the context of an interview to say like in India, as doing a lot of good things means that aid was actually in itself quite irrelevant, because the real change came, as I described in the 90s, actually, there was a real shift in gear, and suddenly their own development spending became gradually more effective. And of course, you can help them then to make it more effective. But, you know, I was a bit sad, and Martin Ravallion now took issue with it and wanted to emphasize... you know, and I don't want us to ever say, look, we did it. I mean, it's such a lack of humility I'll say this. At some point, we may have been supportive of doing it, but it's always the countries that did it. And the people there that did it. And other times just be humble and say, well, we may be doing something reasonably good, we may improve health outcomes, education outcomes, but not necessarily the whole country may do it in the schools that we work in, or whatever. And it's, that's good, you know, that's just as there are Nigerians that do good things via their own organizations and so on, they do good things. And it's probably teachers in the country, within the state schools that do some of these good things in the best practice stuff. And so yeah, they improve things, but overall, have the humility to say you're not changing Nigeria, because unfortunately, Nigeria is not being changed at the moment.

Tobi;

So my question then would be, is it reflective of the current intellectual climate in development economics where randomized control trials, they pursue...I know Lant Pritchett has really come down quite heavily on this particular movement, though, sometimes he seems to be the only one standing, maybe not quite literally true and I'll give you two examples from Nigeria, right? In 2012, when the anti subsidy-removal protests broke out, when the government on the first day of January removed fuel subsidy and prices suddenly went up. And the labour movement, the student movement, opposition politicians mobilized the population against that particular move. Some form of resolution that the current president at that time reached was to do what they call a partial removal of subsidy, you know, prices will go up a little bit and the government then did a scheme - an entrepreneurship scheme - where you submit a business plan and you're paid to get $50,000 to do a business.

And I read a particular study by David Evans of the World Bank of how fantastically successful this particular scheme was, and of course, no doubt, it was successful. I mean, if you get $50,000 to do business in Nigeria, that's a lot of money. I don't need econometric analysis to know that, but maybe some people do. But the truth is, if you look today, I can bet you that a lot of those businesses are probably dead now due to how the economy as sort of evolved after that.

Secondly, at the time we were having these debates and protests in 2012, the subsidy figure there was $8 billion annually, today it is $15 billion. So if you say you have evidence that something works, what exactly is your time horizon for measuring what works? And if you say something works, works in whose benefit, really? The most recent example was in 2018, 2019, where the government was given a small amount of money to small retailers, they call it Trader Moni. I'm sure there were World Bank officials and economists (I have a lot of respect for them) who are measuring the effectiveness of this thing. But you could see clearly that what was politically going on was the government doing vote buying. Right? So if you say something work, works for whom? Right? That was my response to Rachel on Twitter, but she didn't reply me. My question then to you... Sorry, I'm talking too much... Is this reflective of the current intellectual climate in development economics?

Stefan;

So yes and no? Okay. So, well, i'm going to have to be very careful. Of course, Rachel...I know her very well. And, actually, I have not that many gripes with her. She comes out of, indeed, the whole school of RCTs. By the way, I also actually do RCTs. I like it as a tool to actually study things. And I'll explain in a moment a bit more. So I do these randomized control trials as well. But I am very, very sympathetic. And I actually totally agree with your frustration around this idea to creating that impression about what works. You know, I have it in the book, I even mentioned it, there was a particular minister that at some point announced we're only going to spend our money on what works, you know, like a great slogan, as if you have all the answers, you know what to do. And of course, there is a technical meaning to it. Technical meaning would mean, if I do something and if you haven't done it, what would have been the outcome? And the paper that you refer on the entrepreneurship, this entrepreneurship for the $50,000... I know actually the research very well, the original was from David McKenzie and then other people commenting on it. Yes, relative to a counterfactual, yes, it was actually much bigger than an alternative scheme, you know, then that's something. So you could say, well, you know, as a research question, as a researcher, I find it interesting. From a policy point of view, I'm so much more cautious. And I'm totally with you. You know, first of all, in the bigger scheme of things, how tiny maybe it be... now there are some people who would say, well, we don't know anything, really, what to do in this whole messy environment so at least [to] have something that does a bit better than other things is maybe a useful thing to know.

I think it comes back to that humility. As a research tool, it's great at getting exact answers. As a policy tool, I think we need to have much more humility. Because are these ideas tha totally transforms everything, that is actually makes a huge difference? Not really. It probably means that we can identify a little bit and I think even Pritchard wouldn't disagree with [that] sometimes a few things are a little bit better than other things. And if we want to do good, maybe it's helpful in medicine whether we know whether we should spend a bit more money on X or on Y, that it actually does a little bit better in the functioning of a health facility or not, if we spent a bit more money on that practice or on that practice, same in teaching in the school, if we do a little bit more of that in a very constrained environment than something else, that's useful, it doesn't change dramatically. And I categorize it with doing good. With humility, if we do good, it's helpful to know which things are a bit better than other things...when we try to do good. It's an interesting thing, even in Rachel's thread, she actually used it, we can still do quite a lot of good with aid. Actually, funnily enough, I don't disagree that deeply with her and say, Yeah, we may be able to do it good, but don't present it as if we, in the bigger scheme of things, which is where you're getting that, make any difference. And this is where I'm also sympathetic with Lant in saying, Look, sometimes we seem to be focusing on the small trivial things and yeah, it's useful to know but meanwhile the big picture is what you were describing, there's so much going on and, actually, nothing changes there.

And so I categorize it in a bit of the same thing. Because I'll now give you an account, which is then go to Bangladesh again. Look, I think it was extremely useful in Bangladesh at some point to really have ... an RCT - a randomized control trial. So really careful evidence to show that a particular program that BRAC, the biggest NGO in the world, the local NGO, was actually what it was actually doing to the ultra-poor. In fact, two weeks ago, I was visiting the program again. And I find it really interesting because it's really helpful for BRAC to know that that program, when I do it in a careful evaluation relative to other things, that actually this program is really effective. And that, actually, we know for BRAC that they can have so much choices to spend their money on poverty alleviation, the things that we can dream up, to actually know this is actually a really good thing. And why of course does it work? Well, it works relative to doing nothing, but of course, it helps in Bangladesh {that] growth is taking place and it actually can get people to become [a big] part of it. In fact, I was visiting people that, whether we use a Nigerian or Bangladeshi definition of extreme poverty, they wouldn't have been in that state 10 years ago and so this is their being six, seven years in that program, and it was really interesting that I was sitting into some interviews they were doing, and I looked over my shoulder, and they now had a TV and a fridge. And I say, okay, an extremely poor person in Bangladesh would not have had this. So there's clearly something happening. Now, that's not simply because of the program. It's also because the whole country is improving. But I'm pretty sure and what the data showed is that those who actually had a program would have found it a bit easier to take part in that progress. And I'm pretty sure that the TV, and the fridge, probably was helped, to some extent, by the programme. In fact, we have very good evidence in the kind of evidence that Rachel Glennerster talks about.

So again, I think it's all about a bit of humility, and understanding better what we mean by it. And to be honest, I think there are lots of people who work in that field that are careful with it. And that actually will do it, use it well. It gets just really worrying that people, often more junior people than Rachel, they've never really been in the field properly and then they make massive statements. So they work in big organizations, and they use that evidence, overuse it and overstate it. I think Rachel is actually careful, even her thread was very careful, although your question is a very good one. But it's very careful. But it still allows other people to overinterpret this whole thing. And then I get really worried. I'm actually going to put out a thread on Twitter in the coming days where I'm going to talk about tribalism in development economics... where I'm good to deal with your question as well because I think the way the profession has evolved is that you need to be in one tribe or another, otherwise, you're not allowed to function. I think, you know, you need to be eclectic, you know, no one has this single answer. And there's too much tribalism going on, much more than I've ever known before. You know, you need to be Oh, a fan of that, or you need to be the historical approach, or the Political Economy approach, and the whole... we should learn from all these bits. That's the idea of knowledge that you learn from... as much as possible from the progress in different parts of a discipline, or in thinking.

Tobi;

I'm glad to have caught you on a free day because having a lot more time to have this conversation has made it quite rich for me personally, and I'm sure for the audience as well. So I just have a couple more questions before I let you get back to your day. The first of those would be...um, when I first became aware of your book on Twitter, it was via a Chris Blattman thread. And he mentioned something that I have also struggled with, both personally in my thought and, in my conversation with people. And something you have alluded to earlier is pressure from the bottom. So the question that I'm sure an average Nigerian right now is grappling with is what can they do? What can they do to affect the system? The sad reality in a certain context is that a few people run the country and they sort of decide the direction with which the country go. Bureaucrats in Abuja can decide what happens to your business in Lagos or in Onitsha or in Katsina or wherever. So the question then becomes, what can you do as someone who is not a member of that select few to affect the system? And I want to put that question to you that the generic common man, what can they do?

Stefan;

I think there are several things that we can still do, of which the first one is that we keep on debating, and we keep on talking. I mean, the example I gave from India, you know, there is a power of ideas. And there is a power of both convincing young people who, in Nigeria, are increasingly dominating the electorate. So I think people can still do quite a lot. So the first thing I would say is that conversations we're having, they matter. When I referred to earlier, also, what was happening in India during the 1980s - the debating, the discussing, the kind of thinking about alternative options. We're not talking about fundamentally, you know, political upheaval, or you know, this is not about coups, this is not about revolution, this is actually about persuading key people in powerful positions to open themselves for ideas that are more developmental, that are more growth-oriented. And I would say It has to be about, for example, getting to a situation where we're buying more from Nigeria than just oil. That we are willing to start asking ourselves, is the nature of the link between politics and the economy the right one? How politics is financed and so on. But you begin bit by bit, because you'll need to have key people in whose interest it, also, is seen to be that there is this change. So I think in Nigeria, it's definitely going to be about a changing political class or an evolving political class, you know, lots of people would say, look, the current two candidates, the last time of that generation will probably fight it out. You know, there's a new generation coming, hopefully, it will be a bit younger than just a few years, and so on. And so you start getting bits of this renewal, but it's making sure there is enough ideas and about openness and not making it too simple. You know, none of this is going to be easy. None of this is going to be quick, because it's going to be choices. And basically, I think what we should be doing is that, because we are at a moment going through very high oil prices, so central bank is laughing all the way and it's easy for the macroeconomy. But every time when it's this wave of high prices, or the next one of high oil prices, of course, this one is combined with other issues as well, in global prices, and other things...but whenever the macro economy has a bit of that space to actually prepare ourselves to do a little bit more sensible things with it, things that are not driven by ideology, but by pragmatism. Things that are willing to start taking on some of the difficult things than not. So these ideas need to be planted now even if we only start doing them, maybe not during the next presidency but the one afterwards. And that's also what I think really could work in Nigeria is having some governors that actually within the space they have, and they have some space and have a bit more space than they sometimes dig, but actually doing sensible things. And you know, trying to, for example, do another type of politics, a politics of legitimacy, where they want to be reelected based on a platform of delivery rather than reelected on a platform of vote banks or party finance, and so on.

So you'll begin to work on that. So it's basically a mixture of realism, but making sure the power of ideas, with bits of accountability. Because we talked earlier about learning and ideas. But learning actually is a form of accountability, being willing to say, I'm actually wrong, and I need to change my mind. And so it's a form of building up a little bit better the way these debates, maybe, the way civil society works, and so on. I really think that actually organizing also among civil servants, I thought one of the very interesting things that was in Bangladesh is that actually civil servants in their own private time connected themselves with young people in other sectors, and so on. And they debated. They're not breaking any rules or regulations. But they were trying to get themselves organized. I was the guest of Youth Policy Forum that in a couple of years now has 30,000 members on Facebook. And they were actively debating what a new economy could look like, what actually an upgrading of their economy could look like, what sectors it would look like, and so on, and actually having quite in-depth discussions on industrial policy and so on, in ways that I was very surprised by. So it's basically finding ways of connecting and talking. And then, you know, young people in Nigeria are the power in the end, you know, they increasingly are the voters as well, and to try to see whether one can get a little bit forward. So I think it's to do with where you sit, the quality of debate, but it's also probably about the quality of organization, and not just debate for the sake of debating which I think happens a lot in Nigeria, but actually organizing and actually thinking: where do we find areas of consensus and organizing yourselves, and this is not in a revolutionary sense but just in an influencing sense. I was struck in Bangladesh that with a one week notice they organized the discussion about my book with this Youth Policy Forum, but they managed to get the chief economic adviser of the President to be there, and six MPs, all with a week's notice. You know, I thought that's actually quite powerful. And the reason they turned up was not because of me, but because this group of 30,000 people had organized it and they have so much Facebook coverage and so on, and they do high-quality debates. So it's things like that, that actually people can do and I think there is more future to that. And I don't see it enough coming from Nigeria, or maybe I'm missing it. Maybe it is there. But I think that's influential.

Tobi;

Final question before I let you go. What's your one big idea for... I know the big idea from your book is the development bargain. Trust me, you may not know it yet, but that's quite a powerful idea that will be quite influential in the years to come. But what are all the big ideas on how countries, particularly from a policy perspective... if you want to pursue a development bargain, what are the first set of things as a rough sketch that you should get right, in terms of policy?

Stefan;

So the one big lesson is, and that would be for Nigeria and also for some of the other countries is that... it sounds maybe like an old lesson, but it gets a different meaning in this context, and this is about every economy needs to find its growth engines. The whole power of encouraging a growth engine that involves the world as the market rather than your own economy as the market is, in my view, still more powerful than we may have understood for a long time. For a long time, people said, Oh, you need to export because you probably need to have foreign exchange, and you need to do something in the economy. What I see very powerful in Bangladesh, in an economy, in a society where politics is very messy, which is not as strongly ruled as Korea was during its time of progress or Taiwan was - but actually have this weak, relatively tricky politics, not a very functional state, not a very strong state, and a lot of corruption around as well - by having to sell to the world and making that a really big part of what you do, proved an incredibly powerful disciplining device for the elite, [and] for actually keeping the course going. So Bangladesh got itself locked in almost into selling garments to the world, you know, 95% of its exports are readymade garments, they're a massive success. But it also means now, they really can't allow the exchange rates to become overvalued. Which actually means you'll see very few Mercedes and BMWs on the streets of Bangladesh. You'll see very few Bangladeshi elites that can send their children to school in London, or to Eton or to Harrow. You basically have the strong incentives to keep a competitive exchange rate which means imports are expensive. And so it gives that incentives for its domestic economy to actually start doing things. So it's this power of actually being export-oriented, therefore needing to keep a competitive exchange rate so you need to sell abroad, that now has a further influence on your domestic economy that you have actually an extra incentive to actually start producing things for your local markets because imports are expensive.

So it's an old idea of export orientation. But actually, it's a brilliant disciplining device for your elites. And I do think it matters for Nigeria. Because that's where it all the time goes on. Every time the old price goes up. you allow your exchange rate to become cheaper, you basically overvalue so imports become cheaper. And every time that the price goes down, you have no way of correcting it. And so actually, we all the time do things in the interest of the elite. But actually, you know, I think my big idea in terms of policy is to really become much stricter on that. And the only way to do it is to really... if you do industrial policy, do it focused on some export products, trying to sell something else from Nigeria. I look forward to the day that I go and walk in a shop here and I see ''Made in Nigeria.'' I will be a very happy person because it's a sign for me that actually you're getting closer to a development bargain in Nigeria.

Tobi;

That's a good answer. We are trying our best here to make sure the right people understand that message because policy right now is captured by this idea of self-sufficiency. You see central bank governors, and even industrialists, saying we have this 200 million population, a large internal market, we really don't need to sell anything to the world.

Stefan;

I think Bangladesh has 165 million people.

Tobi;

Yeah, China has 1.3 [billion people].

Stefan;

It's obsessed with trying to sell to the world and it's looking for the next thing. It's looking all the time for the next thing it can sell to the world.

Tobi;

So thank you so much, Stefan, for doing this with me. It has been a thoroughly enjoyable experience for me personally.

Stefan;

It's been very enjoyable for me too.

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I was thrilled to get a chance to talk about cities with Alain Bertaud - he has been one of the most important thinkers in urban planning for the past fifty years. His book Order Without Design is a must-read and an excellent summary of his research (conducted in collaboration with his wife Marie-Agnes, an urban planning scholar in her own right) project with aim of bridging the gap between urban planning and urban economics. Alain is a brilliant and generous teacher who has greatly influenced me - I hope my questions have done their bit to honour him.

Transcript

Tobi;

Welcome to Ideas Untrapped podcast and my guest today is legendary urban planner, Alain Bertaud, welcome to the show, sir, it's an honour to speak to you.

Alain;

Thank you very much for inviting me, I'm quite honoured.

Tobi;

You are aware that some of the biggest cities into the future are going to be in the so-called low-income countries, because urbanization is exploding in cities like Lagos, Kinshasa, and these cities are a bit different from some of the cities in other places around the world, especially in the West, you know, in that they are lower-income, they are a bit congested, they don't have much density, and, it's a challenge for such cities having to host that many people. Now, if I may ask you, what would you say the problem has been in making some of these cities work? Are we seeing a failure of markets or planning or a bit of both?

Alain;

I think that there are sometimes market failures. But I think that there has been a neglect of infrastructure. For me, a city, and that's something common to all the cities of the world, whether they are, you know, in Europe, in America, in Africa, or Asia, the main things for cities are labour markets, that's why people go to cities to find a job. And that is why a big firm will go to Lagos. They will go to Lagos, rather than a small town somewhere. They will go to Lagos because they will find in Lagos people who are competent in whatever they want to do. They will find a large labour force, you will have a lot of choices. And so if I am a migrant living in a small village somewhere in Africa, and not necessarily Nigeria, I may want to go to Lagos because I know there are a lot of jobs there. So if we accept that a city is a labour market, the most important things are two things.

First is transport. You should be able to move in this large city. Within an hour, you should be able, ideally, to go from one side to another side, in order to find the job you want and change jobs. You know, changing job also is very important. That's why company town, you know… sometimes you have a mining town or a town developed around a steel mill or something, and then everybody there is working for one employer - the mine or the steel mill, this is not very good, because you have no chance of changing jobs. I think the advantage of very large cities like Lagos or Abidjan or Dakar, is that there are so many employers that you can fill your way, you know, you can change jobs and learn things from other people, that's what's a city.

Now, what should the planning be? Planning should be transport, you know, there should be a system of transport. And when I say transport, I don't mean necessarily a subway, I mean, subway sometimes is necessary, but not always. It could be informal transport, you know, the different minibuses, for instance, so things like that which are private. But the planners often consider them as a nuisance, you know, that they are a little messy, they stop everywhere. Sometimes they don't follow the rules very much. But if they are there, it's because there are people who prefer to take this informal thing rather than a regular bus. So we have to take them into account. And we have to make them more efficient, you know, by having specific stops where they can stop which is wide enough and things like that rather than eliminating them.

So the first thing is transport. The goal is to allow people to move from one part of the city to another in less than one hour. Now, in a very large city like Lagos, I suppose it's a bit like Mexico City, you will find that this is impossible right now [to move] from one side of the city to [the other], you know, let's say you go from north to south, it may take you three hours to go there. The goal is to decrease this time, you know, [and] how do you decrease this time so that you can have access? Any individual should have access to the maximum number of jobs. And it's the same for the employer. You know, the employer, when they look for employees, if they move to Lagos, suddenly they need somebody with specialized, I don't know, a welder, for instance, somebody who is very specialized in something. They want to have a choice between competent people. If the transport system works well, they will have a choice between 100 welders and they will select what is best for their company. So transport is the most important thing and you have to take into account informal transport, you know, this is very important. You cannot just say the best will be to have a subway or... you know, it's possible that the subways might be necessary but it's only one part of the transport system. You cannot pretend that one day everybody will move by subway, or municipal buses, or even ferries or things like that.

All these modes of transport have to be combined and thought together, including cars, by the way. Many of my colleagues now are dreaming of cities without cars, I don't think it can work because first you have freight, and you have certain jobs which cannot be done without a car, you know, if you are a plumber, or if you are an electrician, you have to move around with your material, you cannot take a subway… if you are a plumber, you know, with your bathtub or something like that. So a large city has acquired a lot of freight, you know, you have restaurants, you have bars, you need to bring food to those restaurants, to [bring] bottles of beers, something like that. So you need a transport system which accommodates all modes of transport. Some of my colleagues have a preferred means of transport that they love, you know, say light train, tramway, or bicycle, or scooters, or whatever, or subway, or monorail. And I think that it's possible that a monorail is a good thing, but it will be only a small component, you know.

So the job of the planner is to accommodate all these different modes of transport. And if people prefer to take even a taxi motorcycle for instance, which I think in many countries of Africa, I'm sure in Lagos it exists too, you have to accept that this is the best way for some people, not everybody, but for some people. So you have to also accommodate that and say, Well, what do we do for them to reduce, for instance, reduce the pollution they cause but also reduce accident, make them more convenient, because those means of transport are serving certain groups of people who have no choice, who cannot afford it, or who live in a part of the city which is not served by the normal transport.

So transport is very important and transport has to be multimodal, and you have to look at it. The other thing which is very important in every city is housing. People move to the city from the countryside or from another city, and they look for a job, but they have to find housing. And very often, I think [for] many of the cities in Africa, but also in Asia, or even in Europe, they didn't welcome the migrants, they considered that the migrants are a nuisance, you know, because usually, they are relatively poor. Some of them are coming from the countryside, so they do not have the skills. You know, they have skills, but they are raw skills, which are not necessarily very useful in the city. So they have to learn skills. The city has to welcome those people because they are the labour force of the future. They are the ones who are going to pay taxes in the future. You cannot import only people who have PhDs or things like that, I mean, those are very useful, too.

But we have seen that during the pandemic. During the pandemic suddenly I remember in New York, but everywhere else, people were saying indispensable people, who are the indispensable people? And we found that the indispensable people were not professors like me, they were people who were delivering food in grocery stores, they were indispensable. They are indispensable for the life of the city. So that's why they have to be welcome too, you know, and for that they need housing. So they need housing, they need land. I think that the big mistake that many cities have done, again, everywhere in Europe, as well as in Asia, or in South Africa, by the way, is to concentrate too much on housing, and not enough on infrastructure.

I think what planners need to do is to let people build whatever they want even if it's a shack, but provide clean water supply, provide sewers, and some services like health [centres] and schools, and let people build whatever they want on the lot, even on the very small lot. In my book, I have an example in Indonesia what they call the Kampung development which were villages which were absorbed by the city, and you know, if they were very poor, they will have a lot which is only 15 square meters, and they will build a house of 10 square meters with corrugated iron and bamboo and then that's it. This is okay, providing they have clean water supply and that the dirty water is evacuated. What is terrible is to live in an area where the garbage accumulates, children play in dirty water and there are no health facilities at all or schools.

So, to me, the criterion of a successful city is how long do they take to absorb a migrant, a migrant who is coming from the rural area, who has no skills, he has only his arms or her arms. And how long does it take to absorb them so that they can get an urban job where they are very productive for the city and then contribute to the welfare of the city. So some cities have tried to measure it a bit informally and some cities take one or two generations. You have one or two generations of migrants living in extreme poverty, very often being sick because they live in very unhealthy neighbourhoods, and it takes two generations to be absorbed. In other cities, in some cities of Asia that I know, in half a generation, those people are absorbed. So for me, how quickly you can absorb these people in the city life is a sign of success that you can measure. Now, the attitude very often of the housing board or people in government involved in housing, is to say, well, these are poor people, let us be nice to them and build really nice houses for them. So they build kind of a walk-up apartment, or five, six-storey or something like that. And the problem with that is sometimes they are well designed, most of the time badly designed. But when they are well designed, they are too expensive. So the government, instead of delivering one million lot a year to absorb those migrants, they deliver 500 houses. So the houses are nice, you know, they have electricity, they have plumbing, but 500 houses do not solve any problem at all for all the others.

So I think that you have to give up the idea of building houses. And this is not very popular, by the way. Politicians like to say, we are going to have one... usually, they say 1 million houses, and then they end up building on the 5000. And they call the press, they build a simple building and they say, you see everybody in the city now is going to be entitled to a house like that, and then never get built. And then we are back to square one. So I think we have to be very realistic, we have to accept poverty, we have to accept that there is a lot of difference in income in a city and we have to concentrate the resources of the government on the few things which are important, like water supply, sewer and things like that. Not, you know, not having an ideal city.

And poverty is something which is temporary. For instance, I used to work in Korea, a long time ago, you know, Korea, in 1968-70 I think had about the GDP of Mali, you know, it has about the same and then what happened? And suddenly now it's an industrialized country. They absorbed migrants very intelligently, I think the absorbed migrants and the area which were slums are well developed, you know, you still have neighbourhoods which were former slums which have been developed. So you see, poverty is a temporary phenomenon. It's not a permanent one. And you have to accept it when it happens. But then slowly make the people employed, so slowly, they will emerge from poverty. You don't address the problem of poverty by giving say somebody who has an income of, let's say, $300 a year to give this person a house, which costs you know, $50,000 is not going to solve poverty because you will not give very many houses like that to them. And probably those houses are going to go to people of much higher income very soon. So you see where infrastructure is always useful for everybody. So that's my attitude, those two things. First, the people who live in the city are the ones who are going to make this city so the infrastructure has to serve this. And the infrastructure, in particular the roads, has to give access to a lot of land even if the cities sprawl, so that everybody has access to a piece of land where they can build something. If originally they build a shack which is not very nice,[it] doesn't matter providing they have an infrastructure which allows them to stay healthy, and to have access to jobs eventually. So then they will themselves either move to another neighbourhood or build something which is better. Again, I think my chapter on the Kampung in Indonesia in my book illustrates this very well.

Tobi;

I'm going to come back to cities as labour markets later, which is one of the most powerful insights I got from your book. So we're talking about housing. For example, in Nigeria, it is popularly reported that we have a housing deficit of 17 million households, there are many independent estimates that put the number higher than that. So how do we, especially, in the face of rapidly increasing urbanization… how do we increase urban housing at a big enough scale? Do we have to democratize land markets in some of these cities? For example, in Nigeria, we have a Land Use Act that places the ownership of land solely in the hands of government, though there is an informal land market but it's, of course, largely informal. So do we have to democratize ownership? And would you say the ideas of Hernando de Soto will be useful here, like, we need to absorb more people into the formal land registry?

Alain;

Right, yeah, I like your idea of democratizing the land market. That's exactly what you have to do. Now how do you do that? I will give you an example. In Indonesia where I worked again, when the government started investing in the Kampungs, which were slums at the time, you know, pretty bad slumps, actually, but providing the infrastructure in those slums, you know, I was working for the World Bank at the time. And we insisted that they should survey this informal area, and give tenure to everybody, even people who had only say 10 square meters of land. And then the Indonesian told us, that will cost a lot of money, it will be very, very long to do because, you know, all the streets are crooked and things like that it's very difficult to survey. And they say, why don't we just accept the informal market. And it took a long time for us to accept, and then we accepted it. And then we realized that after people were giving water, you know, clean running water in those slums, they had a bill to pay for water. And the bill was a substitute for tenure because they have an address. You have an informal market which becomes formal, because it was legal, because people could do it. So you have to legalize. It doesn't mean necessarily that we have to have a registry in the cadastral, in the formal cadastral, because that may take 20 years.

In a way, the Kampung in Indonesia, you could consider an entire neighbourhood as a condominium. So it's a condominium and within this condominium, you establish the rules which are specific to the condominium. And then let people trade. They know what is the boundary of their lot, usually, they're very small. And everybody knows that and says, if you have three or four witnesses, you will have a piece of paper. And little by little, then you could formalize it. But I think that recognizing the informal trading of land, making it legal, and including, by the way, we found then in the Kampung that even banks now accept as a title, just the water bill. you know, there is a water bill, Mr So and so during last five years had paid this water bill at this address, and you know, you don't have the former survey, but you know, the lot is, say 50 square meter, and a bank will accept that as collateral, because it's recognized by the government, it's not going to be bulldozed.

The problem with informal settlements is that sometimes the government will just go through and bulldoze that area, or put a highway through, and do not compensate people because they do not recognize the legitimacy of their claim. And so if you do that, then, of course, you create an enormous uncertainty on tenure. You do not encourage people to invest in their own neighbourhood. And of course, banks will never touch it, because you know, if they learn something, and then a highway goes through and there is no compensation. So I think that integrating the informal sector, not necessarily making it formal in the sense that they have to follow the same rule as the formal, but have special role for the informal sector to make it legal. And then look at land use regulation. That's been my problem all over the world. And that's true, by the way, in New York or Paris, that there are standards for housing which are not really reflective of what people want.

For instance, in New York, the government imposed by regulation, larger apartments than what people want. You know, there are a lot of people now in New York who are living alone who are a small couple with only one child or no child and the regulation do not reflect that, that those people will be very happy to live in a studio and they are not allowed to build a studio. So I think it's the same in developing countries. If you are poor, you can live with your family in 10 square meters, but if that 10 square meters is close to jobs and have, again, access to clean water, and if there is a school nearby, this is what is important. And you should be able to live there legally, you know, legally without the threat of being exploited or things like that.

And again, you know, you were mentioning at the beginning housing deficits, right. I don't believe in housing deficit. Deficit is only, what is your minimum standard for a house? Have you measured all the houses in Lagos to know which ones are below the standard? And what are your minimum standards? You know, is it 10 square meters? Is it 100 square meters? Do you need two bathrooms? For instance, the UN have this thing, I think you have to have, I think it's one room per person or one-half person per room or something like that. And if it's below that, it's a slum, and it's informal. It's a deficit in the housing, I don't think it is. By definition, all the people who live in Lagos live in something they can afford. The problem with housing is that they can afford very, very little, and there's no water and no electricity, maybe, I don't know. And so you have to increase the consumption of housing of the people who are already living there, it is not a question of saying this is not housing, we need to build a new house somewhere to compensate for this house.

So I think that the idea of deficit, you know, doesn't lead you to good policy. It's too abstract. You could say, you know, in Lagos, for instance, we can produce only, I don't know, 20 litres of clean water per capita, per day. And so we want, of course, to increase it to, for instance, 60 or 80 or 100. And then you will need to bring more clean water or use more clean water in Lagos, that's legitimate. Let's say you have a deficit of water in the sense that you want to increase the consumption of water. Now, when you do that, you will have to look at the income distribution curve within the city, you know, but in my book, I have several of those curves, and you will have to see if you increase the supply of water in Lagos, you have to make sure that the ones who increase their consumption are the ones now who consume very little. And so you increase their consumption. So you have to measure the consumption of these different groups. Clearly to increase consumption is not to build more houses. And people will build [for] themselves more houses if there is enough land with infrastructure. So the goal of the city is to develop more land with infrastructure.

Tobi;

So urban planners are by nature very practical people, but I'm going to ask you a bit of an abstract question. Do you think part of the problem with this housing thing is that on some level we do not really respect or extend that abstract idea of property rights to poor people? Is that part of the problem?

Alain;

Absolutely. Absolutely. I think there is a paternalism, let's say, of the elite, who consider that poor people will always be dependent on a social program. And in a way, you have a society that largely lives on markets. But then you try to condemn the poor into a kind of non-market things, you know, like putting them in public housing or saying well, wait for public housing, we are going to provide you with public housing, you know, don't worry about it. So they are in a socialist system with no property rights. You know, their property rights is going to be given to them by the government, it's not something they will acquire by themselves. So you have these two societies, and then it creates a poverty trap for the poor, you know, they cannot escape because they never accumulate capital. They cannot invest in their own house because their house belongs to the government, [it] doesn't belong to them. So I think that, yes, it's a problem of poverty right. And very often also, many cities have colonized poverty right only if you have a lot developed very formally of a certain size, you know, they will not allow people to own land if the parcel is not at least 200 square meter or 500 square meters, I don't know. And this is not correct. You know, if somebody owns 100 square meters, you should recognize that this ownership is 100 square meters because if not, if you put this minimum threshold of ownership, that means you exclude from ownership half of the population of your city, and you make them live in a non-market economy while the rest of the economy is working on the markets.

Tobi;

Let's talk a bit about density. So when I travel to New York City, I enjoyed the fact that from my hotel, I can access a cafe, I can access the cinema, I can go to my appointments, possibly all within a walking distance of 15 to 20 minutes.

Alain;

Yes.

Tobi;

That is something that I don't have in my city. Sometimes if I want to see a movie from my house, I have to drive two, sometimes two and a half hours. So how can cities in... I don't like that phrase developing world, but that's what I'll use for now. I don't like it. So how can our cities, and by us I mean cities like Lagos and co., better optimize for density or [as] I'm also seeing, ideas by some other planners or thinkers in that space saying that perhaps some of these cities have to give up on the idea of density altogether? So?

Alain;

Controlling densities, yeah, you see, every land use regulation, control density, tend to put density down, always. You have a minimum lot size. So some people would like to have a small lot, but they are obliged to have a bigger lot because that's the regulation. And then you have the floor ratio or maximum height of buildings. I think that the height of buildings should be removed. So planners say ah, ah but if we do that, we will not have the infrastructure to serve higher densities. Infrastructure is much cheaper than land, always. Much cheaper than land. So what engineers are doing, they are saying, Hey, you have now a water pipe, which is only that big. Therefore, the density cannot be more than that, because we will not have enough water if the density increases. But they are making a trade-off between land and the price of your pipe. And land is more expensive, and more useful. So I think that if they let the density increase, of course, they have to have a system of taxation on land. But again, if they recognize the ownership of land to a lot of people, they can have a type of property tax or something like that which will allow them to have the resource to pay for the infrastructure. And it's always cheaper to increase the level of infrastructure in [an] existing area, to increase the capacity than to expand further away.

So if your regulation restricts densities, it means that people will have to build somewhere else, you know, further away. And they're not going to leave the city because the planners say the density here is restricted to that, they are going to stay there but they are going to live further away and at lower densities. So many of those regulations should be audited. I'm not saying that all regulations are bad, not at all, I think the markets need regulation. But the regulation which regulates consumption, that the people themselves can see... you know, if I go into a studio which is 20 square meter, I know it's 20 square meters, if I want to rent it to buy it, this is my business, the government do not have to tell me, No, no, a studio has to be certain square meter, or at least you cannot buy 20 square meters, this is absurd. Let the consumer decide what is best for them. Because then they can... you know, the problem you were mentioning, they can make a trade-off between living in a smaller house but closer to amenities, or a large house far away from everything, you know, some people may prefer that. So regulation restricts the choice. And of course, regulation, because they have this minimum consumption standards, if you look at the income distribution curve, those minimum construction housing standards have a cost. So they eliminate automatically, maybe 50% of the population from anything formal. You know, informality is really created by regulation. It's not created by anything else.

Tobi;

I want to talk about, perhaps, maybe, there is a kind of market failure in trying to deliver density. Devon Zuegel, I'm sure you're aware [because] she is your friend, wrote...

Alain;

She's my friend, yes.

Tobi;

She wrote a blog post a couple of days ago...

Alain;

I read it, yes.

Tobi;

Very interesting. I found it very interesting. And while read in that I, because i liked it...

Alain;

Yeah, Devon, in the last line of her thing [blog], she says, I have not discussed regulation. And my experience is that most of the inconsistencies or contradictions of densities in cities are due to regulations. And I will argue with her about that. You know, that she has to do a blog on regulation.

Tobi;

I would love to read that because while internalizing the idea she was putting forward, I thought about my street. So I live on a beautiful street. There is access to a major road and so many other amenities. it's gated well secured and all that. But we have just nine houses. Landlords built these huge compound houses. And I can't help but think, every time I go back and forth, that this is an area that can actually house a lot more people. So would you say that's a failure of markets because I think that equilibrium came to be because the first settlers on my streets prefer building for space as opposed to access?

Alain;

Yeah, but that's not a failure of markets. The market is a mechanism. It's not a god, it's not a religion, it's a mechanism. So here you have people in your compound who live there because they enjoy having low density. And I hope that they paid for it, they didn't steal the lot. So they paid for it? And so that reflects the market. At a certain point, if there is demand for higher density there, a developer will come to your compound and say, I'm making a deal with you, you know, I will give you that much money, and we are going to build more houses here. Unless. Unless there is a regulation which says you cannot have more houses there, or unless the water company tell you, we will never provide enough water in this area for higher density. You know, there are market failures, by the way, but I don't think that density is part of market failures. I think the market predicts rational densities if they are free to [build].

So let us talk about market failure. For instance, pollution is a market failure, you know, there is no way to decrease pollution directly through markets. I mean, you can do it by taxing polluting cars more than non-polluting cars, you know, this you can do, but you have to address it through market mechanism. But the market itself is not going to create a non-polluting thing. The same with global warming, you know, you have to price carbon. The government has to put a price on carbon because the market will not go into putting a price on carbon. That's clear. And then for major infrastructure, for instance, say, if a large city like Lagos needs more water, you know, enough water, clean water for everybody, you need major work to get the water somewhere - from a river, from a deep well, I don't know. And this major work is not going to be created by markets. The government could use a private company to do it. But the initiative has to come from the government, to say we need that many millions of cubic meters of water in the next 10 years. And our engineers say that to do that, we need to have, say, deep well, or whatever water plants, and that will cost that many million dollars. And that will be recovered from taxation. So it could be tax on land, it could be tax on income tax, I don't know. And then we have to do this major work somewhere in the city or in the suburb of the city where you will have the water plant. So all this is not done by markets, the total amount of water which will be brought to [households] has to be done by government, it has to be planned. And after, you will allow the land market to work. If you are allowed to put a network of pipes with water everywhere, including in areas which are not yet developed, including areas which have very low density but could not densify without more water.

Tobi;

Finally on housing before I move on, do you think that some of [the] newer propositions or technologies like blockchain, for example, hold any promise in terms of land registration, and generally democratizing property rights in cities?

Alain;

It's quite possible. I am not knowledgeable about [blockchain]. I'm very interested and intrigued by blockchain but I have not seen an example yet. But it's quite possible that yes, this could do it. Yes. You know, at the beginning I was talking about the problem of formal cadastral you know, the traditional property rights [that is] given the cadastral way [where] you have a surveyor from the government who starts taking [measuring] things, and this is very slow, it's very costly to do. It's possible that there are better ways of doing it. And it's possible that blockchain will be [it] but I've not seen an example yet, but it's possible and it might be a good way to start in a city like Lagos, just to try it, see [if it works].

Tobi;

Interesting. So let's talk about charter cities. I know you're very good friends with Paul Romer. I became intrigued by the idea when I first saw his presentation. And I've sort of followed how that idea developed. But first of all, why do you think some of these projects failed? The one in Honduras and Madagascar? Yeah. What do you think were the pitfalls?

Alain;

Because government were not ready to allow a [...] charter city, they saw that as just a new real estate development, and they thought that they could control it. And if the existing government control it, it means it's going to be a traditional city, it's not going to be a charter city. I think that in Honduras it was very clear. In Madagascar, I'm less aware of the details. But in Honduras, I follow the [development]. By the way, there are several new charter cities in Honduras now, I'm curious to see if they will succeed or not. Actually, Devon is involved in one of them. And I'm curious... sometimes I'm a little uneasy when I see that one of the first things that the promoter of a new charter city [does] is asking a big architect to put the design first. To me, a charter city is, again, developed land, and the possibility that you were talking about the beginning, democratising land ownership. That means that if you move to a charter city, and you want to open a small restaurant where you will sell sandwiches to workers, you should be able to either rent or buy a little piece of land where you will build your restaurant. You should not go through the government and say I want to open a restaurant, please give me a permit.

So for me, a charter city is first a layout of streets, not building, you know, it's a layout of streets where you can buy very small pieces of land. And you can buy some big one, you know, maybe a department store or an office building so they want a big lot, that's fine. But there should be small lots available to people who move there. Because, again, the indispensable people are not only bankers and architects and lawyers. Indispensable people are the people making sandwiches. And so I think that one of the problems is that they have to start with the layout, and making land available to all sorts of people, including very small lots. And I think that will work.

Now, my argument was Paul for the first part of your question, but when we first discuss it, you know, when we started working together, and he told me, well, we think that we could do 50 charter cities, you know. My first reaction is, cities are dictated by location and there are no more locations for 50 cities. The good locations are all taken. So if you want to start from scratch, you go to the countryside, and, you know, you have some farmers there even and you say, Oh, the land is very cheap there because there is nothing, why don't we do a charter city? In Lagos land is so expensive. Don't forget that a city is people, it's not the sewers. You're not going to move to a city because it has a nice sewer system, you are going to move to a city because there are jobs, because there are other people you want to work with or be friends with. So the problem with any new city is, who is the first one? Would you leave Lagos for, let's take NEOM in Saudi Arabia (the city that the Saudis want to build)

Tobi;

Yeah.

Alain;

So if I told you, okay, in NEOM we could give you a house for $50,000 and it has this fantastic infrastructure. Would you leave Lagos to go there? Unless you know how many people are already there? Are you going to move by yourself or with your family? And you don't know if the schools are working? You don't know if there are restaurants or bars there, you know, [finding] bars in Saudi Arabia is always a problem. [laughs]

And so you see, that's the problem. I have an example to explain the problem of a new city. In South Korea, they thought that Seoul was too large, and they thought that they would build a satellite town which will be self-sufficient. So they calculate how many jobs they will need, how much housing and the Koreans are very good at that, they really planned it extremely well, it was financed very well too. They matched exactly the number of jobs and they use the demographic, everything. And they're very good at logistics too. So they built the school, the sewer, the transport, the buses, all at the same time and well done. And it was nice architecture. So the idea was it will be self-sufficient [and] that the people who live there will work there. When the city is fully built and inhabited, they found that 90% of the people who live there commute to Seoul. They work in Seoul, but they live in the New City; and the people who have jobs there, they come from Seoul, they live in Seoul but they work in the New City. Why that? Why didn't they manage to match the thing? It's a question of the first inhabitants. When the plan is finished and the thing is ready to be sold, they told firms in Korea, well, you know, if you want to establish yourself here, you could have a factory of this and it will cost that much and you will pay that much more for electricity, So very attractive. So the firms say, Hey, we are in Seoul right now, but we want to expand, and in Seoul, we cannot expand because land is too expensive, so let's move to this new city where we'll something more modern.

Now, these firms, if they have the money to move to the new city, completely new, it means that they already have employees, they have [an existing] business. So they are not going to fire their employees and say we are going to recruit entirely new employees. So the employees which are already in Seoul, working in the old site are going to commute to this. Now, why don't they say oh, we have this new job there and we are going to move into an apartment in the new city? Because where they are now, maybe they have their mother-in-law who is babysitting their kid and they cannot move. Or maybe they have a school that they like a lot for their children. And they don't want to move their children to a new school which has no record. You know, there are a lot of reasons why people don't want to move, or maybe because there are a couple and one of them is working in the neighbourhood and do not want to commute. So the new firms are attracting existing employees from outside and the people who take housing there... you know, if you are a young couple in Seoul, you are desperately looking for a new apartment, but it's too expensive and suddenly, they propose you a nice apartment in the new city... Now, you will need an hour 20-minute commute but you think well, this is a really nice apartment, there will be a nice school so you move there with your family. But your job is in Seoul, you know, because if you can afford an apartment in the new city it's because you already have a job. So you're not going to quit your job and say, Well, I've moved to the new city, I'm going to look for a job in the New City. Maybe after 20 years, you will do that. But initially, you won't.

So you see this is a problem of new cities and that will include charter cities unless the charter city becomes so attractive in terms of, again, the democratization of land use, and of property rights. But again, you have the problem of the first mover, you see. So that's why cities like maybe Abuja or Brasilia are successful because they are civil servants so they are obliged to go there. And the government pays for it and all the taxpayers, by the way, all the taxpayers of Nigeria are paying for Abuja.

Tobi;

Yeah, that much is true.

Alain;

Yeah. And this is true also for Brasilia, you know, the people who live in Brasilia are not paying for their infrastructure, it's the Brazilians who live in Recife or Rio de Janeiro who are paying for that. So, you see, those examples are not very good examples - the new capitals. The other thing which is very difficult, and I saw that when I was working in China in a new economic zone which usually piggybacks on a city is the cash flow. You know, when you build a new city, there are certain things that are discrete, you know, for instance, you cannot build a sewer plant for 500 people, you are obliged to build a sewer plant for at least 10,000 people or 20,000 people and when you build that you have to spend for 10,000 people but you will not get 10,000 people before five or six years. So you pay interest on this capital for five or 10 years. So you have a negative cash flow for a long time and that is [for] the sewer plant but that's true for schools, that's true for roads, that's true for the water system, that's true for garbage removal, you know. You need right away to bring trucks to remove the garbage to treat it and before you have [enough] inhabitants. So you have to pay a lot of interest. My experience in developing a new economic zone in China was that the cost of interest during construction (that means the cost of interest before the lots were sold to the private sector) represents sometimes 40% of the entire expenditure.

So this negative cash flow, if it's a private city, by the way, you have bankers, so the banker, let's say, trusts you. And they say, all right, you have planned to have, say 1000 people, the second year at 10,000 people, the fifth year... and then 100,000 people in 15 years. So they trust your business plan, but then imagine that it's a little slow at coming. So you are borrowing more and more money, and at the same time the bankers get cold feet, and they say, we are not going to go roll over your loan, because you know, your thing… it's too risky, you are accumulating a negative cash flow much longer than we thought. And then they will cut your finance, and then you will go bankrupt. And that's why the most successful new cities are capitals because the entire country is paying the bill, you know, money was no object.

Tobi;

Does this mean you're bearish on private cities generally? So I'll give you some examples. And I'll try to be brief. For example, in Lagos, there was this project called the Eko Atlantic project. This was a land that was basically reclaimed from the Atlantic Ocean, it raised $6 billion, right. And at the end of the day, they ended up building office buildings for oil companies, banks and skyscraper apartments that cost $2 million. Almost nobody goes there to work, which fails the labour market condition in my view, right. There was also the story of Gurgaon, I'm not sure I'm pronouncing that right. In India...

Alain;

A suburb of Delhi. Yes, yes.

Tobi;

Yeah. So, where, maybe it was partly driven by the labour market, the tech workers and private firms. But we saw that they could not deliver on things like the sewer system... public goods investments failed woefully. But the common thread in some of these narratives and initiatives, and of course, you know that private cities are very, very hot right now in Silicon Valley...

Alain;

Yes. Sure

Tobi;

Is to look at Shenzhen and say, oh, yeah, this was a fishing village of 30,000 people...

Alain;

Yes, yes. Right. Yeah.

Tobi;

And it's now the manufacturing capital of the world, the centre of technology with 50 million people. So are you bearish on private cities generally, that was one? Secondly, what are we missing from the Shenzhen story?

Alain;

You know, Shenzhen by the way, I know it well, because when it was a little more than a fishing village, I was working for the World Bank… the Chinese invited me there with the team. We were five or six planners and economists. So at the time, it was about 300,000 people, but dispersed, it was not really a big city. And they say we want to build the city of, at the time they say, 4 million people and we want the World Bank to finance it. And this is one skeleton in my closet. I told them you are too ambitious. If you want to build a city of two million, up to 2 million, you know, I made a back of an envelope calculation, I say look 2 million is a city is so large, so fast [and] would be impossible because of logistics. You will not have enough trucks, it will be impossible and I was wrong. So after that, I followed because I was spectacularly wrong. I followed what happened in Shenzhen I went there regularly and you know what created Shenzhen? First, location.

You know I was telling you at the beginning [about] location. They have a deep port. A natural deep port in Shenzhen and you know the rocks are going there. And it's next to Hong Kong. Hong Kong port is already saturated. They are at a coveting distance from Hong Kong. So when they want somebody very specialized - an architect, an engineer - at the time when they built it, that was in '83, you know, when I was there, '83-'84, the needed manpower will commute from Hong Kong. They will spend maybe the night in Shenzhen and go back. And then you have the Pearl River Delta on the other side of Hong Kong, you had Guangzhou, you know, which is a very important city too. So, they are in between.

Now. The major thing which did the success of Shenzhen was Deng Xiaoping [who] for the first time in the history of China, put a line around Shenzhen and say within this area, the firms are going to pay the workers according to [the] market, and people who come to Shenzhen will negotiate their salary with their employers, depending on their skill. In China before that, if you were, say, a geologist, at 30 years old, the government will say your pay is this per month, period. If you are a welder, the government will say, for entire China, this is your pay, and the government will decide where you will be employed. You have no labour market, there was no labour market in China, you know, people were unemployed, but the government tells them where to [work]. Even the kid coming out of high school, the government will say you're going to work in this factory for the rest of your life. Now, in Shenzen, for the first time, you had the labour market, and a lot of Chinese coming from the north, from all over China (the ones who were the most courageous, you know, [it's] a bit like migrants coming to Lagos are the most courageous in a way that, you know, it's a selection of people) they decided that they were trusting their own skill, they say, we'd rather work and negotiate our salary and change employment when we want rather than stay with it.

So you had an influx of people, of talent, from all over China. And that's why, you know, Shenzhen is in an area where everybody speaks Cantonese, normally, you know, in the south of China, like Hong Kong or Guangzhou, but you will find that, in Shenzen, most people speak Mandarin, because they came from all over China. They didn't [all] come from there, [the southern part]...some people from Guangzhou, obviously, from the Pearl River Delta, but say the language that you hear the most is Mandarin because they came from all over. So, you see, what created the enormous success of Shenzhen was the market. It was the labour market. It was the first time you had the labour market in China. And then after that, they used experiment, and you had that, you know. And by the way, housing, also… it was the first housing on the market that people will be paid at the market price, but then with their salary, they will have to pay for housing. Where before in China, housing was provided by your employer entirely. That means that you have no mobility and you have no capital either, by the way. You cannot leave your job because if you leave your job, you have no savings, and you have no house.

So that's the story of Shenzhen, and do not forget the location. Look at the container port of Shenzhen, it is one of the best in the world and it's because location, you know, it's even better than Hong Kong. It's larger than Hong Kong's. In Hong Kong, they have to do a lot of land reclamation, whereas [in Shenzhen], it's natural. They don't need to dredge it or anything, you know, it's a natural beauty. So that's the story. So I am not bearish. You know, I like the idea of trying new cities and private cities, I think that's a good thing. But let's say, you know, just to think that if you have a good infrastructure, you know, [when] building [a] new city, they say, Oh, we will have this fantastic system for removing garbage by vacuum and things like that, this is good and well. If the city is reasonably clean, that's good enough, you know, and you don't move to a city because the garbage is vacuumed. You move to a city because there is a good job, the city's attractive, you have bars, cinemas, and you know, whatever, if you'd like to go jogging or things like that, you have nice parks. But you move to a city mostly because of the people who live there. So the question of new cities, how do you attract a lot of people right away in the beginning? Who will be the guinea pig to live in this new city? And then there is the financial aspect, you know, this cash flow, you need to have a lot of money in advance to finance it because bankers will get cold feet. Maybe I've been talking too much and not [...] enough questions. I enjoy it. That was very interesting. I hope maybe we can do it again sometime.

Tobi;

Okay. Thank you very much.

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It is difficult to overstate China's rise in terms of economic development in the four decades - growing from one of the poorest countries to becoming the world's second-largest economy. China has also become an important geopolitical partner to many developing countries, and it is quite common to encounter talk of the ‘‘China model’’ of development as being more suitable for many African countries that have struggled with economic transformation. Joining me on today's episode is political scientist Yuen Yuen Ang to unpack what China did during the reform years and the many ways that process is misunderstood. She has two excellent books (linked here) on China, and she is one of the most careful, thoughtful, and perceptive scholars I have read.

Transcript

Tobi;

Welcome to Ideas Untrapped, and my guest today is Yuen Yuen Ang who is a professor of political science at the University of Michigan. She has written two very important books on China. And I want to talk to her today about the first book, How China Escaped the Poverty Trap. Welcome, Yuen.

Yuen;

Well, thank you very much, Tobi, thank you for having me. And I very much appreciate your support.

Tobi;

In global development today, it's almost impossible not to talk about China. China has become so important both economically and geopolitically, and we know that the picture or the situation was quite different 40 years ago. Another thing with what China has done in the last four decades, I mean, two-thirds of the global reduction in poverty is in China and so many other amazing things, is that there's a lot of, should I say, content on China and in my experience, it feels a bit like quantum physics and that Feynman quote, which is the more you read on China, the less we understand.

But, reading your book for me as being quite illuminating. Again, I want to thank you for writing it. So the first question I'll ask you is, very early in your first book you made what I think was an important distinction, which is the difference between market-creating institutions and market-preserving institutions. Can you elaborate more on that? And how China was able to take advantage of the former?

Yuen;

Sure. Well, first of all, I really love the quote that you used. And before I jump into the question that you just asked, I think it's useful to respond to your comments, which I think it's very insightful, which is that everyone is very interested in China. There's a lot of talk about it, but it feels confusing.

And so at the outset, when I write my books, I think one of the things that I wanted to set out to do was to provide an integrative account of China's development since its market opening in 1978. And I stress the word integrative, because I think one of the sources of confusion that you alluded to comes from the fact that there are many, many accounts about China's development, but they tend to focus on only one aspect.

So some will talk about trade, others might talk about economic policy, so there are so many different topics about China. But what people need is an integrative account that puts all of these different elements and variables together.

I really put them on a timeline to help people to understand, sort of, the different factors that were salient at different points in time. And this is important for correcting the misconception that there is one China model, like some kind of blueprint that was created at the outset and designed to help China take off.

So that was the kind of broader backdrop that motivated the way that I write my book, in particular, the first one. Let me now come back to your original question, which is the concept of market-building and market-preserving institutions.

And the important thing to understand about institutions is that economists have all agreed that good institutions, such as rule of law, such as formal accountability, such as modern courts, that all of these good institutions are essential for growth. And you have famous books like Why Nations Fail pretty much making similar arguments. And that then translated into the good governance agenda that was advanced by International Development Agencies, such as the World Bank.

So for about, I would say, 1990s to the present day or so, there was a great deal of attention and hope that if poor countries could get institutions, right, if they could have first-world institutions, then they will be able to have economic growth and become developed.

And when I look at the China case, that obviously does not follow that formula, because if you look at the early parts of China's growth, and even until today, there are so many dimensions of China's institutional design - everything from the ownership of companies, to the property rights, to the design of bureaucracies that just don't conform with what we think first-world good institutions should look like. So why is it that China has been able to grow its economy without those first-world institutions that economists say are the preconditions for growth, and this has been a long-standing puzzle in political economy?

So from my investigation, what I find is that the fallacy with the conventional wisdom is that it thinks that there is just one universal set of institutions that are necessary for growth, namely, the first-world rich country institutions. But in fact, what really happens in the course of development is that countries actually have to develop qualitatively different institutions for early and late stages of growth.

And those institutions at early stages of growth, that can support the growth process can actually look very, very different from the first-world norms. They can look in ways that conventionally we would dismiss as dysfunctional or corrupt. But those institutions can actually work very well at early growth stages. And subsequently, however, when the economy takes off, and it enters into a more mature stage of development, and then you begin to see that, yes, you do need institutions that are more like fist-world institutions, such as formal regulations, private property rights, and so forth.

So that is why I make a distinction between market-building institutions and market-preserving institutions.

Tobi;

I mean, one important thing that I also learnt from your first book, and you can please correct me if I'm getting this wrong, is that (it's interesting you alluded to economics accounts of China's rise) ever since the works of people like [Robert] Wade and [Alice] Amsden talking about the East Asian miracle, there has always been this importance for the role of the states. And then the discussion then polarizes into, do you use the State? Or do you use the markets? And policymakers in different developing countries choose what they see, you know, and some stressed the importance of state capitalism.

But what I learned from your book was that it really doesn't matter the kind of political system you run. Every political system in history that has gone through that stage has used market-building institutions. One thing you also talked about quite early in the book is this concept of directed improvisation. What is that? And how did China use that?

Yuen;

Yes. The conventional wisdom when people look at China's case is to assume that the recipe for its economic growth must be centralized political control because it is an authoritarian regime. So when people talk about the China model today, it's reduced or dumbed down into, basically, authoritarianism, plus some elements of capitalism.

And I question that conventional wisdom in my book. If the answer was simply authoritarianism and centralized control, then China would have prospered long ago, under the reign of Mao, where you had absolute centralized power under one leader, even more centralized back then than it was today.

So it couldn't be that centralized political control or authoritarianism is the answer to China's development. Instead, what really happened is that the central government under Deng Xiaoping was the reformist leader who took over thus helping change the role of the central government from that of a dictator to a director.

And what the director does is that it focuses its job on setting up conducive conditions for bottom-up innovation and bottom-up adaptation, primarily among local governments. So China is politically centralized, but it's economically and administratively decentralized.

But in encouraging local governments to adapt and to find local solutions to local problems. The central government still plays a crucial role in terms of providing direction, setting up the rules of the game, defining what the goals and targets should be. So these were the ways in which the central government “directed” the process of adaptation. So directed improvisation simply means you have the merger of direction from above, with bottom-up adaptation among local governments. So in the first 30 years of reform, which most people call the reform period, which is up to 2012, what you can see in China is actually a diverse range of regional economic models, and not just one. And if you take even any county or city in China, and you trace the history of development over those 30 years, you'll find that the role of the government and the development strategies that that particular city undertook kept changing over time.

So I think it is this highly adaptive element of the Chinese experience that is often neglected, or not understood in the global discourse about China because people are overly distracted by stereotypes about authoritarian control.

But the point that I think is most valuable, and that China should talk about more is the adaptive element under the reformist Deng government and the amount of diversity that they were able to create despite being a formerly authoritarian state.

Tobi;

One distinction I'll also like you to elaborate [on] is control versus influence, which was something I also got from your book and found interesting. I remember reading Robert Bates, writing about the political economy of Africa. He talked about the importance of control regimes, you know, having a closed economy, price distortion, regulation of industrial outputs, regulation of markets, these were things that were also part of China's economy and policymaking during the Mao era, you know. But we also observed that during the reform years after 1978 policymaking also was not thrown into chaos, you know, like the opposite of control. So how did China manage that balance, particularly substituting influence for direct administrative control of policy?

Yuen;

I'm really glad that you raised this subtle point, but an important point. So let me give some theoretical background before I elaborate on the China case. If you look at the conventional thinking about politics and economics, it is really a literature that is obsessed with control. Right? So it's always about someone controlling someone, it's like the state controlling civil society, or politicians controlling bureaucracy, central governments controlling local governments.

And this fixation with control is, I think, an extension of a mechanical intellectual paradigm. So if you look at the beginning of my book, I talked about how and why I use a complexity paradigm to interpret the Chinese development process.

The conventional paradigm is a mechanical one. So things about how things work as if it functions as a machine. And indeed, the top economists do explicitly say that they think in machine mode. So when you think in machine mode, everything looks like a control problem. And so that's why you see the literature and Political Economy being so fixated on control.

But what we don't talk about enough, or sometimes not at all, is the other element of human activity, which is, apart from trying to control we also adapt all the time, including in Nigeria, and we have very little understanding in the political economy context of how do people adapt? Why do they adapt? What are the conditions that make adaptation possible? What are the products of adaptation? These are the various questions that we don't ask in political economy.

So once you move to the Chinese context, and you apply the lens of adaptation, it immediately opens up a very different story from the traditional one that was entirely about control. One of the things that is important to know when we think about China is that control is always an element present in the Chinese political context. And it’s present in a big way because it is a top-down political system. So I'm not saying that there is no control in China. Of course, there is; such as censorship.

But what I'm saying is that as the reformed leadership under Deng took over from Mao, it dramatically change the role of government as well as the mixture of control and adaptation. So on under Deng, of course, there were still policies of repression and control. The family planning policy, for instance, required a great deal of forceful implementation. But it also dramatically increase the amount of adaptive activity that the government carried out.

So the distinction I make is that when you are fixated on control, what we conceptualize is that politicians want to control the outcome. So they already have a predetermined outcome or solution, and they're just trying to control everyone so that they can get there. Right? When I use the term influence, however, the assumption is that oftentimes, the leaders actually do not know what the best outcome should be. They don't have the solutions to the problems that they face.

And this was absolutely evident in China's market transition process, because that was something that China had never tried before, it had never tried to move from communism to a market economy.

So oftentimes, these leaders themselves do not actually know what is the best solution that they should create. And so what they did is instead of trying to control outcomes, which presumes that you have a lot of knowledge and know exactly what's best for you, they instead try to influence the process of coming up with solutions by, for example, encouraging local governments to come up with solutions that are tailored to local conditions, but at the same time setting up some guardrails in this process of experimentation.

So that is what I mean by the difference between trying to control an outcome versus influencing the process of problem-solving.

Tobi;

One thing I so love about your first book, which you've also alluded to in your answer is appreciating that a society and the economy is a complex system. And you said that an alternative to control in complex systems is to influence the process of adaptation and change. So I want you to talk briefly about how these influence the design of the reform packages themselves in the China reform experience, particularly the three key mechanisms you talked about in the book, which were variation, selection, and niche creation. How did that work?

Yuen;

Yes, I'm happy to do that. Let me focus on the first two parts because of time, which are variation and selection. And these terms come from the well-established scientific literature about how adaptation happens.

So adaptation begins with generating a variety of possible solutions. So that's why the first mechanism is variation. And this is followed by selection. So from the possible pool of solutions, you pick one, and you test it out, collect feedback and decide "do you want to continue with this solution? Do you want to share this solution with others, or perhaps you find out the solution I picked didn't actually work so well, so let's select another one."

And niche creation is about creating differences among members of the units so that these members can coexist, instead of competing head-on with one another. So I use these mechanisms to organize different parts of the book in explicating what were the mechanisms that the central government designed in order to structure the process of adaptive governance in China.

And on variation, I look specifically at the system of political communication in China. China is a top-down political system. So the way the top government sends commands - written directives to the local governments - is the primary and most important mechanism by which it commands, instructs, and guides the whole bureaucracy.

And normally, this is a system that, frankly, almost nobody studies because it doesn't really seem interesting. It's a command system. So you think that, you know, whatever, if Beijing wants to send a command. But what I argue and actually show in the book is that the command system in China actually functions in ways much more interesting way can imagine. And specifically, what I show is that in the Chinese political system, the central government would send out three different types of signals.

The first signal is what I call black signals. These are written directives, where the language is explicitly clear, saying, "yes, you can do this. Yes, the local governments all over China, you can do this." And the second type of directive is what I call red signals, which explicitly says, "no, you cannot do this." So, for example, "no, you cannot exceed the amount of water use by this amount."

And then the most interesting one is the third category, which is the grey directives. So commands that are deliberately ambiguous. And there are a lot of ambiguous commands and instructions that occur in the Chinese political system. And they still do today.

And I argue that what these ambiguous commands do is that they actually provide room for experimentation. Because from the perspective of the local officials when the command is vague and ambiguous, and broadly stated, it means that they are free to interpret how to implement that particular instruction.

And when they experiment and try things out, it produces, generates a variety of possible solutions. And from these possible solutions, the regulators in Beijing can then take a look at these options, many of which they had never thought about before and then decide, "among these possible solutions, are there some really good ones that we should scale up to regional or national levels," or sometimes they might also realize, oh, some local experiments turn out to be not good. And we are going to change our commands from grey to red and say, No, I don't want you guys to try this anymore.

So through this varied and dynamic system of commands, is one example of a mechanism by which the central government in China is able to calibrate the amount of discretion that it gives local officials, allowing them to experiment when the central government wants to experiment, and then also providing a mechanism for the central government to collect feedback to scale things up if they want to. And also to scale things down, if they decide that that is the right thing to do.

Tobi;

So it's really hard to talk about China, at least the way China is being written about generally, without talking about state capacity. Like you talked about in the early part of the discussion that analysts and scholars usually take one thing and focus on that when discussing China, and there is always this talk about state capacity being the be-all of how China was able to reform itself and become rich. You know.

Some say it's the bureaucracy that was inherited from the communist regime, some talk about the 5000-year history of civilization, and so many other theories. But you've discussed this often on your Twitter feed, and in other appearances, that when we talk about the bureaucracy, we usually have the Weberian Western-type democracy in mind, and that the way scholars and people discuss this is like, it's the only way to achieve bureaucratic coordination.

But you've also challenged the idea that there are other forms of bureaucracy. So I want to ask you, how did China achieve that bureaucratic coordination without feeding into the Weberian archetype? You know, so to speak, because the challenge with most developing countries like Nigeria, which I am familiar with, is that you often have pockets of effectiveness in different arms of the government, but it's usually difficult for one vision to be projected, you know, and be implemented. So how did China achieve this through its bureaucracy, what were the design elements?

Yuen;

I am very glad that you brought up this important point. It is a point that I keep making in my books and in other forms of speaking. It is also a point that many people find hard to accept. The reason for this is that for a very long time, the conventional wisdom has always subscribed to the view that there is only one standard for good institutions, for stake capacity, for good governance and that is to look like rich Western nations.

Now, the conventional wisdom doesn't put it this way, but if you look at all of the global metrics that are created, regardless of the names that are coined for them, it's always the same countries that are ranked in the top 10. And it's always the same group of countries, including Nigeria, and sometimes China that's ranked at the bottom, right?

And so this is very deeply entrenched in both academic and popular thinking that there is only one standard in this world for good governance and good institutions. And that we should only use that benchmark. And when we look at developing countries, their situation is only accessed in terms of their distance from this ideal type.

So things in developing countries are not perceived as being qualitatively different, they are instead perceived as deficient because they don't comply with the standard expectation of how things should function. And so including in the discussion about state capacity, one of the core elements of state capacity is bureaucratic capacity. And so as you alluded to, everyone subscribes to the legal-rational model that Max Weber had portrayed 100 years ago. And it is assumed that the only kind of effective bureaucracies are the ones that have these Weberian qualities, and everything else must be corrupt or dysfunctional.

And the reason that I questioned this conventional wisdom is that I think it is... first of all, it reflects a first-world bias that people are either unaware of or unwilling to admit. And second of all, it is limiting and distorting. Because when you assume that there is only one standard, you cannot see qualitative or categorical differences. Meaning that perhaps in this world, we are actually comparing apples, oranges, bananas and guavas. But when you say only the Apple is the legitimate fruit, and then you look at the banana, and you think, "Oh no, the banana is deficient, because it doesn't look like an apple," right? So that is why it becomes this very narrowing logic.

And what I find from both my historical research and my field research, in the case of China, as a very good example is that the qualities of an effective bureaucracy were actually very different at the early and late growth stages. So the given example, I show that in the early 1980s, 1990s, when markets first opened in China, the country actually relied on bureaucracies that had non-Weberian characteristics. So they were not specialized. Local governments would mobilize every agency to go and recruit investors. And this defies Weber's rule of specialization and technocracy. They also create a mechanism where these bureaucrats were basically taking a cut from the investments they could bring in which in economics, we say high-powered incentives. And in Weberian bureaucracy, you're not supposed to provide high-powered incentives, you're supposed to have these very modest rule-abiding and somewhat boring bureaucrats in office.

And the reason why these non-Weberian qualities work very well, in the beginning, is because they made the best use of what China had in the beginning, which is it had a communist apparatus and a communist apparatus [that] is good at mobilization.

It made use of the personal connections of local government officials and these personal connections substituted for formal property rights, and so forth. And so even though these individual characteristics would appear to be wrong from the first-world perspective, they were actually functionally a good fit with the objectives of early development.

However, as the process goes on, income rises, the markets become more complex, businesses grow and so forth, the society and the economy had different objectives, had different priorities about growth. They no longer wanted just any type of growth they wanted, instead, quality growth in states-selected priority sectors. And that's when you begin to see an evolution in the bureaucracy towards the more specialized and technocratic forms that we see in first-world countries today.

So to sum it all up, there are two takeaways. The first takeaway is [that] the good institutions that are often touted as universally ideal institutions are actually good institutions suitable for advanced stages of growth. But early stages of growth may actually require functionally and qualitatively different institutions that make the best use of what low-income societies have.

So that is the first takeaway. And the second takeaway is that we should drop this assumption that there is only one standard because that prevents us from seeing potentially creative solutions throughout the developing world.

Tobi;

So your second book, "China's Gilded Age: the paradox of economic boom and vast corruption," I would say, also slayed another dragon for me personally, only that the dragon is not China.

So from my experience in Nigeria, when you talk about corruption, the almost - I should say, self-interested response you get from politicians is that there is corruption in other places. And from somebody coming from a civil society background or even an average citizen, that answer is unpalatable, because the way we have been made to think about corruption is usually about the overall level of corruption, the quantitative level of corruption.

But in your book, you made it important that the qualitative aspect of corruption is also important. So can you please briefly explain the difference? How did you come about this insight of unbundling corruption, so to speak?

Yuen;

Yes. So the second book is called China's Gilded Age. And it is a sequel to my first where I zoom in on the relationship between corruption and capitalism. And the core argument of the second book is actually quite simple. What I argue is that corruption comes in different types. And different types of corruption have different forms of harm. And I focus on one particular type of corruption that I call access money: elite exchanges of power and wealth.

And I show that in many contexts, not just in China, access money can actually encourage businesses to do more business; because politicians provide them with conducive conditions. But that this form of corruption results in indirect risk and harm that is nearly impossible to quantify. And so once we, in particular, zoom in on access money, we can understand why there are many economies that are prosperous, on the one hand, but on the other hand, have many structural distortions and risks.

And in addition to China, the other country that fits this model is actually the United States. So whether you look at the United States in the late 19th century, the original Gilded Age, or whether you look at the United States during the 2008 financial crisis and today, you'll find that these are wealthy capitalist economies that produce rapid growth, but also [produce] inequality - a great deal of inequality and a great deal of policy distortions and systemic risk.

And that is the kind of corruption that is neglected that people don't look at. The reason for this is that most people, when they think about corruption, they immediately think about the forms of illegal corruption that they encounter in their daily lives. So when a policeman stops you and extracts a bribe from you. Now that is obviously corrupt. It is an act of bribery, it is illegal, it is extortion. And so the focus is on this type of corruption. Whereas a lot of the popular discourse neglects the other type of corruption - access money - which has always been actually central to the history of capitalism.

Tobi;

I find that book very insightful. I'll give you a brief anecdote. The former president during one of his media appearances went on television and made, I would say, the error at the time of saying that corruption is different from stealing. And it happened to be one of the things that became a public relations nightmare for him.

So I just want to ask you, for countries that are dominated by the destructive types of corruption, can they transition to access money types of corruption, and can they also avoid the inequalities that come with it? And I should say that you stressed in the book that corruption is not good, which is another wrong message that a lot of people take from the book.

Yuen;

So my book, China's Gilded Age, unfortunately, as you pointed out, is widely misunderstood. As soon as people see the story of corruption coexisting with growth, they take that argument out of context, and start screaming that, "oh, my god, she's saying corruption is good for growth, and she's saying we should do more corruption."

And so there have been quite a lot of nonsensical reactions to the argument. So at the outset, let me stress that actually, I made clear throughout the book, and over and over again in my speaking that all corruption is bad. This is not an argument about corruption being good in any way.

All corruption is bad, but the harm is expressed in different ways. And so that is why I use the analogy of drugs. I used the analogy of toxic drugs to refer to extortion and embezzlement. These types of corruption have absolutely no benefit, you immediately see the harm, and it immediately destroys the economy. And Nigeria is a good example of this type of highly destructive corruption.

And the second type of corruption I call speed money, I refer to that as painkillers. So you can think about a business that pays a small bribe so that it can get a business license faster. And that corruption is a painkiller in the sense that it allows the business to buy some conveniences, gets rid of some headaches, but that doesn't actually help the business to make more money. Ultimately, for the business owner, it is a hassle. And it is a cost. So that's not good, either.

And the last type of corruption, access money, I call it steroids. So steroids, as we know, is a kind of drug that dishonoured athletes use to help them grow muscles and perform superhuman feats. But if you keep using steroids, then ultimately it's really going to have a whole range of serious side effects that accumulate over time. And access money is a type of corruption that you find in high growth or wealthy, crony capitalist economies, right? So what people should take away from this book is not that corruption is good, or that countries should do more corruption, which obviously would be nonsensical. Instead, they should really think about the following issues.

First of all, countries should take a look at what is the dominant type of corruption that exists in their country, and think about the appropriate methods to fight the dominant type of corruption.

For instance, in the United States, extortion, petty bribery, these sometimes happen, but it's not common in the United States. But over there, the dominant type of corruption is legalized access money. So lobbying has become a gigantic industry. And so the United States would have to come up with very different ways of fighting the kind of corruption that dominates in their society.

Conversely, when you look at Nigeria, it has all four types of corruption that I talk about and so in a country like Nigeria, there has to be a focus on fighting all of these four types of corruption, but particularly the toxic ones. So embezzlement, extortion, imposing petty bribes, and thuggery on people. These types of corruption have no benefits at all. They drain the economy and the burden falls most heavily on the poor.

So countries have to think about what are the measures they can take to bring down this overtly, growth-dampening corruption. And if you look at the Chinese experience, what happens as it developed over time is that the structure of corruption changed, and it invested at least 20 years of efforts to really bring down extortion and embezzlement.

And although I had an entire chapter devoted to that topic, a lot of people just ignore it. And instead, they run with the misleading conclusion that oh, we should do more corruption. They ignore my discussion about the 20 years of effort that China put into bringing down extortion and embezzlement.

So for readers in Nigeria, start with the obvious things, things like extortion, embezzlement… of course, they're wrong; of course, they're terrible; of course, they're damaging, so do something about that first before you even attempt to think about how can we transition to more advanced forms of crony capitalism like we might see in some advanced economies.

The other takeaway I would add... the third takeaway that I would emphasize is that the part about access money, it’s not about how do we encourage more access money corruption… the way to think about that takeaway is how do countries like Nigeria, create incentives for government officials to have a personal stake in economic outcomes? Right.

And so what happened in the Chinese case is the system that I call profit sharing. Meaning local officials have a stake in economic growth, which comes both in terms of their career, as well as in their financial payoffs. And that shows up as access money.

It doesn't mean that other countries should have more of that kind of corruption. Instead, the real lesson is, if not this type of corruption, are there other less damaging ways in which we can create incentives for government officials to actually have a personal stake in economic development?

Tobi;

One final question, I know our time is gone. I know scholars usually, sometimes, shy away from making policy proposals but for countries that are also interested or ambitious about escaping the poverty trap, what… maybe theoretically speaking, or practically, what are the three things that you would recommend from your research on the China experience? Not necessarily copying China, we know that has pitfalls, so what would you recommend?

Yuen;

It's a good final question to wrap up. Um, I would sum up with three takeaways. The first takeaway is, really work hard on fighting the overtly growth damaging types of corruption. It is a simple takeaway, but a lot of people actually forget about it. So things like embezzlement, things like extortion.

If Nigeria could bring down the level of these damaging types of corruption, of course, immediately, you will see the economic and social benefits. So work hard on that.

And then the second takeaway is, how is it possible for government officials in Nigeria to have a personal stake in collective outcomes? I don't have the answer. But I think it is a question that Nigerians have to sit down and think about.

One of the things that are often missing in developing countries is a discussion about incentives and also about a sense of personal ownership in shared outcomes. People prefer to invest their energies in criticizing politicians and so forth. But if you think about it from an institutional perspective, why should that particular politician care about the collective outcome? Right.

So how can we create those incentives, which doesn't necessarily have to be monetary. It could also be non-monetary, it could be reputational, how do we make them care? Right? So that's the second thing to think about.

The third thing I would emphasize is a principle that I call using what you have, and China illustrates that principle, richly. Using what you have means that every society, even one that is a low-income society has a lot of indigenous resources, they have human capital, they have creativity.

So the first step of development is not to go and copy rich countries, it is also not to sell your oil resources, but to really make the best use of these indigenous resources. And so for those who know my first book, actually, in the conclusion, I have a chapter about Nollywood. And that's an excellent example whereby under desperate circumstances, the people in Nigeria actually created an industry from the bottom up using what Nigeria had at that particular time.

And so there are so many instances throughout the developing world where there are actually a lot of indigenous resources, they are untapped, or they are ignored or they're dismissed. Because we are so used to thinking that the only right solution is to look like rich countries. And we have to drop that mindset.

I think it's part of an extension of a colonial mindset as well. And developing countries have to develop a certain sense of intellectual independence, as well as confidence in seeing the potential that is already existent in every society, and make the best use of those resources to kickstart entrepreneurship and new industries.

Tobi;

Thank you very much, Yuen Yuen Ang, it's been fantastic talking to you.

Yuen;

Thank you very much. It's a real pleasure to speak with you.

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Innovation is the key ingredient to human material prosperity and an essential factor in economic development. But the importance of innovation is often misunderstood because of the common belief that poorer nations need not invent anything new and can always copy existing technologies from the richer nations - hence innovation policies are often missing from the development agenda of most developing countries. My guest today is social scientist and innovation policy expert Dan Breznitz - and he has made many significant contributions to changing the conversation and policy around innovation. We talked about the distinctions between innovation and invention, why the Silicon Valley model of innovation does not fit all contexts, and how innovation policies can be set in the long term.

TRANSCRIPT

Tobi;

Where I will start, basically, is innovation as the engine of economic growth is a view that has been pretty much validated through economic history. But when we think of innovation, we still think of new things, invention, which is kinda like a distinction you made in the book. So briefly, just tell me what is the difference between innovation and inventing new things, which most people understand innovation to be.

Dan;

So there's a big difference between innovation (and that's what we should care about) and invention. We should also care about it but it does not necessarily lead to economic growth, especially not where it happens. So if you and I would go back to my lab or your lab in the university, or just a lab in the back room, and we come up with a new idea for a new product or service. Even if we move it to a level of a prototype or have a patent on it, that's great, that's invention but that's not innovation.

Innovation is taking ideas and actualizing them in the real world. So taking the idea that we develop and actually make it into a product (if we talk about economic innovation) or service and sell it to people. It can be novel ideas, but it's across all the arrays of activities from coming up with novel ideas, to improving them, to recombining them with others, to innovation in their production, to even innovation in their assembly and after-sale. And innovation is important and creates welfare, not in the moment of invention but because it's continuous. So let me give you two examples that are very prominent because of Covid.

The one which is the most simple, since I know you love new cars, right, Tobi, and you ordered at least three in the last year, right. And you can't get even one of them. And the reason you can get one of them is not because people cannot produce cars, but because there are not enough semiconductors. And the reason there are not enough semiconductors in the world is Silicon Valley, which is called Silicon Valley because it was in semiconductors [but now] no longer knows how to innovate in the production of semiconductors. There are actually only very few companies. two be exact, and they both come from Taiwan, that knows how to create semiconductors, and how to actually innovate in their production.

But a much better example is COVID itself. I mean, it's great that we came up with new vaccines. But that was not enough, right, with the molecule. We had to innovate in their production, we had to innovate in material science creating a new glass vial, so we can move them around. We have to innovate in their distribution. But it's now very, very clear that that's not enough. True welfare for humanity and the ability to live with Corona would happen when we innovate to a level, which is now very clear, of producing billions of units of said vaccines and distributing them to every human on earth. Okay. That will probably allow us to put Corona behind us.

So it's not the moment of invention. I mean, the moment of invention is great. But innovation is the actualization of ideas all across the [value chain], if you want to call it the supply or the production, network, and stages, in order to constantly come up with better and improved products and services, and its impact, real impact start to happen when either all or most people on earth actually have access to it. And that happens because it's continuous.

So you and I talk on Zoom, which is a very old invention, right? Telemedia. However, you and I can talk - you're in Nigeria, I'm in Toronto - and not even think about the cost of this because hundreds of millions... not because somebody invented it, but because after somebody invented it, hundreds of millions of engineering hours, if not days, went into improvement in fiber optics, improvement in software algorithm, improvement in memory, improvement in CPU and speed to the level that now you and I can do zoom as if this is costless. And that's the real impact of innovation.

Tobi;

There's so much to unpack in that answer. But now today, like you said in the introduction, when people talk about innovation what usually comes to mind is Silicon Valley, and that's the model that you've critiqued quite a lot, rightfully so, in my opinion on many points, but just give me a brief. What are the limitations of the Silicon Valley model of innovation today and why is it an inappropriate example of what innovation should be?

Dan;

So let's understand what has changed in the world. And what has changed in the world in the last 20 to 30 years is before, when somebody came up with an invention and a novel innovation, it was then produced, it was transformed into industries, in production around that area. So let's think about HP, or Apple computers, as it was known there.

It used to be that when they came up with new products, they will produce that product very close to their headquarters. So Apple and HP employed 1000s, if not 10s of 1000s of engineers around Silicon Valley or in places like Colorado, around it. And those people will have great jobs in what you and I will now call advanced manufacturing, and all boats will be right. What we now have is a global system of fragmented production.

So let's talk about semiconductors. Okay. In semiconductors, now, we look at Tel Aviv, Silicon Valley, Taipei, Shinshu Park, Taiwan, Seoul, Korea, Shenzhen, in China, all of those places have unbelievably successful semiconductors industries. And if you look at those places, you'll also see that many of the same companies work in all of those places. So you think great, but then if you look at what the companies in those places do, it's completely different.

So in Silicon Valley and Tel Aviv, it's the first stage, we think about new ideas to put on silicon. In Taiwan, as you now know because you can get your car, it's the only place where they can take those ideas and actually make them into silicon. And Seoul, in Korea, Samsung and LG control very critical niches. So for every smartphone that you buy, the second-highest profits go to Samsung and LG because of memory and the controller of the screen, the touch screen. And in Shenzhen, it's the only place where we can work with different materials, constantly changing components [that] actually produce a product that works, for example, this iPhone and all the rest and sell it.

So all those places are extremely innovative, but they do different activities. And in order to succeed in each one of them, you need therefore different innovational capacities, but also different finance, different institutional system, different education system. And there are real, for two reasons, those options of where you work. One is because once you develop those capabilities and systems, you can excel in one or two of those stages but not in others. And the second is because they also define who is enjoying the fruits of the success, who is being employed, and how we're being compensated for that employment.

[What] happened in Silicon Valley and in Tel Aviv is that when move, we move to fragmented production, and we have a new model of venture capital. We moved [away] from actually having an industry which is really about innovation. So if you want to be completely cynical about it, the industry is about creating companies for cheap and selling them for a financial exit within five to seven years for the highest bidders, preferably 1000s of percent, right? It's not really for most of those people about changing the world. And in this system, the only people you employ are the engineers of the top universities (so not the people we should really care about or worry about). They are getting wages that are at the top wages of the US and Silicon Valley, or Tel Aviv, it's the same wages. So they're on their way to becoming a millionaire and they're getting stock options, right, basically lottery tickets to become billionaires.

But who are the people that enjoy this system, it's only the GEEK ELITE, their financiers, maybe a few celebrity chefs and that's it. No one else is really employed in that level. And as soon as they finish with their work, all the rest of innovation goes somewhere else to be done. So what happened in both Tel Aviv and Silicon Valley is suddenly from a system that created a lot of good employment and jobs for everybody in that society, you're employing only the top 15 percent who are already basically extremely well off, the rest of it 85% are on a treadmill to nowhere.

We all heard about what happened in San Francisco and Silicon Valley. But let's talk about Israel. Israel moved from being the second most equal society in western democracies in the 70s when it started that process, to now moving into a position where one of every five families in Israel is under the poverty line, which means they don't have enough money to buy food at the end of the month. And that's the fruit of a success they enjoy from this tremendous, maybe the most amazing innovation miracle in the second half of the 20th century. 20% of Israelis, including children, don't have enough money to buy food at the end of the month. So I wonder why people, even if they can imitate Silicon Valley, why do we think this is a good model for our community?

Tobi;

Now, you touched on something that I want to sort of press on, which is the finance of innovation and how it has come to be dominated today by venture capital finance model. Now, we all know how even Silicon Valley itself got started with a lot of public funding, either in Defense Research, which created lots of companies from IBM, Oracle, even Microsoft… how DARPA funded Google initially. So my question then would be why did the public, in this case, governments (whether at the city level or at the federal level) stop funding [research]? How did venture capital come to dominate the finance of innovation, and public financing just kept dwindling and dwindling, is it because we stopped believing in innovation as a source of growth, and policy sort of shifted to things like redistribution and things like that?

Dan;

So I will say that it really depends. There are some countries, multiple countries that still have a lot of public support for innovation. Canada, for example, is one. However, the problem with some of them is that they don't know how to transport that investment in basic invention into real innovation. And then all that great wealth, intellectual wealth, if you will, and all those inventions are then being taken away, and becomes great innovation somewhere else with what you say private money. So I wouldn't be as harsh on that. What I think has happened is that we have developed together with what people will call the neoliberal worldview. A firm belief with Silicon Valley is the only model. And then a very thin understanding of how Silicon Valley really works. And that's a belief that actually helps a lot of government if they so wish because then they don't have to be responsible and the only thing we need to do is to allow venture capital, whatever that is to come into the play, instead of actually looking cases of success, real success, from China, to Taiwan, to Korea to Finland, to actually all the Nordic countries.

Whereas a significant role for public money and very interesting division of labor between public funding, public money and what it's trying to do, and where and how, and I think that's the most important thing, how private money and private investment in innovation are done, regulated, and most importantly institutionalized. And the way to think about it remember those stages we talked about?

Tobi;

Yes.

Dan;

Each one of them necessitates a completely different financial system in order to excel in it, right. If your aim is to supposedly create a new Alphabet, Google, or Facebook, you need maybe a system that resembles venture capitalist [...]. I have to say venture capital work only in ICT in biotech so far. So if you are in any other industry, maybe you should look for other ways of financing it. But if you're, for example, in the business of Taiwan where in order to excel as TSMC, you need to build new fabrication facilities, basically, factories at the tune of several billions, if not 10 or above billions a year, Venture Capital, Private Equity and even the New York Stock Exchange and NASDAQ are just not the way you can find this type of behavior.

There is no venture capital on earth that would allow you to spend hundreds of millions or billions every year on basically capital equipment. You need to figure out the different financial systems that allow you to do that and judge you. The metrics of your success are different than the metrics of the success that your VCs and NASDAQ uses. From return on assets, to a margin of profitability, all those things need to be changed for you and your financiers to actually be able to make money.

Tobi;

So not to defend Silicon Valley, I'm not in any position to do that. But I'm just thinking from the perspective of say an African startup founder, for example. And we are talking about the proliferation of this model. So my question is, don't you think this model, the Silicon Valley model, venture financing startup as an approach to innovation spread the way it did because it is permissionless? So for example, I can start a startup right here in my room, in Lagos, Nigeria, whereas the current political economy might not let me be able to build a factory, because then I'll have to go through all kinds of regulatory red tape, I have to know someone at government ministries, I'll have to navigate a whole bunch of things. So an African found out my hear your argument and think, Well, the only way I have this opportunity to rise is because of the Silicon Valley model. So what would you say to them?

Dan;

So I will say that A, you're right. And, and I'm not against the Silicon Valley model. The two things that you have to take into the equation, and again, as a community leader is A, it's very, very hard to innovate with the Silicon Valley model, which is fine. But the second, if you are successful, really successful, one of the results will be growing inequality if you really imitate it. So you might as well think about it in advance and figure out ways how to at least limit this inequality, or, you know, the growth much more positive and wide, instead of, you know, like Israel, who understand that they have a problem, but now for at least a decade now have programs after programs trying to diffuse the miracle with mixed success because they're already stuck in that model.

So from a point of what you just said, yeah, all power to you. The question is, how can we then widen the, in Lagos, or in Nigeria.... the impact of your startups? One thing is what I call in the book, play [...] is, you say, Yeah, that's a model, that's a financial system and it works. And that's one problem. Once you put venture capital into your firm, Tobi, you will need to supply them with a financial exit, right? That's how they make their money. But what I want as the mayor of Lagos is for your company to grow as big as possible, preferably in Lagos.

So we need to then figure out how to do two things. A, how to allow you to grow as big as possible in Lagos for as long as possible before a financial exit. Because then two things happen, A, if you're big enough and successful enough in life your venture capitalist wouldn't want to move, they would like you to be in Lagos. Not only that, then is the biggest you are and the most successful you are the chances are that your financial exit will be an IPO, which means that you will stay as an independent company. And then when we do an IPO, should you go to a NASDAQ IPO or should you go to a local IPO or should you go to an [...] IPO there are several options, right? Each one of them has consequences on your growth. The second if you grow big enough and successful enough, even if the financial exit is somebody is buying you, Tobi, because you by then have already 300, 400 employees in Lagos and you have customers all over Africa, the foreign company that will buy you will probably keep you maybe even grow you to become their main division in Nigeria.

So it's not that the only thing that Lagos will get is you, your co-founders and some of your employees becoming millionaires and then the employment disappearing. But not only you as some of your employees grow and become bigger and employ more people. And as we do that, we also need to think about what will be the financial incentives I'll have you if you're big enough, so you can employ people who are not just r&d engineers. So I would call it, you know, playful delay. So the Nigerian startups or any African startups that now happen, grow as big as they can, for as long as they can before they're being bought by someone else.

Tobi;

So now, if I am the governor of Lagos, the Mayor of Lagos and I'm trying... So my first question before I get that would be, are there geographic? So I'm thinking along the lines of things like new trade theory, economic geography, and specializations. So are there geographic determinants of innovation? Or can innovation be deliberately nurtured and directed in any location? So I had a conversation recently about the supply chain, which you also touched on on semiconductors. And it took the pandemic for me to know that probably two-thirds of the global supply of hand gloves come from Malaysia. But I didn't think, unless you tell me I'm wrong, that Malaysia did set out to become the global supplier of hand gloves. So are some of these innovative niches and economic dominance based on innovation, are they serendipitous or can they be deliberately nurtured in a particular location?

Dan;

So let's talk reality. Okay.

Tobi;

Yeah.

Dan;

And I'm going to use Israel and Taiwan as an example, just because both of them are famous enough that people at least heard about them. So both of them started at the same time, okay. And since I interviewed the people who were responsible, if I tell you that they really knew how the end outcome would look, I'll be lying, and they would be lying as well. But they made particular choices that really define their success. So Israel, even before Silicon Valley became famous and all the rest says, Look, we have no natural resources, we don't have a lot of money, what we have is brains. And we actually have no clue in what industrial sector those brains will transform things into to growth. So we are going to create an innovation policy, which is a horizontal technology policy. Back then just so you understand how limited knowledge was, they called it science-based industries because the term high tech was not yet created. And they said, in order to do that, we will focus all our attention on coming up with new ideas and making them into products. Okay, and we'll derisk will help private [companies] and private companies need to do that. And we will create policy, after policy, after policy to make it happen.

And then those companies started to be created. Then very early on like a year after the NASDAQ was established, there was already an Israeli IPO on NASDAQ. So the state co-evolved its policies to slowly but surely worked down this model. So it's not a surprise that Israel ended up basically as an engine of startups. It's not a surprise because it was horizontal. So it was whatever was successful in the market, it followed very closely in the footsteps of the US in new industries, first hardware, and then software. But the Israelis had no clue that this is what was going to happen. They also invested a lot in Agri-tech companies and in geothermal energy and then all the rest. Okay. But their model of how do we know that we are successful is, we will have a lot of new companies with new products that are exportable and we'll build the financial system to allow that to happen. Taiwan was almost the opposite.

Taiwan says for both political reasons other is we do not want to have very big corporations like Japan and Korea, which is a model we see to our left. And because we are isolated, we can take that risk. We also don't think that we can be successful completely imitating Silicon Valley. So where we can be successful is in new industries working with the US. It's not just Silicon Valley back then, it's the US as a whole. So we will put bets on this new industry called semiconductors. But unlike Japan or Korea, we will not put bets on a specific niche. But we will create two capabilities that will allow Taiwan to excel in what we want to excel, which is basically the sub-suppliers for American companies, maybe Japanese. Remember, there was nothing else in the world back then. So they spent resources on innovation in the production of semiconductors. So all those companies that we talk about TSMC, UMC, Taiwan Mask Company, all of them came from a public research institution, which created projects that basically took the technology from abroad, brought it to Taiwan, created the company that then allow the ability to, you know, produce semiconductors in Taiwan, that was one.

And the second, [is] a huge amount of attention to design. So you want to do something with silicon, you need to do two things. Actually produce the silicon but also design what it is that this chip does. And again, through the same public research institute that was diffused. But the aim was not an industry like Silicon Valley that comes up with new ideas, but the aim was you need much more simple semiconductors, for example, in toys. So we will figure out where there are niches where you already have a need for semiconductors and we'll make those semiconductors more reliable and cheaper. We're not going to invent new ones.

And we will be able to do that because we just created those factories so we can do those two things and be these great sub-suppliers for very big multinationals. So without even understanding how the global system is getting fragmented, they opted for one industry and in one part of that industry. When they created TSMC they didn't know that they were going to completely change the global semiconductor industry. But they had a very specific strategy of thinking, what would success look like to Taiwan? So the ability to do over design and supply for big American, European and Japanese companies, the ability to innovate in the production, and the ability to innovate in second-generation innovation and semiconductors and multiple companies that will grow big but most of them are SMEs, and that was the vision. And then as industry changed, right, they co-evolved.

In both places, there was nothing, really nothing before the government started. So in Israel, there were 860 Something people with any kind of academic education doing any kind of r&d in the whole business sector. So probably less than in one lecture hall in your university. And in Taiwan, not only that the private industry did not want to do semiconductors but even after a few very successful spinoffs from ITRI, (that public research institute I'm talking about) when they wanted to spin off TSMC (maybe one of the world's most successful companies), private investors in Taiwan refuse to participate, and it ended up in a small Dutch company called Philips [which] became the biggest investors in TSMC. So again, did they know how they were going to change the global industry? No. But did they have a very specific vision of what is success and what would it do to Taiwan and Israel? Yes.

Tobi;

Excellent. That brings me to my next question, which is kind of broad. Like I mentioned earlier, if I was the governor of Lagos, or the mayor of a city, or even maybe the President, and I want to design innovation policy, I really want to exploit innovation for real inclusive, widespread, broad-based growth that tries to avoid some of these problems that you have mentioned, both in the book and even in our conversation on Israel, Silicon Valley and all that. What should I do? What should I be funding? What complimentary public institutions do I need? And how should innovation policies be designed generally?

Dan;

So I think you're missing the most important step. The most important step is what, as I just said, Israel and Taiwan have done, maybe even unknowingly. What I will tell you as the governor of Lagos is that, Okay, let's assume you're successful as a first step. 15 years from now, what does Lagos look like? What kind of companies do you have? What kind of people do they employ, what kind of things do they sell to the global system and what kind of things do they buy from the global system? Okay, now that we have this vision, let's do reverse engineering, and figure out how we get into that vision knowing that we, I mean, the world is constantly changing, we might have to, you know, change course, but we have a vision of what success is. And that vision is not the one that too many cases are now [that] when they talk about innovation, they talk, oh, I want to go to VCs and I did a lot of patents. No.

What does your society look like? Once you do that, A) we can reverse engineer and figure out exactly what financial system you need, how you develop it, what changes you need for your education system, how you also tie yourself into those global networks so you get the outputs you need, which are not just physical outputs but the constant knowledge and ideas, and how do you move it back? And as you do that, you also need to look at several things: what are your current strengths and limitations? what you can build upon? And what are gaps that you have that [you think] is reasonable for you to assume you can fix? And then we can start to be much more targeted. Not necessarily in industries, but the way I think about it is in capabilities, where do you want to operate in those four stages? And then we can maybe talk about industries, maybe just talk about core activities of what you need in order to excel in that and build all those institutions and programs. But without that vision, you're basically going into a very rough ocean with no map and the no goal. So the only thing that will happen is, at best, you'll be drowned.

Tobi;

That's powerful and poignant. Final question, Dan. And this is a bit of a tradition on show. What's the one idea, it may be from your work, it may be something you admire, it may be something that is probably even old and the world has forgotten about, what's the one idea that you would like to see spread everywhere, you'd like to see people discuss more, you'd like to see people think about a lot more? What's that idea?

Dan;

That idea is that: believe in human agency, or believe in the ability of humans to do things and to make things better. Right? So if you think about what makes us human, it's really to innovate is to take ideas and make them part of the world. Right? That's what we do. And for too long, everybody has been taught that there's only one way to success. And I think that that's the main problem of modern economics and modern social science. We look too much at structure, and not enough at the human agency. And we need to believe in the ability of societies, humans working together, figuring out new ways to make our communities better. But in order to do it, they have to understand how the world works and how they work. And doing that I think we now have more options than ever before to make communities both richer and more inclusive. But it has to come from the communities itself. Lagos and a lot of places in Africa need to dream their own dreams and stop dreaming the European or American dreams. The other successful countries that have done that manage at least to tailor the American dream and make it into their, I don't know, flavour [of] dreams - from Japan and Korea to Taiwan, Israel, Finland, all of those places that have moved from being poor to successful after World War Two.

Tobi;

Terrific. Thank you so much, Dan, for doing this with me. It's been educating, it's been enjoyable. Thank you so much.

Dan;

You are very, very welcome. I hope that one of those days, maybe after, we will finally innovate our way out of COVID...

Tobi;

Yeah

Dan;

Then I can meet face to face.

Tobi;

Yeah, I would I would love nothing more.

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If you ask any Nigerian today what the number one problem that they think political leadership should tackle - I am fairly certain security will be the overwhelming answer. In the last week alone there have been two deadly attacks in the Ondo state and Kaduna state with scores of people murdered in their homes and places of worship. Go back a week further, and the number of such murderous attacks would have risen to six. What many Nigerians depressing is that the problem is worsening and spreading to all parts of the country without any sign that it might abate anytime soon. Politicians seeking elective positions in next year's elections are making promises to end the crisis, but given how much it has gotten worse under the current administration despite similar promises leaves very little room for optimism. It is in the light of this that I speak to my guests on the podcast today James Barnett and Dr. Muritala Rufai. Our conversation is about what is now known as banditry in the Northwest of Nigeria. We talked about the origins of banditry, the nuances of the many factors at play, corruption, and the failure of local governance. Dr. Murtala Rufai is a professor of history at Usman Danfodiyo University in Sokoto.

TRANSCRIPT

Tobi;

So I'll start right at the end, which is not the most recent attack, but the Kaduna train attack was heavy in people's memory, and mentality, and maybe because of the status of some of the people that were involved.

And in the weeks after there has been suggestions that the banditry issue is sort of evolving into something rather different. Maybe something akin to Boko Haram or ISWAP tactics. And some have even suggested that there are some evidence that both groups are now working together.

So I like to take it from there because in both your paper your article on this, you suggested that this is a problem that has the potential to evolve even more dangerously. So is this part of that evolution? And if so, what can you tell us about the background to that and where it's likely to go next?

James;

...In terms of the kind of the relationship between the bandits and Boko Haram, you know, the term that we talk more generally about jihadist because, really, there're kind of at least three different primary factions of what was once Boko Haram in Nigeria, today. There's ISWAP, there's the original Boko Haram, which we use the acronym JAS, which was led by Abubakar Shekau until May of last year when he was killed.

And then there's also the Ansaru splinter faction of Boko Haram. So when looking at relationships between bandits and jihadists, I think if anything, our study was maybe a bit more skeptical of some of the claims that, you know, by 2021 (by last year) there was already more speculation.

You had more comments from government officials, commentators, journalists saying, you know, the bandits, they are being recruited by Boko Haram, they're working together. I think our study was, in some ways, a bit more skeptical of the degree of, I would say, co-optation.

You know, we kind of pushed back to some extent against this idea that the jihadists were coming in and recruiting all the bandits and that they were kind of transforming the conflict. I think our argument was that the conflict in the Northwest for now is very much still one being driven by the bandits rather than by Boko Haram or the jihadists.

We do note, as you say, I think there's definitely room for closer potential cooperation. I think that from what we're beginning to see of the Kaduna train attack, the evidence so far, the details I've heard so far, there are kind of concerning issues there. But I think that for now, you know, even recognizing that the Kaduna train attack is a notable attack, a very serious one and obviously, the situation is still ongoing in terms of the the situation with the hostages, negotiations. So I think it's good to kind of avoid commenting too much right now as the situation is rather uncertain.

But I think my view is still that one of the impediments that has, kind of, historically prevented the jihadists from getting closer to the bandits is that the bandits, for the most part, they really prized their autonomy. It's very much part of their modus operandi to operate very independently, they will cooperate with, you know, different gangs, will cooperate with each other, but banditry is definitely an activity that in some ways, kind of rewards autonomy.

You know, the groups are not as rigidly structured as a jihadist organizations. It's an area where many people today if they want to get rich, they can take up arms and become a bandit. And so I think, because the bandits kind of value their autonomy, and also just given the fact that they've become, frankly, so powerful in recent years, they are not necessarily in such desperate need to kind of be recruited or trained or equipped or supported by jihadist.

So I think my view is that there are opportunities from the perspective of Jihadist to work with bandits in certain instances, you know, to cooperate on certain operations. But I think, as we've seen with for example, especially the group Ansaru, which has tried in the past several years to recruit bandits to say, 'you should stop acting like bandits, you should join our group. Your fight is not with Muslim people. It's with the Nigerian government.'

They go on this preaching tours and their efforts have really fallen flat. The bandits have not been interested in joining Ansaru. And so there have actually been many clashes. And recently, I think, as recently as a week ago, was the last one. And so, you know, the situation in Northwest is very volatile, many different militants, many different gangs, and sometimes they work together, sometimes they fight together, but I think for the foreseeable future, that the jihadist element to the northwest - this Boko Haram, this Ansaru...it's a problem, it's a challenge and makes things more complicated for sure.

But I think that, in my view, the primary challenge in the Northwest is still bandits. It's not Boko Haram.

Dr Rufai;

I should just continue from where he stopped. You see, the fundamental problem is that the bandits are not in any way a monolithic criminal formation. There are quite a number of bandit gangs and also bandit groups operating separately and individually.

Now having the unity of the bandits into a one united organization, for instance, is indeed a very difficult exercise. Because when we talk about a bandit group or a bandit gang, we've seen cases and instances where three, four, five people, for instance, form up a gang.

And they have their own independent and absolute autonomy. They could actually do and undo, they may decide to go on attack, they may decide to carry out abduction, they may decide to do whatever they feel like doing.

So now, putting all these bandits together into a one single platform - it is indeed a very difficult exercise. And there are also quite a number of them that consider this jihadist group including Boko Haram, Ansaru and ISWAP that he pointed out clearly, as their traditional enemies, and on several locations attempts by these groups to bring to the fore the members of the bandits, for instance, became so much challenging to the extent that some of the bandit groups and also bandit leaders were making it very clear to them that our problem as you were arguing is not with the Nigerian state - that is what we fail to understand.

The problem of banditry is basically and fundamentally local. Until probably recently, that the whole conflict is now taking a more national dimension. You go to the rural areas, you interact with the pundits, they will tell you that their problem is local and solution to their problem also remain local.

Local in the sense that they more or less have problem with the an sake - with the vigilante - and other local authorities than even with their state governors. So now, my argument has always been: bringing this bandits, about 120 gangs operating separately and loosely, individually, into a one single platform to probably relate with any of the jihadist groups or any of the criminal group like the case of Boko Haram, ISWAP and Ansaru is actually going to be a very difficult exercise.

But I am also not disputing the fact that there are very few number of these bandits that subscribe to the view of either Ansaru or Boko Haram. For instance, the general believe and also accusation which is actually not confirm about the train attack is actually something executed and conducted under the leadership of Ali Kachalla. Ali Kachalla has been a very good friend of Dogo Gide, who were all initially bandits under the control of Buharin Daji.

Now, there is that possibility of having that continuity in the relationship between Ali Kachalla, who was until probably recently, a bandit, relating with Dogo Gide who is actually his traditional friend while they were under the leadership and control of Buharin Daji.

Of course, going by the pattern of the attack. In terms of the train attack, for instance, we've seen actually certain features and characteristics that differ slightly the case of the bandit. And that is why people have the belief that there must be actually connections with [an]other international terrorist group like ISWAP... some said it's ISWAP. some are even talking about Ansaru, and people also talking about the involvement of Boko Haram.

But we've also seen historically, as far back as 2016 - 2017, when some Boko Haram elements were sent to the northwest to come and actually recruit and create a certain ideology on the bandits. At the end of the day, some of these members of Boko Haram became bandits. Because of what? Because they feel there is comfort, there is joy, there is freedom, and also there is wealth in banditry compared to Boko Haram.

And that has to do with nothing other than the level of independence and autonomy that is within the bandit world.

James;

I would just jump in really quickly. I think he did a very good job of explaining how the bandits prize their autonomy and that issue with the jihadists. He brought up the character Dogo Gide who I think is worth describing very quickly.

He's an interesting figure in terms of understanding, okay, who's a bandit, who's a jihadist, maybe [for] some of the listeners who don't follow these issues as closely. But he's someone that we profiled a bit in our article, our study for the CTC Sentinel, which is a big research report on the bandit-jihadist relations.

And he's someone very interesting because he's a bandit, but he has had very close ties with jihadists for several years. There are disagreements, you know, different sources, different people will place his first contact with jihadists at different points. But he's someone that a couple of years ago, he was mostly saying, 'I don't have any ties with Boko Haram.'

He is denying any relationship with the jihadist. But now in the past year or so he started to act as if he is a jihadist. But even as we did when we were digging through and doing our analysis, what we found is that he is maybe even now pretending to be more of a jihadist than he really is.

Because he will release these videos or he will be communicating with intermediaries, he will be trying to sound like a jihadist, but he doesn't actually even know the proper Arabic phrases. In one instance, he refers to the leader of ISIS to suggest that he is a member of Daesh or ISIS, but he's referring to the dead leader, who's been dead for over a year. And so I think it's one of the challenges of doing this research in the northwest. It's why I think it's good to be very cautious and skeptical and try to kind of scrutinize all the data coming out.

Because on the one hand, sometimes like Dogo Gide a couple of years ago, he would have understated his contacts with jihadists. He would have pretended that he doesn't have any at all. Whereas in fact, we do know that he has.

He has been in contact with various jihadists for some time. But then he could also maybe overstate his level of influence. Because there are instances in which the bandits find it advantageous to maybe assume the appearance of jihadists because they think it will make them seem more powerful, or because they think that it will give them some sort of advantage in negotiations, for example.

That was the case with the Kankara abductions back in December 2020 that was conducted by Awwal Daudawa in Katsina. So it's a very important question, you know, how much are these bandits and jihadists working together? And it's one that I think requires a bit of a skeptical eye.

Because sometimes things are not necessarily as they appear on the surface. And sometimes these bandits… they have [a] complicated kind of calculus that will determine how they interact with jihadists, whether they want to give you the jihadists credit for an operation or something like that. So I think that the Dogo Gide example is a very interesting one.

Tobi;

The sense I'm getting is 'this a bit hard to predict, because the tactics and the motives are constantly changing.' So before I draw you guys into the issue of causality, which is going to be my next question, briefly, given where James stopped, do you think that's part of the reason why the government and security forces have not been able to deal with this issue? Because it's constantly in flux, it's unpredictable? And like he said, there is need for a patient and cautious strategy.

Also, and this is a bit speculative, are there people in government to your knowledge who are also aware, and why is that not reflecting in the security approach?

Dr. Rufai;

Well, you see, what is important about the approach to this particular security threat, in my opinion, is to have a detailed, deeper, and clearer understanding of the issues. And even within the bandit cycle, for instance, we've seen people in the rural areas with AK 47 and AK 49, 24/7, that are not bandits.

You can see a major problem now. When you define a bandit on the basis of weapon, for instance, you've completely missed the issue. Why? Because some of these people bearing these weapons are, basically, and fundamentally, using them for self-defense.

Without these weapons, for instance, the bandits will within a twinkle of an eye, wipe them out. And that becomes a very serious problem and also challenging to the Nigerian security operatives as well. So, now, the government actually, in my opinion, the security operatives are doing their utmost best, but their best is not enough.

It is not enough because there is still a gap. And what is that gap? A knowledge gap of what actually is happening in the field. It is not just about going kinetic. Before you go kinetic, before you take the kinetic approach, for instance, it is far more important to have an underground knowledge of what is obtainable in the rural areas.

For instance, the Gide we are talking about, a long time ago, has established a mutual relationship and understanding with the rural communities. And I'm telling you, the rural communities around Dansadau, around Baba Doka, around Birnin Gwari, around Madada, around Dandala will never or have never seen Dogo Gide as a problem or as a threat.

That, rather, what he is after is the abduction of school children, abduction of expatriates, and his major problem is with the federal government. And as long as he will keep on fighting the State, the local communities have no problem with him, they may even decide to support him.

And at times, getting credible intelligence from the rural areas by the security agencies becomes a very serious problem, because the rurals will rather relate with the bandits than with the Nigerian state. You can see a major problem, a major problem here.

And again, because of this level of intermingling between the bandits, where areas that are dominated by the bandits. And also, with Boko Haram elements, where areas dominated by the Boko Haram elements with the rural communities, it becomes a very difficult exercise for the security agencies to execute operations in those areas.

And the major dilemma they are facing today, I'm talking about the agencies - the security agencies - is the issue of the collateral damage. If at all you are going to address this issue head-on, then definitely the issue of the collateral damage will be 100%. Why, because, you cannot differentiate who is a bandit and who is not? Who is a member of Boko Haram, and who is not? Who is a passive and active collaborator of these people? And these are some of the issues that actually compounded the issue more.

So we cannot say that the security agencies are not doing anything in the field. But, in my opinion, what they are doing is not enough. What is important is not going to kinetic alone, but let us have a clearer and deeper understanding of the issues.

And for that to be done, a lot of underground research(es) needs to be conducted, and a lot of sensitization and mobilization, and winning the support and confidence of the rurals or the locals must be done without which I think we are likely going to continue this war to a foreseeable future.

Tobi;

You want to weigh in James?

James;

Yeah, I guess I would just add... I think in addition to everything that Dr. Rufai has just said, one other challenge, as Dr Rufai noted in a previous answer to your question that, you know, the issue with banditry in many ways is very local. But it's also become much more of a national issue. And this also, in some ways, complicates the response of the state because the state itself is not monolithic, right.

If you look at, you know, who is involved in trying to address this issue of banditry, very often these issues are occurring at a very local level, within a particular district within a particular emirate within a particular local government area. But also, it's become much more of a national issue.

The security forces, particularly the military, since the launch of the first major military offensive operation [...] - that was now what? six, seven years ago. The military has also been engaged in the northwest in these anti-banditry operations. And so sometimes, there have been issues of a lack of coordination between all the various stakeholders on the side of, you know, the governments, if you will - broadly defined to include district officials, traditional rulers, local stakeholders like that - where sometimes you'll have one community [that] is actually attempting to negotiate something like a peace deal with some of the local bandits or an amnesty with the local bandits at the same time that the military is conducting a military offensive in the area. And so this kind of erodes trust. Or likewise, there will be times where, you know, a certain area is being really badly affected by the bandits, but the military's focusing on another area because their forces are overstretched.

And so I think it's one of the challenges that Nigeria faces so far is looking at, okay, who are the authorities or the stakeholders that are tasked with addressing this issue of banditry? And how can you increase the coordination between the state governments; but also between the state and the federal governments; between the states and the local governments; between the formal authorities and the more informal or traditional authorities which in many regions still have very significant informal influence. So that's also been one of the challenges.

And it's reflected to some extent, as he noted in the very fractured nature of the bandits themselves. We were discussing this yesterday with some colleagues of mine here at Unilag after the presentation, one of whom is from the Niger Delta area, and we're comparing and contrasting. He was saying, why can't they do what they did in the Delta? You know, what is the difference between what's happening in the Delta and what's happening in the Northwest?

And Dr. Rufai put it very well. He said, you know, in the Delta, the militants can speak with one or two or three voices. But this is a big challenge for the bandits. So, anyone can form a gang these days, there are just so many bandits that there's no one person you can talk to, that represents all the bandits and you can negotiate.

Dr. Rufai;

And I think, added to the issue of interagency rivalry that he's talking about, it is actually a major challenge. And when you look at the operations against banditry in the northwest today, it has become a military affair.

And if all is well, if teams are moving the way they should, this is an issue that's supposed to be addressed by the police. But where are the Nigerian police force today when you're talking about banditry? Nobody talks about the police. And not even the police, for instance, we have the Civil Defense.

These are very local problems, local security challenges that actually supposed to be addressed by these people. But as we speak today, it is actually the military that is in charge of addressing some of these issues. And look at it, the role of the military, within the context of provision of internal security, for instance... virtually there are so many operations taking place, virtually in every part of the country.

36 states, including Abuja, for instance, you'll find different military operations. Look at the number of the military within the context of the increasing rate of crime and the violence, insecurity, for instance, the two cannot in any way match. And that becomes a very serious problem. And by extension, the military [personnel] are overstretched and overwhelmed by the level of conflict taking place in the country.

And not only that, this problem of banditry just like I said earlier, is basically a local problem. And it is something that actually requires the activities of special forces. Do we really have the special forces within even the military, for instance, to address this issue?

Because there's not just an affair of [the military]. Of course, nobody is talking about the State Department and the underground role they are supposed to play in this. So virtually, it is the military operating alone.

And this same military [personnel] we're talking about are gradually overwhelmed by the volume, and also the gravity of the problem. They don't even know, in some cases, where to start from. Identifying who is their friend and who is their enemy becomes a problem.

The attack on the train, the Abuja-Kaduna train we are talking about, is not in any way aimed at the victims. Rather, to send a danger signal to the Nigerian state. And they've actually succeeded in doing that. And as we speak, identifying where these people are, becomes a huge problem to virtually all the security agencies. Simply because of what? Because of lack of harmony, lack of coordination, and lack of peaceful working relations amongst all the security agencies.

Tobi;

I don't want to lean too hard on the security angle, at least for now. Because I mean, primarily, you guys are researchers, not policy advisors, at least for the purpose of this conversation. So let's go back for a little bit. Because in your work, you guys stated that the manifestation of this is multi-dimensional.

There’s elements of criminality going on, economic opportunism in inter-ethnic clashes, you know, there's also the issue of climate change and damage to the environment and the strain that puts on resources between farmers and herders and many other interests.

But what ties these all together? Right? How did this become such a national Flashpoint? Because I recall, maybe, 2016 when these attacks started blasting on the pages of newspapers, we don't even know the word bandit. Right? Bandit made it into the national Zeitgeist much later.

It was always herders, Fulani herdsmen, you know. At some point, the presidency was claiming that they're actually foreigners who come to attack locals and carry out criminality and all that. So help me in as many words as you can untangle the causality of this. How did this escalate?

James;

I think Dr. Rufai can give the ... I mean, it's very multi-dimensional. And he's the historian and has been looking at this for a long time. And you know, in our different reports, we've explained this, yes, there's issues of land use, there's [the] issue of ethnicity, all these different factors that go into it.

I think the one that I always stress, and these coming from my background, I worked in Washington, DC for several years, I'm still in contact with people there. Like, when people talk about farmer-herder conflict in Africa, and very often in DC, the first thing is that people have a very reductionist view of it.

That's in many ways, kind of, very apolitical in some ways. They think farmers and herders used to get along, and then climate change meant there were fewer and there's fewer land, fewer resources and so now they're fighting each other.

And climate change is definitely real, it's definitely a problem. It's absolutely aggravating the situation there. But I think that leaning too hard on the climate change angle, and you see sometimes governments doing this, not just Nigeria, but other governments: they'll say, ah, you know, the problem here is climate change - it's a way to escape responsibility, right? Because you throw up your hands and say, we didn't do this.

Tobi;

It's not my fault.

James;

It's not my fault. I think that one of the central issues that is seen in every aspect of how this conflict escalated from people becoming angry, to the weapons flowing into the region, to people not trusting their neighbors, to not trusting the authorities… one of the central issues is corruption.

And this is an issue everywhere in Nigeria, right? It's not just in the northwest. But the specific ways it played out in the northwest, I think had a very pivotal role to play.

From people not feeling that they could trust the criminal justice system or the authorities to handle disputes or legal matters related to land use, farmer-herder issues. Herdsmen felt that they were really being extorted because they were seen as kind of an easy target by authorities… whether it's the police, village heads, judges in the courts, they were seen as people that can easily be extorted.

And then just everything from the fact that I mean, the IGP announced the other day that something like 85,000 AK 47s that belong to the police are unaccounted for.

Tobi;

Yeah.

James;

Right. And you wonder how you go out and, you know, we both interview bandits, we've seen nine-year-olds with AK 47s? How is it that that happens? It's not all coming from the Nigerian military or police stockpiles. But you know, there are many reasons that there are so many weapons in West Africa today.

But corruption is a huge challenge, both in the inability to prevent weapons from flowing into and around the country. And also the fact that very often weapons that are intended for use by the Nigerian state find their way into the hands of criminals.

So I could go on and on that, but I think interviewing people in the Northwest, and you ask them how did this start? Very often they'll talk about corruption.

Dr. Rufai;

I think he has actually said it all. What is far more important is the issue of corruption, the issue of corruption he's talking about. But again, added to that is, the collapse in our family value system actually added to the crisis.

Situations where we have families that could not in any way take care of their children. Within the context of, in some cases, poverty, unemployment, underemployment, all play significant roles in the conflict. And also within the context of the traditional authorities again, it's become a very serious problem.

And the point he pointed out on the issue of corruption. Corruption within the traditional rulers contributed and contributed significantly to the escalation of the conflict. But there are a lot of issues lumped together, more especially this issue of injustice.

All people contacted and also interacted, interviewed on this issue of rural banditry are pointing to the issue of injustice. Injustice in all sense of the word. Injustice from the traditional authorities, injustice from the security agencies, injustice from virtually every angle of the society, and that plays a very important role, and it serves as a unifying factor that contributed to and that unite virtually most of the bandits together.

For instance, you see them also talking about the activities of the vigilante and the an sake. And when you look at the operations of the vigilante and the an sake, it's nothing other than the idea of extrajudicial killings. The level of extrajudicial killings actually taking place in the rural areas is unimaginable even before the issue of rural banditry becomes a problem.

And that is why the Fulani people feel they are not actually taken care of, they are absolutely rejected and detected by the Nigerian states and they feel they are on their own. And the best thing to do is to fight for their freedom. And that idea of freedom fighting, forming a union, or a gang for the Fulani liberation movement, for instance, was the bedrock of the banditry.

So there are a lot of issues put together. And more so, within the context of the Fulani, they feel the presidency, for instance, Mr. President is a Fulani and they feel if at all they need to be taken care of, there is no regime that's supposed to take good care of them other than this particular regime that the head is someone that is their own - one of them.

And that becomes a problem. And you see some of them lamenting and lamenting bitterly about the level of neglect by the State - by both the federal government and also the state government. And when you look at it, [the] absence of state presence plays also a very important role in the rural areas.

Infrastructure-wise, for instance, the presence of security in the rural areas is virtually zero. I am talking about villages, I am talking about rural areas. You go to a village with 3000-4000 people, you cannot in any way see a single presence of the State, and that becomes a huge problem.

So there is this type of high level of disconnection between the rural world and the urban world. And now, it is the rural world fighting in the urban world. Because of what? Because the rural world was neglected, the rural world was not taken care of, the rural world was absolutely spared from [infrastructure-wise] what we see in the urban centers. And that also constitutes a major problem.

Talking about the issue of climate change, talking about the farmer-header issue, in my opinion, are just issues that are of secondary importance to this violent conflict. There has been farmer-herder conflict right from day one, right from the onset.

And not only that, traditionally, conflict resolution mechanisms or dispute resolution mechanisms, for instance, were actually at work, and also addressing the farmer-herder clashes. And then the question is, where are they? Taken away by so many things, taken away by the issue of injustice, by the issue of corruption, and lack of respect for traditional authorities.

And today, some of these traditional authorities, village heads, district heads, and to some extent, emirs, in Zamfara, in Sokoto, and in other places are under the control of these bandits. Simply because no state presence, no security presence, and the only thing they think they will do is to listen to the bandits.

Dance according to the tune of these bandits, and also subscribe to the view of the bandits. Not because they want to do so, but because they were neglected by the federal and the state authorities. And that constitutes a very big problem.

Unless we get some of these things right, unless we fix some of these issues, lacuna, and problems associated with the rural areas, I don't think peace will actually elude some of our urban centers and even at the national level.

Tobi;

It's so important for me to talk about this because in trying to analyze a lot of these issues, some things become a talking point. Right. And even though the government's censorious stance kicks in to quell some of these things, but they do happen. Whether it's on social media, or on internet radios, that's why I'm trying to tease out the issue of causality.

Because some people will tell you, without any iota of doubt, that there is a Fulanisation agenda going on and that is the underlying driver of this. Some will say there is a systematic massacre of Christians going on in that region, that has drawn the attention of the Trump administration on religious persecution and so many other issues. So it's very important for the purpose of the audience, and you know, Nigeria is a diverse multi-ethnic society, it's easy for certain talking points to get away and... I mean, it becomes something else.

So, now, I get you correctly. Even the issue of causality is not just one thing. But I'm saying it, maybe you guys are not, there's a huge level of state failure going on. Right. Now, my question then is, elections: politicians are campaigning again.

As a matter of fact, one thing I learned from this conversation is that nobody is even talking about the issue of restructuring or decentralization of power in the context of this conflict. Right? We are talking about VAT or how to administer Lagos or Port Harcourt or Kaduna. So nobody is even talking about how empowering local governance, local institutions can actually bring peace, you know.

But today, if you ask everybody, insecurity is the number one national issue. You know, all politicians are saying that if you elect me, I'm going to solve this... So then my question is, given the level of state failure that I am saying that I can tease out from this conversation, if you have to sketch some kind of starting point or an attempt at addressing the issue, where would you start from?

Dr. Rufai;

Excuse me, please, I think you've raised very critical issues that require [a] deeper and clearer explanation.

Tobi;

Please go on.

Dr. Rufai;

The first issue is the Fulanisation of maybe Nigeria or northern Nigeria, or whatever. I think if at all, there is an ethnic group that is understudied, and that is still less clear in terms of the nature, the operations, and the relationship, I think it's the Fulani.

There is a high level of internal division, internal rivalry, and internal conflict among the Fulani. They are not in any way a one united ethnic group as we see, in the case of the Hausa, in the case of the Nupe, and, to some extent, in the case of the Yoruba, and the case of the Igbo.

These are people that are so much attached to their traditional and local way of life. Even if you are born and brought up a Fulani, if you don't have respect and value for the Fulani culture, they don't consider you as part of them.

And that is why 90%, let me not exaggerate - 60 or 70%, of the victims of rural violence, rural insecurity, rural banditry are Fulani. And 90% of the victims are not just Fulani, are also Muslims. You get the point. And you interact with some of these bandits, you talk about, okay, this person you killed, this person you rustled [their] cattle, this person you intimidate, this village you actually raided, for instance, it is a Fulani dominated village, they will tell you that that particular person, that particular village, that particular community you're talking about, we don't consider them as members of the Fulani. They are not in any way respected within the Fulani circle.

They have their own code of conduct that serves as their guiding principles, that serve as their Constitution. Whoever strays away from that code of conduct, for instance, they have no value, no respect for him.

And there is also a striking difference between an urban and the rural Fulani. For instance, the town Fulani is different from the village Fulani, the village Fulani is different from the nomadic Fulani, the nomadic Fulani is different from the stationed Fulani.

All these nuances are not really clear. Now, if you decide to create a whole northern Nigeria to be under the control of the Fulani, I am sure there will be a lot of crisis and a lot of conflict, internal dynamics and internal differences will not even allow that to happen.

Now, in spite of all this, if you have the knowledge and understanding of this, you go by the code of conduct, if you also don't speak the Fulfulde language, they have no respect and no value for you. These are things that people don't understand.

Talking about now, a Fulani agenda, trying to create... No. And when it comes to the issue of suppression, exploitation, high level of injustice, I think the level of injustice committed against the Fulani in Nigeria could not be compared with injustice committed against any other ethnic group in Nigeria.

These are people that I don't want to use the word docile, but are people that don't voice out. They are people that actually have this idea of not forgiving, and also not forgetting. You commit a crime, you cheat a Fulani man, for instance, today, if he sees you after 10-20 years, he will remember. And he will also wait for a chance and a better opportunity to retaliate.

So now, we are simply paying the price of social injustice, exploitation, extortion that we've committed against these people over time, and it has manifested. And that is why when they decided to form up a union in 2011, you find a large number of Fulani people with long historical and deep-rooted grievances populating the gang. Virtually the first generation of the bandits, for instance, have that feeling.

And you see if I am given the opportunity today….

Tobi;

Yeah.

Dr. Rufai;

To address the problem of rural banditry as the president of this country... I think the easiest way to address the issue is local government autonomy, no more, no less. If you give local government autonomy today, you have no problem with the rural areas.

Rural communities will actually hold their local government Chairmen accountable, their are counselors accountable. And when there was local government autonomy in the past, for instance, we've seen the level of infrastructural development taking place in the rural areas.

Because every area, every ward, every community has a representative in the local governance. And for instance, you cannot be relating with the local authorities, with the local government chairman without complaining and we've seen the level of projects executed by these local government chairmen in the rural areas. And some of these projects we're talking about are still there in the rural areas.

But the major bottleneck is governance will certainly not allow that to happen unless and until they are overpowered, or else they will not allow local government autonomy. They will not because they are the ones controlling the resources.

All local government resources go to the state governments. And when you go to the local government areas to the rural areas, you find virtually nothing. So now, if you have this idea of local governance, they are given their autonomy, they get their subvention directly from [the] Federal [Governement], monthly, for instance, you don't even need to hold these local government Chairmen accountable over what is happening in rural areas, the local communities will be the one putting pressure on them to work.

And you set in also the idea of high level of competition among the local government chairmen, everyone will be competing. And whenever and wherever there is a rural or a local violence, rural conflict coming up, you hold the local government chairman accountable. So I think, in my opinion, the answer to some of these problems revolves around local government.

James;

I think, and I would agree with everything you said there, and I think, unfortunately, not to be too pessimistic but that's one reason I don't see this situation dramatically improving anytime soon. Because all of these issues, you know, I'm not an expert in Nigerian governance, but looking at like the security sector, for example, which is a scenario maybe I'm a bit more familiar with.

We got a question when we gave our presentation at the University of Lagos yesterday, and one of the questions I got was about state police, people are always fighting about state police. And as I was talking to the person who asked the question after the presentation; I was like, Look, I don't have a strong opinion one way or the other about state police versus Federal Police. All I can say is that there's not going to be some law that just creates state police tomorrow, like, that's not going to happen.

Because it all ties into larger questions of the federal structure. You can't just have, you know, a reform of the police into the state police level in a vacuum. Everything is about this larger question of the structure of the federal government, which also gets into this question of oil rents, and you know, how the government funds itself.

And so you're not going to be able to pick at these little issues so much and say, Okay, we'll do a bit, we'll restructure the police to the state police, we'll give local government autonomy because all of it ties into this bigger question about the structure of the Nigerian state. And I don't have like a vision for, oh, here's how you should reconstruct Nigeria to improve all these issues.

But it's simply an observation that many of these reforms or these kinds of challenges that people have identified that I think are already very much in the public consciousness about, you know, people are demanding local government autonomy, state police, all that stuff...there's a reason that hasn't happened yet.

And it's because there are significant structural political impediments to that happening. And so I think that if you know, if the problem really is that, okay, it's the structure of the federal police force, that that's one of the major challenges, then that's not something that's going to be solved overnight.

Tobi;

One thing that came to my mind now is the issue of power generation. National Assembly just passed a law that would actually require the ratification of two-thirds of the states... good luck with that happening...that then allows state governments to generate their own power. So we've all been locked into this dysfunctional structure.

So like you, James, I'm not super optimistic. But one thing I want to push you guys on... your work is gaining a lot of exposure and I'm sure a lot more international exposure is still ahead. Hopefully, there'll be a book.

So, now, one thing that regularly comes up is....there was a time the President even wrote an op-ed, on the Financial Times asking for international aid, and security, securing weapons, lifting some of the restrictions, and all that. My point is, how should the international community engage on this banditry issue?

Because we just talked about how the security forces sometimes are not the appropriate force level contact for some of these problems. There have been issues of extrajudicial killings even by the security forces, there's the huge issue of excessive force, even in bombings, air raids, you know, collateral damage, and all that.

And the same government that controls the security forces then goes to the international community, whether it's the EU, or China, or the United States for aid and assistance in tackling insecurity. But, given the complexity of this issue, how should the international community engage on this [issue]?

James;

It's really tough. The international community, I think, when we say that what you really mean is like Western governments...

Tobi;

Absolutely...

James;

China, depending on what the context is...

Tobi;

Yeah. There's a Western alliance.

James;

Yeah, exactly. The Western alliance. I think these conflicts are so complex, deep-rooted in these kinds of systemic issues in Nigeria. And frankly, we just don't have a great track record, you know, speaking as an Oyinbo man, we don't have a great track record of intervening in complex conflict situations like this.

I think that one thing that I was very wary of... this is something that we kind of touched on a bit at the end of our study on jihadisation is that, you know, for now, the bandits have a much more parochial local agenda than the jihadists.

Dr. Rufai;

Yeah.

James;

This Ansaru, one of the things that was really interesting interviewing with people who had heard Ansaru preach in their villages, in these villages Birnin Gwari, they would say: yeah, Ansaru, they're always complaining about America. They're always saying: your fight is not with Nigeria, your fight is not with this, your fight is with America. They're the great Satan, they're hurting us. And these people they think, 'huh?' you know, that doesn't really resonate with them.

They think 'no, no, my complaint is with the local governments and you know, the fact that I don't have roads and school and stuff,' they're not thinking in terms of this big ideological struggle. And I think it's the same for the bandits, you know.

I was able to interview several bandits who... they see me, a foreigner, a Christian man, they're just oh, they're very interested. They want to learn, oh, what's the, you know... they're even asking what's Bature land, like, you know, are there different tribes of Bature? Very curious, they did not have these strong preconceived notions about the West and whether or not it's a friend or an enemy. It was very remote to them, you know.

And so I think that if you had the kind of Western powers coming in and taking a more visible role in, for example, security assistance or something, then in some ways you'd be giving propaganda to the jihadist right, you know.

And I'm not saying anyone's suggesting this now. But since your question was okay, the Nigerian military is not handling the situation sufficiently, what can the international community do? I do not think that the answer is to kind of take on a more forceful role, right? If you had these, like Reaper drones flying over northwestern Nigeria, these bandits, you know, their fight is a local fight. But all of a sudden, they're getting pursued by US military hardware, they go what's happening? And then that's the moment that Ansaru can say, ah, we told you, you see? Your real enemy is America.

Dr. Rufai;

Yeah.

James;

You weren't bothering anyone but these Americans, they're ideologically hell-bent on killing Muslims. And so that's why you have to join us. So I think this is a very long way... I'm not giving you a satisfactory answer, I'm just saying what I think we shouldn't do.

But I think that it's important to stress that level of caution that whatever approach, the ''international community'' takes, I think it needs to be very careful, very clear to let Nigerians lead on this, to not be taking a too visible role in some ways, especially on the security front.

And I think that's a challenge, right? Because as you know, it's a dilemma in some ways, because the Nigerian security forces have not shown the capacity to handle this. But I think that very often, you know, the medicine can be worse than the disease. And so I think that that's kind of my word of caution. But I'll let Dr. Rufai...

Tobi;

I get you and I'll get to Dr. [Rufai] in a minute, so my question is actually a lot more subtle than that. Of course, everything you say is true. If you have drones flying over the Northwest, this will certainly make it worse but what I'm asking is [that] there is some engagement going on, either it is funding or it is selling military hardware to the Nigerian government, that probably makes this worse? Maybe not directly, from the Western alliance…

But, what I'm saying is, how should the engagement change if it's going to, to be a bit more progressive? Even if it is to fund more local researchers to better understand the problem? Right? I mean, to say the obvious, at least for me, in this particular case, it took an Oyinbo man, like you said, to be aware of his work.

James;

Yeah, it's true. It's one of the challenges.

Tobi;

Which is not supposed to be so. Right? So I'll go back to that point, how exactly should engagement be, even at [the] diplomatic level? Not just force? How do we better make the incentive and issues clear? Dr, you can weigh in?

Dr. Rufai;

You see, in my own opinion, rather than going too much international, looking at the Western world... I think, to address this issue properly and adequately, the Nigerien government [Niger Republic] has a better, clearer, and deeper understanding of Northwest's problem, unfortunately, than even the Nigerian state.

Because when these conflicts actually started, it was more or less a cross-border issue between Nigeria and Niger. And what the Nigerien Government fantastically did during that period, is to profile all the bandits along the border. Both on the Nigerian side, and also on the Nigerian side.

Not just an ordinary profiling, but rather to have the names, the locations, and also the family background of each and every potential bandit. And of course, they succeeded in drawing a map of their locations, and also their relationships.

And when that was also going on, for instance, every local head... I mean, either the village head, or a district head, or an emir in Niger, for instance, in that particular part of the world, they have the names of these people. And these people or these bandits, for instance, were declared wanted. And we've seen, of course, going by my interviews, and also fieldwork in some part of Niger, where whenever a bandit comes in, they alert the authorities. And that was how they succeeded in picking [a] larger number of them that are in Niger.

On the Nigerian side, when the Northwestern governors, for instance, feel there is need for collaboration with their counterparts in Niger. Of course, they had series of meetings with the governors of Northwest - Kano, Katsina, Sokoto, Zamfara, and the rest.

But their unfortunate conclusion is that we are not serious people, these governors are not in any way committed to ending banditry anytime soon. Because there were, of course, some series of joint operations, but at the end of the day, the Nigerien side that were committed, and also ready to end the problem, were rather given out to the bandits.

To the extent that they lost some of their officers and men in the course of fighting banditry. And they felt that is basically coming from the neglect of the Nigerian or the Northwestern authorities. And on that basis, they cease to assist, they cease to discuss issues related to insecurity in the Northwest of Nigeria.

And not only that, if today, the Nigerien government decides to strengthen its border security, the movement of small arms and light weapons into the northwest, into Nigeria, will certainly reduce and reduce drastically. But since they feel we are not serious people, we are not committed to end[ing] the problem, or the security challenges, for instance, they let it go and they loosely operate along the border.

And we've seen cases and instances where people were saying that, okay, there are cases of people moving into the country with arms and ammunition across the border, but Nigerien border officials, for instance, will decide to even close their eyes and feel nothing is happening.

And some of these arms and ammunition as long as they aren't going to be used in Niger, they let it move into the northern part [of Nigeria]. So instead of looking for assistance, financial, funding, selling [buying] of military hardware from the Western world, the problem still remains local.

I said it's local because you cannot differentiate [between] the people who live in Daura, the President's hometown for instance, and the people who live in Kwangalam, which is in Niger Republic. It is a stone's throw. They are the same father... people from the same father and the same mother, they are people of the same family.

And now, there could be other forms of engagement at the local level without necessarily engaging or even involving the state government, not to talk about the federal government. So if you strengthen this old relationship between these border communities, it is enough, for instance, for you to address the issue.

And the unfortunate scenario, the unfortunate happening and now is that you see two-three kilometres... for instance, if you take Illela, you can trek from Illela which is in Nigeria in Sokoto State to Kwani, which is just three-four kilometres to Kwani. And you see absolute peace, absolute security, absolute harmony in Kwani, and a high level of insecurity in Illela.

And what the larger number of the people in Illela do now is when it is 6 'o' clock, they trek down to the other side of the border...

To sleep!

To some extent not even sleep in houses, in villages... they sleep in an open space along the border. Wake up in the following morning and move to Nigeria for their daily business and economic activities. So one begins to wonder what is actually happening?

Not only in Illela, you go to Kwangalam, you find the same thing. You go to the Medujia, you find the same thing. You go to Jibia, you find the same thing. You ask the question, what is actually happening? And today, some of these border communities have more confidence, trust, pride in the Nigerien security than the Nigerian security.

And in an event of [an] attack, they'd rather call the Zandarma, for instance, in Niger to call other security operatives along the border in Niger than to call Nigerian security operatives. So the trust, confidence, is not there at all.

So if now we can strengthen international relations within these border areas, look at issues around ECOWAS protocol, for instance, free movement and all that, strengthen that aspect. I think it is something that will go a long way in addressing some of these challenges.

Rather than seeking for funds, military hardware, support, from the international communities. And no right-thinking nation in the Western world will engage itself or involve itself in the mess that is happening in Nigeria because it is a local problem.

It is a local problem. You get the point. And probably the only thing I think they will do in cases like that is to provide, probably, the necessary advice, the necessary military training, and all that. If not, nobody will just come directly and get themselves into that.

And not only that, the major people, people having a very serious threat on this are basically the Chinese. As we speak, there are a large number of Chinese nationalities that were abducted by these bandits. Though some people say bandit and I argue, I said, no, not bandit, rather, Boko Haram, Ansaru, and the rest of them.

Because they are people that relate directly with the rural communities. And because of that relationship, they are vulnerable to abduction. And unfortunately, if you interact with some of these Chinese nationalities, the information and the news you will get from them is frightening.

It's frightening because we've seen instances and situations where the security guards that are supposed to provide security to these people were the same people collaborating, serving as informants, serving as spy agents to some of these bandits, and also to some of these Boko Haram members.

Meaning they facilitate the abduction of these nationalities. And at the end of the day, they will get their own share of the loots. So, there are lots of ugly stories taking place in the country, at times is even better you don't know than you know because you know you won't even say. Because the situation is completely hopeless.

James;

I think that last point... the penultimate point about strengthening cooperation with Nigeria and Niger. I think that's a great comment, in part because, also, it's not something that the international community, you know, the Western powers needs to do. The mechanisms for that exist, right?

Tobi;

Yeah.

James;

You have ECOWAS, you already have all these bilateral forums and stuff between them. So it's just there needs to be the political will on both sides to actually work together on this. This isn't something that you need to turn to Washington or Brussels or London for. These mechanisms for Regional Cooperation already exist, it's just a question of whether there's the political will to use them to actually channel effort towards addressing these issues.

Tobi;

So I mean, your jobs might be hard, because sometimes the numbers that you deal with, and analyse, are actual human lives. And I know we've been analytical and impersonal so far. These are serious issues with real lives at stake.

People are dying, 1000s, every month now, in Nigeria. So on that sombre note, I think we can close the podcast with this last lighthearted question. What's the one idea - it's a bit of a tradition on the show.... what's the one idea that inspires you, that you would like to see spread? That you'd like to see people everywhere believe, adopt, or just be fascinated by? And it could be anything. So what keeps you guys going...what keeps you guys slogging through this?

James;

Caffeine keeps me going. [laughs]

It can be hard to be optimistic sometimes. But I think seeing... I don't know, maybe it's a bit banal, but seeing the energy that many of my Nigerian colleagues have for actually trying to address this issue, I think that helps me avoid fatalism, maybe.

I think even Dr. Rufai, you know, we're sharing accommodation here in Unilag, he was up several hours later than I was last night and he was up before me. And so I think sometimes if I get fatalistic or tired, I remember that there are a lot of good people (not just Dr. Rufai that, you know, I got the benefit of working with a number of colleagues in Abuja, Kaduna, people up in Gusau) who genuinely believe that there are solutions to this that they need to be pushing for.

For them, the stakes are much higher than they are for me, I have to be honest about that, you know. And so I think that seeing the enthusiasm, the energy, that people bring to this…it acts as a check on my kind of instinct towards pessimism and fatalism.

Yeah, I think that's important.

Dr. Rufai;

I think for me, all I want to see is peace. Harmony. Inter-community relations and inter-community collaboration that actually used to happen in the past. Where we have a free rural world. People operate freely, relate freely, and that love for one another is there.

But the unfortunate story is that today, no trust, no freedom, in fact, nothing works actually in the rural areas. And you interact with the rural communities (more), especially in Zamfara, where I know and where I conducted a larger part of my research. Some of these people will tell you [that] they don't need anything from the state government. All they want at the moment is nothing other than peace.

A peace that will actually give them an opportunity to continue with their social, economic, and political way of life. They have their own definition of comfort. If it actually rains, cat and dog every year, they consider themselves as the most prosperous people.

Because it is from that rain, the grains they produce, [the] different types of crops they harvest, for instance, that they run their daily and yearly life. An ordinary farmer in Zamfara, in Katsina, in some parts of Sokoto is not in any way poor (going by our own definition of poverty, poverty line, and also someone to be poor). Why, because they have their own way, local and the rural way of life... they harvest, they rear their animals, and you see them every year, paying money, millions to go on pilgrimage, Hajj, without intervention from the state, without a penny from anybody.

And of course, from the foodstuff, they sustain their life. And they will tell you, if at all there is anything they need from the state, it is the infrastructure and facilities, particularly the roads. Access roads, where they will access the markets, no more, no less.

They don't need electricity, for instance, they will tell you that 'take away your education,' they don't bother about that as long as they have operational Islamiyya schools, for instance. They will tell you that 'take away even your justice system,' as long as their traditional village heads are strong, alive, and active to [sic] their responsibilities. They believe in them, and they are capable of providing them with absolute justice.

So all this beauty in the rural areas are [sic], today, no more. And what do we see in the rural areas today? A high level, an increasing number of internally displaced persons. People that were millionaires, I mean, millionaires in the actual sense of the war, before banditry, today, are beggars.

Today, lives from hand to mouth. They have become so much degraded, wallowing in absolute and abject poverty as a result of these rural conflicts. And what do we see in the rural areas today, we see a large army of internally displaced persons, as I said, child prostitution, and we've seen marriage and the respected women that lost their beloved ones, their husbands, their relatives, their breadwinners, turning into prostitutes, just for them to survive.

And the unfortunate story is that nobody cares, nobody reports and nobody tends to know that some of these things are happening. You will understand this better if you go to some of these rural areas.

They are poor, not because they are naturally been poor, but because they were denied access to their farmlands by the bandits. And their own definition of life is land. Life begins and ends with land. If they have access to land, I mean farmland, for instance, they have access to a decent living and also to a life that could be compared with any other life in the urban centers.

They don't need your water supply. They don't need your electricity. They don't need anything that one could think of within the context of a comfortable life in the urban center. Their rural setting, they are comfortable with it, because you'll see some of them spending five, six years without coming to the state capital.

You ask them 'you've never been to Gusau,' for instance, which is your State Capital, he will tell you 'what will I do in Gusau? If at all, you see me in Gusau or any of the urban centers, probably I'm going to the airport, flying out to Mecca.'

And look at it, these people will also tell you that the best people you can easily manage, govern and administer with ease are Nigerians and also the rural dwellers. You live a comfortable life, you steal their money, you engage yourself in corruption; they never bother. All they want is peace.

If you give them peace, continue with your life. Because their belief is that in the Hereafter you will account for your deed. And that is where the problem lies. So in my opinion, I want to see life going back to normal, the way it used to be in the past - a prosperous and happy, rural areas.

Thank you very much.

Tobi;

Thank you very much, Dr. RUfai. Thank you, James. It's really fantastic talking to both of you. And hopefully, when next we speak about this, things would have improved, hopefully. Thank you both so much.

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How Religion shapes and influences the trajectory of a country's development path is a subject I have long been curious about - and I found persuasive answers in the work of Economic Historian Jared Rubin. Jared's book is a tour de force on how rulers and elites use religious legitimacy to propagate their rule - and the developmental implications of such equilibrium. The first part of our conversation is to get him to explain some of the fundamental concepts of his book and analysis. It is impossible to capture his work in a single conversation, so curious listeners can check out his book - and his excellent blog posts here, here, and here. He also has a new book out with previous podcast guest, Mark Koyama (episode here).

You can also get the podcast on all the popular platforms like Spotify, Google Podcast, Apple Podcast, and the rest. The transcript of the conversation is available below. Thank you for listening and for your support.

TRANSCRIPT

Tobi;

Welcome to Ideas Untrapped podcast my guest today is Jared Rubin. Jared is an economics professor at Chapman University in California. He's an economic historian, and he has written a wonderful book titled Rulers, Religion and Riches: Why the West Got Rich and the Middle East Did Not. Welcome to the show, Jared.

Jared;

Thank you. It's great to be here. It really is.

Tobi;

Kind of like [an] obvious first question is why religion, really? I mean, so religion has always been this largely accepted but not really systematically defined or studied aspect of the society, especially when it comes to its influence on institutions and economic development. So what motivated you along this line of research?

Jared;

Yeah, so this goes back a long way. Religion is something I've always been interested in. Not necessarily, for me, a personal conviction and I'll be fine if it were, but it's been something mainly because I've had a hard time understanding its impact. It's something that very obviously influences decision making.

So from my undergraduate days, I was interested in economics, which I view as, kind of, how and why people make decisions. And I was also interested in religion for actually similar reasons because it clearly influenced the way that people made decisions.

So I took a lot of courses on various religious topics in undergraduate, but it was something that when I went to get my PhD in economics I never really thought I would pursue. I didn't think that it was something that economists studied.

And then in my second year of graduate school, I took a class from who would eventually become my advisor, [...] Wright, who has done work on religion in the past, particularly the role that Islamic and Christian cultural attributes fed into economic development in the medieval period and my mind was blown that you could do this, that some economists took religion seriously.

So I went to him, this was probably 2003 and I told him that I wanted to do a dissertation on religion and economic development over time. And at the time, precisely the setup to your question, he told me - that's fine if that's what you want to do, and that's what you're interested in, but know that you're going to have a hard time getting a job?

Because there were very few economists at the time that were interested in religion. I mean, you could probably count them on two hands, the economists seriously thought about religion... which in retrospect, is kind of mind-blowing.

For me, especially, thinking about medieval Europe, say... I don't understand how you can think about European economic development in the medieval period without thinking of the role of the church.

If you think about almost any aspect of Middle Eastern economic history since the spread of Islam, very hard to think through the mechanisms through which growth either happens or doesn't without thinking about the role of Islam, and particularly religious authorities.

So I decided to go down this path anyway. I knew that it was something I wanted to do with my career. That's the type of thing that got me really excited about working. And my view on things in general is, you only live once. So if you're fortunate enough to be in a position where you can do what you want, do it!

I did eventually find a job, which was fortunate. And as I dug more and more into the history, you know, history was also something that I didn't necessarily think I was going to do... I've always read a lot and it always interested me... start to realize that, you know, something I kind of knew anyway, especially Islam-Christianity comparison, there are way more similarities than there are differences between the religion and religious tenets.

Now, clearly, there are differences. But when it comes to the things that impinge on economic development, there's a lot of similarities, especially in history. Now, the question is, has religion played a role at all in economic development and that's what I was trying to think through.

And when you start really reading the history, I think one of the things you must immediately latch on to, whether it be medieval European history or medieval Middle Eastern history, is the role that religion played in politics really mattered.

And when you start getting a [...] that well, maybe even if these religions are pretty similar, actually, (they're not nearly as different as I think a lot of people think they are) the role they played in politics has diverged a lot over time, and the divergence to some degree coincides with the divergence in economic fortunes in the region.

So that was the observation that inspired me to write this book. And to really then think through not just the role that religion has played in politics, but why it might differ across societies, and then how it might evolve over time based on the somewhat initial differences, and then what that might mean for economic development.

So I ended up writing a few papers on this. But I decided that the time had come to write a book because I had enough, at least, I saw how the connections were made in my mind and between my papers, and that's where that came from. It's kind of a brief background.

Tobi;

Yeah, just for the audience, your work on religion is not just limited to the book, you've written numerous papers, and publicly available essays, which I'm going to be putting up links to some of it in the show notes.

So I'll start my exploration with the evolution of big gods in society, because religion has been with humanity for as long as we know. But tell me, how did big Gods, monotheistic religion become the most popular flavour of human religious practice? I know you've written about this.

Jared;

Yeah. So this is something that it's certainly more in the field of anthropology. So there's been some really good anthropological work recently done on this, and actually some work by some economists as well. And this is something that's also, you know, as I was just mentioning, it's intimately related with politics.

So small gods, this is not a term that is meant to describe them or anything like that in any way, shape, or form. But it's just meant to say [that] we call small gods, like, gods that have a specific purpose. It might be a god that brings water to a population or heals sickness, things like that. That's a small god, you know, it's a god that has a specific purpose.

Big gods are gods that has broader powers. So certainly, when we think about monotheistic gods, those are very big gods, it's the God in a sense, but polytheistic gods can be big gods as well.

But what big gods can do is what this literature cites as a purpose of big gods is that it can be a way to legitimate rule. It can be a way that if a ruler has the support of a big god, whatever that means, right? And that can be based on some tenet of the society that whoever's ruling is God-ordained, there might be some clerical class in a society that ordains a ruler as God-ordained.

But the idea is that big gods, especially centralized gods (and this is where you kind of get towards a more monotheistic faith) are much better at legitimating rule, at keeping rulers in power, and this is where we get autocracy from too.

So a lot of these early societies that had big gods, these were the ones that ended up being a little less fair, that kind of really centralized power in a small group of people because gods like that could be used in that way.

You know, when you have a variety of gods you can appeal to, when you have these ''smaller gods'', each group can have their own god. And in that way, it's really hard for any one political group to monopolize divine power.

So the recent research on this has mainly connected the origin of these types of gods with political power. And this is something I haven't done my own original research on. But I've written a few things, especially online, we have a blog that I worked for that kind of summarizes this works.

I think it's really interesting and not just interesting, but it's a really important precursor to my own work to think about where these gods come from in the first place. Because where my own work comes from is well into monotheism. We're talking about the origins of Christianity and Islam that's well past the point where big gods have formed originally.

The real idea is big gods start coming about when humans settle down in society. So, around the Neolithic revolution 8,000-10,000 years ago, so...

One other thing that really popped immediately in your book is the role of elites in society. And this is something that has been a bit elusive, at least, in my own experience to define.

Tobi;

I have a friend [and], I mean, when we talk about Nigeria, and how elites are not really doing enough or talking about the right things or doing the right things, the usual retort is, oh, yeah, well, who are the elites? And I find that it's a surprisingly harder question to answer than it sounds.

Jared;

Yeah.

Tobi;

So you describe elites as anyone who can influence how people whom they do not know, act. Can you explain that a bit? Who exactly are the elites in society? How do they emerge?

Jared;

Yeah, I think this is a really important question. And it's a question that I don't think there's one answer to in the sense, like, I wanted to define elites in a certain way, because I wanted to be able to kind of think through what I described as elites, and this was the commonality.

But certainly, if you read other works, they'll define elites in a slightly different way. There are certain people we all know are elite, right, like presidents, or people on the highest courts, things like that.

But then there are other people that might not be so obvious whether they're a leader or not, like a local priest or imam or something. Is that person an elite? You know, maybe some people would say yes, some people would say no.

So yes, for my book and my work more generally, I use this definition, because it has practical value. So it's this idea that to be an elite, you need to be able to influence the actions of other people, particularly people you don't know.

Now, you ask two questions, both of which are really good. One is, how do you become an elite? This is something I've been thinking about a lot for work I'm still doing now is, what is the source of power? Because elites have power, almost by the definition of what I described, if you really want to think about why this matters, it's [that] there's some sorts of power that they have.

Now, this differs by the type of elite, some of the ones I'm concerned with in the book of religious elites. Now, the idea here tends to be that religious elites (have) either through their study or through their position or something have access to something people care about. Which is, you know, either the Word of God or some places and times actually begin to connect to the supernatural, something like this.

And because they have privileged access to ''we'll just call it the supernatural''... something people really care about, that gives them power to do other things to influence the way people act. And it might be in a way that's consistent with religious tenets and might not. There's been plenty of instances where not.

In other cases, there's access to coercive power that can make one elite. This is something where you can say warlords could be considered elite in the sense that at the top level, they have access to coercive power, that because people fear the use of coercive power, it allows them to make people act in a way that they don't want to act.

You know, more generally, military elites. And there's a lot of grey area here, you know, so in the military, for instance, who's elite who's not? The lowest rank military person probably isn't, you know, they might be able to be on the street with a gun or something, trying to direct people to do something, but it's not really their actions that is causing this, it's the people above them.

Then the very top people are elite. Somewhere in the middle, you just have to kind of make a decision if you're thinking about the social scientific definition. And then this other [group] who I describe as economic elite, who with their access to resources, gives them power.

Whether through a formal political process or not, you know, oftentimes, especially in the modern world, it's often through formal political processes. But there's a lot of non-formal processes as well through which this happens, certainly through markets, for instance.

You know, market power can be really [a] domineering force. So by this definition, my definition is much more broad than many definitions, especially, in the politicacience literature, because by my definition, there's a lot of elites in many societies. And a reason I think that it's important to consider this idea of there being many elites is that there's many people in general and in societies that can influence the political process.

Now, to be clear, it doesn't mean that just because you're elite, you'll influence a political process. The way I've described it in my own work is I do use game theory, or at least is the idea of thinking about the interactions between these various people in societies.

And when you go through a Game in Game Theory, you think about how they interact with each other, and what are their motivations? What are the outcomes of their interactions, that's really ultimately what you want to get at. And so I think about the game as being between elites.

Now, certainly there are people in the background, right, that aren't elites. The non elites are the people that give elites power in a sense because it's those very non elite states that the elites can influence. And that's the very source of their power.

So there is a bit of a tautology here, in a sense that elites power because they can influence people, and then non elites follow elites because they can be influenced. But it's also one of these things. We see it across societies. And I do think that there are many reasons why one can become an elite. And those also differ across societies as well.

Tobi;

In your book, you also describe a class of people who are still elites, as propagating agents of a ruler. But, one thing became very clear your argument that a ruler seeks to propagate their rule. That's what they desire, you know, isn't this a bit of a public choice assumption, some would question that to say that, Oh, well, just ruling for its sake is not the only desire of a ruler.

Some rulers want to do good, some want to, you know, like there are diverse motivations and desires for a ruler. But your mechanism sort of relies on this propagation of rule. What is your argument for choosing to go in that direction?

Jared;

That's a good question, because this is something that, you know, books have been written on, you know, why do religion? What are the motivations?

I mean, you're right, certainly, some have much more altruistic motives, i don't deny that. Some have the exact opposite. Essentially wanting to seek as many rents as possible.

And then there are others in the middle. They might be altruistic towards their own ethnic group, and very much the opposite towards others. And this is more of a theoretical concept. Because when we need to think about the interactions between various people or groups in society, we do need to think about what they need, what they want.

And what I was trying to do in this book was to think about the most general way of capturing this.

And I actually agreed that you can think about it in other ways, and I don't think this captures 100% of motivations, but all of the stuff we've been talking about here, whether it be pure altruism, or you know, something like that, or really wanting to improve society. Or again, on the other hand, wanting to capture as many rents for you or your small group of people. In order to do that, you have to stay in power.

And so at its base, I want to minimize the assumptions we make. Because once you make an assumption about, say, wanting to maximize tax revenue, or state revenue or something like that, you know, because certain types of rulers that would really benefit, well then you're you're no longer capturing the type of society where, you know, as you mentioned, maybe the ruler just wants to do best for their society.

So what I was trying to do, I was trying to think through a way that we might discuss leadership, rulership in a way that is going to be true of all types of societies. So even in democracies, you have rulers at many levels wanting to be reelected. So they're constrained in ways to do that.

Clearly in very autocratic governments, no matter what the autocrat wants to do, they can't do it if they don't stay in power. But yeah, I certainly agree that if you wanted to study, especially, a certain type of rulers or a type of ruler of certain motivation, you could think about this a little different, for sure. Good point.

Tobi;

Going with your mechanism now, so for a ruler to propagate it's rule, you identify two types of agents. One is legitimizing agents and the other coercive agents. But you see cases, and that transverses many societies... you see cases where there is a sort of overlap between the two where the faction of a ruler has some legitimacy, but also uses force to entrench that legitimacy.

So disentangle both types of agents for me slightly.

Jared;

Yeah, so this is good. Maybe for the sake of listeners, that's a word I use that is not really too common in the literature - this term, propagating agents. To your previous question, I find propagating rulers as staying in power. So a propagating agent is somebody in society that can help you stay in power.

If it's a religious agent, they might have access to the Word of God or something like that. A military agent, as you mentioned, is a type of coercive agent - one that has power.

And to your question, you're absolutely right and I think nearly every society in human history has had some combination of legitimacy and coercive power. In fact, you know, you really can't have rulership without some degree of coercive power.

If a ruler has zero access to coercive power, they will be overthrown quite easily. You can, in theory, have a society that has zero legitimacy, and you know, it's run completely by coercive power.

We would say that there have been a few societies that have, at least, come close to that. But again, that ruler is very tenuous in their rule, because there's gonna be a lot of people in society that don't think that they're the rightful ruler.

I should also just note quickly that legitimacy is a very complex concept, but we can think about it in a simplistic way, as just that one has political legitimacy when people view that person's having the right to rule. And that can come from a lot of sources.

It can come from, certainly, religious elites. It can come from economic elites. It can even come from military elites, depending on, you know, the cultural attributes of the society.

So I think, say, certainly, Genghis Khan had this type of legitimacy. And then this was true, at least, in my reading of Mongol societies, that those who could fight have political legitimacy as well as the right to rule.

One of the ideas put in my book, to get directly to your question here, is that you can think about it as not necessarily disentangling the two, but what weight do you put on the two. Does the ruler use 95% coercive power, 5% legitimacy or the reverse?

Now, one thing that I argue is that there are many types of legitimacy that are relatively inexpensive, from the rulers perspective, you know. So, of course, coercive power is often pretty expensive, for two reasons.

One, it's just often expensive in terms of resources, you know, either be outfitting a military or police forces or things like this. And the other thing is that it's expensive in the sense of giving too much coercive power to groups in society is also a threat to your own rule. Because those are the people that are most likely to overthrow you.

Now, legitimacy... to gain legitimacy, I think of it as kind of interaction between rulers - I should say, rulers here doesn't necessarily have to be a person, maybe a small group of people [or] something like that... just the ruling elite - and those in society that can provide legitimacy. Again, whether they be religious elites, economic elites, something like that.

And we can think about this as a trade-off. There's going to be some types of maybe policies, sometimes it's just pure payments. Like it's certainly in both Christian and Muslim societies that much of their history, religious authorities will say tax-exempt, things like that, you know, as a part of the payoff.

They also might want some types of policies. Oftentimes, the religious elite maybe wants suppression of rival religions, things like that. In the grand scheme of things that tends to be relatively inexpensive, relative to other forms of legitimacy. So then it's attractive.

And that's one of the outcomes or the way that I'm thinking about it in the interactions between different groups. You know, some kind of basic economic comparison. There's going to be benefits from using different forms of legitimacy or coercion, there are also costs.

So we think about what's the cost-benefit trade-offs, and rulers are going to use some types and not others. And that's going to differ by society, it's also going to differ over time.

One thing my book tries to do is look at the evolution of these trade-offs over time and why they diverge between the regions.

Tobi;

You also explained and described something called the rules of the game, as institutions - be it culture, norms and the practices of the society which sort of set the boundaries of what a ruler and the elites can sort of do in a society.

So, I mean, describe that to me a bit. How is that a limiting factor? Because a lot of people kind of assume that once you achieve some legitimacy, maybe through religious legitimacy by, say, converting to the most popular religion of population, you can do what you want. But you made it clear that there are some limiting factors in different societies to what rulers and their agents can do.

Describe this process.

Jared;

Yeah, so that term ''the rules of the game'' is a very famous one used by the Nobel Prize-winning economist, Douglass North. And that's, again, even for him, you know... that's like a very simplistic way to think about institutions. And North goes well beyond this. And then they [other economists] have gone even further beyond this.

But the way that these work do not mean that actors, or even rulers, can act unilaterally and do whatever they want. They're constrained by various things. And one of the real things that I focus on here is this degree to which religious elites can really legitimate rule and how effective they are at doing this.

So in some societies, religious elites are extremely effective at doing this; and this is not just to do with their effort or something like that, it's based on history. It's something that historically, in some societies, religious elites have been very good, so they continue to be very good, at least for the short run.

What I do in the book, of course, is you know, look at certain parts of the Middle East. Religious elites can be extremely effective at either propping up rule or the opposite, or challenging rule. Look at the 1979 Iranian Revolution - that's exactly what happened there.

On the other hand, religious elites may no longer be powerful where they once were powerful. I mean, Western Europe is like that today. Religious elites tend to not have much power in Western Europe today, in large part because society is not very religious, whereas they used to.

So again, that's kind of a constraint that's faced by a ruler at any one given point in time. So maybe a medieval European ruler would have desired to have religious legitimacy because in the medieval period religions are still very effective at legitimating rule.

In the modern-day, certainly Prime Ministers, Presidents are going to look elsewhere as they tend to.

So when we talk about, you know, the rules of the game, we can think about this as a rule. It kind of sets the stage for how this game as I described it between those who rule and those who can keep them in power, how they interact with each other.

So let's get right into the meat of your argument proper, which is how Christianity and Islam emerged when they did, and how the relationship between both religions and their societies and the institutions they propagated, sort of lead to economic divergence, so to speak.

Tobi;

And so I'm going to ask you two questions. I'm trying not to assume too much knowledge for the audience here. So I'm going to ask you two related questions.

So describe for us briefly how the emergence of Islam [happened] when it did, and the emergence of Christianity when and where it did [and] how that came to influence the divergence that was to come later in the society where they sort of propagated these influences.

And my second question, just to note, is that you made very clear - which also I should state for the sake of the audience - that you're not arguing that there is something inherently wrong with any religion. Though, some might argue that, well, you kind of have to say that, right? So...

Jared;

Yeah, no, I think the second question follows from the first question, though, too, because this is actually really important to clarify if the audience hasn't picked up on that yet is, this book doesn't really look at the tenets of religion.

In fact, Islam and Christianity are much closer on most fronts than they are apart. So to the extent that religion might have played a role in what ended up becoming a larger economic divergence, it's hard to look at the tenets of religion as the core cause.

And moreover, something the book also notes is that a good explanation of any type of divergence...you know, economic divergence in the long run, but especially between Europe and the Middle East has to also account for the fact that the Middle East was far ahead of Europe for a long time. Minimum, 400 years, probably 700 years.

[It] doesn't really matter exactly how long in a sense that, you know, it was a while and eventually Europe pulled ahead. But that fact in and of itself suggests that a simplistic argument about there being something about Islam that holds economies back is a foolhardy one.

I mean, how do you explain that the Middle East for the first, say, 600 years after the spread of Islam was so far ahead of Western Europe, on every front - economically, scientifically, culturally, technologically, everything?

So specifically, your first question, though the book looks at and draws out the implications of one very important difference between not so much the theology or the tenets of the religion but a historical difference between the two that did get involved institutionally into the two regions.

This stems from the way that the religions were born and it has to do with their role in legitimating role. And the book argues that, for historical reasons, Islam is more effective at legitimating rule. And it cites numerous passages not just in the Quran, but also the Hadith, which are the kind of the second most important set of religious sayings that's associated with teachings of the Prophet Muhammad.

And the reason that the book argues... and I'm not the first person by any means to note this... that Islam is better, or is more effective at legitimating rule is the conditions under which these religions were born.

So Christianity was born in the Roman Empire. And for its first 300 years, it was a minority religion, which was essentially trying to survive in the Roman Empire. And for this reason, we see the writings in early Christianity when the real doctrine in the corpus of Christian doctrine is really being formed are not about legitimating rule.

In fact, it's quite the opposite. You know, there's the famous quote attributed, at least, to Jesus, you know, ''render unto Caesar what is Caesar's and to God, what is God's''.

The idea of being these two separate spheres, and the religious sphere is not part of that of the Caesar, the secular ruler. And then there are plenty of others who at the time, you know, Augustine and numerous Popes that had similar ideas.

On the other hand, Islam formed at the same time, what was at the time the world's largest ever empire was formed. Muhammad himself was a political figure, as well as a religious figure.

Then, in the first 30 years, the first caliphate, then under the Umayyad Caliphate, within a 100 years of the spread of Islam you have it going from the Atlantic Ocean, you know, in terms of the Iberian Peninsula, all the way to South Asia.

This is the largest empire the world has ever seen. And as this empire is expanding, this is the same time that the corpus of Islamic thought is being formed. It's being formed differently in different contexts. But because it's forming alongside a growing empire, there is need for Islamic justification for political rule.

So from a very early period, you get Islamic doctrine and this being kind of ingrained institutionally that a rightful ruler is one who follows islam, however that is defined. And again, what this ends up doing is, eventually, after the Islamic clerical classes eventually come about in the ninth and 10th century, this ends up giving them a lot of power because they're the ones who can define whether a ruler is acting like a good Muslim or not.

And because of the principles, you know, the kind of what we might call a cultural principle of what makes legitimate rule, it gives religious authorities a lot of power on the one hand, because they can be the ones that describe it.

But then, when a ruler has this legitimacy, it gives the ruler a lot of power to act however they like because they're viewed as legitimate and they might not necessarily need as much coercive powers as they otherwise would.

Tobi;

You sort of answered my second question.

I agree with you, by the way. But what I've noticed with people who get defensive about this kind of argument is to insist on the tenets argument and say, Oh, no, one of these two religions, Islam, in particular, is quite politically prescriptive. And because of that you cannot just separate the tenets of each religion from its institutional or social or political influence, right.

But you are saying that, because there was a divergence in the rules of the game, so to speak, when these two religions started growing, influenced the text, the tenants, the practices, and how much legitimacy each can command, you know?

So I guess my next question would be, at what point... because like you said, the Middle East, the Ottoman Empire was a pretty successful Empire for hundreds of years.

Jared;

Yes.

Tobi;

When did it change? When did religious legitimacy and the way it worked in the Middle East become a sort of economic albatross?

Jared;

So this is the great question. And I think this is the important question to answer because I would actually argue, and I do argue in the book, that initially, this was something that actually was economically beneficial relative to what, say, post-Roman Europe was going through at the time; and even relative to what, you know, societies, especially in the Arabian Peninsula, but even throughout the Middle East North Africa look like, you know, there were empires at the time.

But one thing early Islam did was it helped unite these various regions under one rule, which meant fairly consistent rule of law, even though you know, we don't think of these as pure rule of law societies, but there was consistent rule, they use the same currencies, they could expect similar protections.

One thing that religion does do, you know, this isn't unique to Islam, but because Islam at least, was mainly initially spread amongst merchants, so this was something that [for] the broader populations of these regions, it took a while for them to more broadly Islamise, but merchants were among the first to convert.

And this is something that, at least, brought them into similar social circles, it improved their networks. And I think this helps explain - it's not the only thing, but it helps explain the economic growth of what we might think of as a broader Islamic world for its first 400 years.

This is known in the historical literature as the golden age of Islam from the mid-seventh century till about 1000 or so. And I think you can make the case that the fact that these rulers were in fact strong, for the most part, was a reason for this.

And certainly, at least up until like the late 9th century, when the Abbasid Empire which was the large empire, beginning the mid 8th century was kind of at its peak. This is a reason I think that Islam plays its role.

And again, I mentioned a few minutes ago that I think an explanation that focuses on religion also does need to explain why Islam was associated for so long with a relatively economic successful region. Whereas, you know, this is the same period - that period mid-seventh century to 1000 or so where Europe is not nearly as successful, you know, it's still kind of in its post-Roman doldrums.

Even when you get some type of unification like under Charlemagne, the Carolingian Empire, there's no real capacity to rule in most of those places. And I think, in part at least, that's due to differences in the way that these rulers - to use my term of propagating rule.

Now to get at your big question, what we really need to explain then is actually a reversal. So the year 800, ironically enough, is often a year that's pinpointed, because on the one hand, in Western Europe, it's kind of a famous year because it's the year that the Pope crowned Charlemagne.

But it's also right at the height of the Abbasid Empire in terms of its economic power, in particular. And this is a year that, you know, around this time, early ninth century, that economic divergence between the two regions was probably at its greatest.

So we then say, well, what was the source of reversal? Now, I want to make it clear that I'm pinpointing one source, this is by no means the only source. There are many different reasons, I mean, nothing as big as 1000 years of economic history is going to be mono-causal.

But one thing I look at is, we can start with the Middle East and North Africa and say, because religion was so effective at propagating rule, there was very little incentive for political authorities to change this.

They stayed in power, by ceding relatively little to religious authorities, they certainly had to have access to coercive powers, which they did. There's been a lot of good work that has looked at what access to coercive powers meant for the stability of Muslim empires as well as their economic strength.

But it meant that religious authorities remained powerful and, importantly, what I then got to argue is that it meant that economic elites were kept out of the ruling coalition.

Before I go too deeply into this, I want to also make it clear that, you know, having a society run by economic elites is generally not a good thing. You know, purely economic elites. Because economic elites, you know, people that are engaged in commerce, maybe merchants, things like that, we should be thinking about them just like we think about all actors as being somewhat selfish.

They have their own desires that they want satisfied. And in this case, it may benefit them at the expense of society. One thing I note, though, is that the big things that economic elites want from the political bargain are things that tend to benefit society more broadly.

And the two big ones I point out in the book because these come up again and again in our history are some types of protections often for their property. But you know, more broadly for especially commercial interactions, you know, so you have some type of means to appeal when you're being cheated, or certainly when your rights are being infringed in any way.

And there's a very large literature in economics that suggests these types of rights are really important for economic development. And the other thing is investment in large scale public goods. Things like transport networks, roads, bridges, canals, things like that. And a whole host of other public goods, eventually education becomes something, even though that's actually quite a bit later.

There's a long, long history of economics that suggests that those things are typically most efficiently provided by government. Again, the economic elites want these types of things, because they benefit themselves. They do benefit themselves, but they also happen to benefit society more broadly.

So on this front, you could say, Well, if the economic elite really don't have a seat at the bargaining table, in this case they don't have a seat because rulers don't need them.

They have plenty of legitimacy, say, through religion and giving up stuff like property rights is among the most expensive things that can be asked for. So rulers really don't want to give that up if they don't have to.

On the other hand, in Europe, what ends up happening around the year 1000 or so... it starts in northern Italy, in the low countries, is you start to get some seeds of commercial development.

Trade, actually, a lot of the trade at least begins with the Byzantine Empire and the Muslims. And with this, as trade starts to expand, some of the things that the religious authorities might impinge upon, while we look at say like moneyed interest or stuff like that. But that's actually I think less important in the broader scheme of things.

What's probably more important is that economic elites gain more power. And, you know, to go back to the broader narrative in the book, because Christian religious authorities actually have less legitimating power, they're less effective at legitimating rule.

[And] once there are these other sources of power that come up in a society that can provide rulers with things like tax revenue, rulers seek them out. So this is precisely the period where Europe goes through a major kind of overhaul in its Church-State relations.

So the most famous episode and this is called the investiture crisis, where it essentially pits the papacy versus various secular rulers. And this is a period, a medieval period where religious legitimacy remains important, but it loses some of its value and where it loses its power, it's economic elites that gain.

I fast forward a little bit to the Reformation, which where it takes place kind of permanently undermines the role of, certainly, the Catholic Church, but just more generally, [the role of] religion in legitimating rule.

And in those places, that's where you really start to see economic elites, mainly in the form of Parliaments becoming much more powerful.

And there again, that's where you start to see these economic elites bargaining for various things that improve the economic development in the region.

Again, they're doing it for their own personal reasons. it's not to say that economic elites are altruistic, kind-hearted people that want what's best for society. Oftentimes, it's quite the opposite, they just want things that benefit themselves.

But some of the things they want are the types of things that we think of that portend broader economic success. So in a nutshell, that's kind of the very broad scope of the argument. Certainly, there's historical detail that the book goes into. But yeah...

Tobi;

Some of the implications of your work are so deep, that I'm not quite sure I can do it enough justice. But one thing I want to now get at is the issue of persistence.

I mean, the period you called in the book, and also your research, they are pretty long enough, some will say, for us to see maybe some convergence. I mean, there has been the Industrial Revolution, the first one, the second one, and I mean, now we live in an age of globalization. And some of this divergence can still be observed.

So specifically, speaking of religious legitimacy and how growth retarding it can be in certain conditions, how persistent is that effect? And secondly, how does legitimacy wither?

Jared;

I think that this is kind of a key question in terms of thinking about these long-run processes. And I think one answer to this is that, in part, at least, it comes down to incentives.

It comes down to incentives of the ruling elite to continue to use religious legitimacy. And to kind of go back to what we're talking about initially, we can think about this in terms of cost benefits.

And what we might think about as the costs here are what economists think about costs as - it includes opportunity cost, the foregone cost of using something, a different form of legitimacy in this case.

As long as the costs are relatively low, which we might think of that as broadly being the case with religious legitimacy, then it's likely to persist. This doesn't necessarily entail anything deterministic about... you know, just because a religion is good at legitimating rule, it's definitely going to persist, there might be other things in societies that come about.

In fact, you know, we have seen this here and there, you know, so say, after World War One, Turkey became a fairly secular society, at least in terms of its politics. So there's nothing absolute at all here in terms of it persisting, but what we can say, and I think this is where if you do economics correctly enough is strong.

But if you use economics in a good way, you never want to say something's definitely going to happen. But you can say things are more likely to happen because people are incentivized to do something in a certain way.

And that's what I think I would describe here in terms of persistence. And I think this same logic also helps us understand why in this case, things don't persist. Why the use of religious legitimacy doesn't persist.

And these might be things outside of what we might think of as the ruling elite or the religious elite's control. When, you know, what I was just describing... when you have a reemergence of commerce in Europe, for instance, in what is known in the historical literature as the commercial revolution, happening approximately between 1000 - 1300, that changes the cost-benefit calculation.

And because the benefits of religious legitimacy were lower, and now the costs are higher, because you're essentially keeping this increasingly powerful economically outside the political circle if you continue to rely on religious legitimacy, that changes the calculation.

And maybe you do want to start offering these economic elites political rights, but it would come at the expense of political power for the religious elite. But that's precisely what ends up happening in the medieval period in Europe, is that these economic elites increasingly get rights throughout central Europe and actually in other parts of Europe as well.

They start forming communes, which are like the city-states, which are mainly made for merchants by merchants to trade with each other, but they gain a lot of rights and these rights come at the expense of the religious elite.

The religious elites have relatively little power in these areas, and these areas become the economic workhorses of medieval Europe. And they benefit the rulers, in some cases, immensely and this becomes one of the primary sources of tax revenue and a whole host of things.

So again, you know, I think if we think about it in terms of this cost-benefit framework, we have to know the history, certainly, to know why these costs and benefits might change. But I think it does give us a framework for thinking about why things persist as well.

Tobi;

Thinking about incentives the way you just described it, especially of the elites, and this is not just about religion, you see some societies that may be too reliant on rent from resource revenue and their struggles to diversify also struggle with this incentive problem.

So I guess my point would be, is it fair or, should I say, reasonable to conclude that a lot of modernization projects that we are seeing whether in terms of foreign aid or interventions or setting up democracies in, perhaps, states that have no history of that form of governance, are they all efforts that are doomed to fail if the incentives of local elites remain the same?

Jared;

Oftentimes, yes. And this is where I think that this question is extraordinarily deep in that this gets at so many different things in human history. And I think, you know, we can broadly say that transporting something that worked, whether it be institutional design, whether it be just funding for certain types of things that worked in one society, it doesn't necessarily work in another society if, in this case, the institutions... and you could even say that there are cultural incentives too that, you know, when people are imbued with a certain view of the world, then they're not just going to be able to adopt new things in a whole host of ways.

So yes, I would argue pretty strongly that certainly elites that govern the political process, when incentives don't change, you're unlikely to get a change in political behaviour.

So if you really want to think about what might be a driver of societal change, at some point, the incentives of the elites have to change. So this can come from a variety of ways. This can come from certainly international, either pressure or incentives, or, you know, it can be financial incentives.

It can come from the ground up. What I just described in Europe was more of a ground up thing, in that the incentive of political elites only changed after commerce really started to reemerge.

And on the other hand, talking about commerce reemerging in Europe, it still wasn't flowing, as far as we can tell, nearly as much as it was in the Middle East at the time. So what that indicates is that... at least to me, is that the incentives for Middle Eastern rulers or North African rulers at the time to employ religious legitimacy was just so much stronger that it was going to take a lot more to undermine those incentives.

So again, that's where I think to your question, really understanding the incentives that authorities face, [that] the various parts of the ruling coalition face is really important to even begin to understand what is possible in terms of change.

Tobi;

My final question to you, which is also a bit of a tradition on the show, is what's the one big idea that you would like to see spread everywhere? It may be something you're working on new [or] old, it may be something that you find interesting. So what is it?

Jared;

By spread everywhere, you mean [the] broader population?

Tobi;

Yes.

Jared;

I think it's [the] implications of my work. It's not my work in particular, but it's the type of stuff that got me interested in this in the first place. It is that if you really want to take a grand, grand, grand view, I think with both myself and I think a large fraction of people who go into economics, why we get in the field is to understand both wealth and poverty.

Because for me understanding poverty, you have to understand wealth as well, you have to understand how it's created. Because I think what most of us, I would hope one, at least one of the main reasons we're interested in this is because understanding the way economies work as a source to help people.

You know, the people that need it the most. And, you know, something I've long been interested in is the role that religion has played in this because I think it's one of many factors.

And again, I want to be very clear, I have a book coming out early next year with Mark Koyama. He's been a guest on your show in the past about how the world became rich, and we look at a lot of different reasons in that book.

So this is one of the reasons but I do think that there are massive misconceptions in the role that religion has played and can play in the future. And I think that if we want to say think about the broader Muslim world, for instance... you know, what worked to raise the economic profile and improve the economic development of, say Western Europe initially, my argument was that it was in part getting religion out of politics.

I don't think that's going to work, though, in large parts of the Muslim world for reasons we just discussed. So an implication of both my work but also something that is long interested me is this idea that tenets of religion themselves are not things that have a massively damaging impact on economic development.

And I think that oftentimes, that's something that is easy to pinpoint, especially for people who want to blame religion for something. But when we think about the role that religion plays in politics, and this is not unique to religion, it can be the role that the military plays in politics, can be the role that actually, frankly, certain types of economic elites play in politics.

And if we really want to improve the lot of... there's still a billion or so people in the world that live on $3 a day or less...the role of local politics plays a role in depressing the capacity for those people to just get to a point where thinking about what they're going to eat is not dominating their lives.

And it differs by society. But I do think that attempts to improve the lots of those people that aren't as concerned with the political are not going to get far. And that's a lot of, you know, especially Western NGO types. And this is not to say, I mean, many of them do extremely good and important work.

But if we really want to get at the source of lifting, you know, at least the most dire of poverty out of the world, I think it's the political that we really need to address. And we need to address it in different ways in different societies.

This is not by any means to say that all we need to do is impose democracy. It's exactly the opposite in many cases because democracy when it's imposed, and does not arise organically often does not work that well.

So it's thinking about local context, it's thinking about how rulers stay in power, it's all of these things, and including religion. This is in part to say, there's no panacea. There's no silver bullet that's going to affect the politics in various places in the same way.

But I do think that if we can pull on generality out which, much more importantly, can help alleviate the most dire of poverty, it's to really try to affect the political.

That's the thing that I'm frankly hoping to continue to work on for the next 40 or so years to thinking about the historical determinants of this and what that can teach us for the present.

Tobi;

Thank you so much. My guest today has been Jared Rubin, economic historian and professor of economics at Chapman University. Thank you very much, Jared, for joining me.

Jared;

Thank you so much. This has been really fun.

This is a public episode. If you’d like to discuss this with other subscribers or get access to bonus episodes, visit www.ideasuntrapped.com/subscribe

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The invasion of Ukraine by Russia - and the ensuing war - has brought food prices back into the news. This is happening on the back of the Covid-19 global pandemic that also disrupted the food supply chain, causing shortages and rising prices in many countries. So how should countries set national food policies in the face of risks and uncertainties? This is the subject of my conversation with agricultural economist Fabien Tondel. He is a researcher and Policy Officer with the European Centre for Development Policy Management - an independent think tank with a focus on making development policy work in Europe and Africa.

Fabien's work encompasses research on agri-food value chain development, rural development and food security in Africa, and building sustainable food systems. The background to our conversation is this report (which Fabien co-wrote) on the rice value chain in West Africa. Rice is a staple in the region, it’s a commodity that has been at the heart of diverse food policy approaches (see this essay on the politics of rice policy in Ghana and Nigeria) from Nigeria to Ghana and Senegal. Fabien and I covered many of the subtle but familiar themes in food policy - like the difference between food security and self-sufficiency, whether there is a dilemma in using policy to protect producers or consumers, and the ever-present threat of food inflation.

The transcript for the conversation is available below, and you can listen to this and many of our episodes on all popular podcast vendors.

TRANSCRIPT

Tobi;

I mean, like you and I were discussing earlier, a lot of the issues we tried to talk about last year, particularly in the report that was released by your institution back then on rice and the rice value chain.

But not just that, food policy and production, particularly in Africa, West Africa, generally, are even more relevant today, because a lot has happened, some of the effects from the pandemic policies are really feeding into the system.

We are seeing the rise in prices, we are seeing a lot of shortages, we are seeing a lot of supply chain problems. So, I think it's even more relevant to be having this conversation right now.

I would like to start by asking you...it might sound a bit trivial, but in your reports released last year, why rice? I'm asking this against the background of Nigeria.

Currently, the government is also talking about rice, I mean, it is towards the end of the year, there is a lot of anti-importation reaction from the policy circles. So, I guess, out of sheer curiosity, why Rice, rice is a bit of a political... we call it a political crop here in Nigeria.

So why focus on rice, if you can answer that for me briefly?

Fabien;

Yes, Tobi. Rice is a highly politically charged product in many countries, in African countries, as well as in other parts of the world. Rice is an increasingly important part of the diet of African country populations, particularly in urban centers, where consumers enjoy this product because of its quality in terms of food, its taste, and also the ease of preparation, households find it very practical.

And we've seen the consumption of rice increasing rapidly in African countries over the past decades, including in Nigeria. So, this is not a new phenomenon. We have seen it coming now for several decades, and at the same time, the policymakers have put a lot of emphasis on increasing rice production with the idea of satisfying the needs of their populations, with the idea of attaining self-sufficiency.

Because up until now, imports of rice coming largely from Asian producers, but also from other countries have played a big role in satisfying the needs of these populations. And so, policymakers have found themselves in a difficult spot to satisfy the needs of the important critical needs of the population, but at the same time to deliver on the promises to boost domestic rice production as part of agricultural development strategies.

So yes, it's a very important product politically. And we see that these issues, a bit, come to the surface in times of crisis. We saw it in 2008, during the global economic, financial, and food price crisis.

And to a certain extent, we've also seen it during the COVID crisis, with uncertainties in international markets, disruptions in international supply chains, but also domestic food supply chains in many parts of the world that have raised concerns among policymakers, but also, in practical terms, made the life of many people more difficult by lifting food prices.

So yes, I think it's still a very good time to talk about this.

Tobi;

And again, this is the background I'm coming from here. Because I mean, I'm going to be substituting rice policies with agriculture policies a lot. So, Nigeria typically promotes agricultural development as part of pursuing food security.

Usually, the go-to policy is to ban importation. But we know it raises food inflation, which has been the experience of Nigerian consumers, and I think even in the region to a certain extent. So, it raises food inflation, food prices go up, either generally or even for that particular product. And then secondly, we don't see much increase in domestic production capacity for that particular product or for food generally.

So, I guess my first question on that area would be, what other policy choices do you think exist for policymakers other than this policy of banning the importation, which does not really increase output, and at the same time raises domestic prices for food, which makes even the poorer household more vulnerable?

Fabien;

To answer your question, we have to consider the specificities of Nigeria. And also, the more general situation in West Africa and beyond Nigeria is significantly dependent on the importation of a number of processed goods, including processed food.

So, I think it's good to say that the importation of rice from the point of view of certain policymakers also concerns other products - cooking oil, processed foods, etc. But again, because of the importance of rice for the typical households, including low-income households, I think there's a particular issue of rice.

At the same time, the government of Nigeria has been very active over the years in promoting the production of rice. And it's still good to know also that there's a large part of the rice consumed in Nigeria comes from Nigeria. [Rice] is produced in different parts of the country, in particular, in the north and central parts of the country. And there's been progress in production.

The question is, how far to go in promoting rice production? Is it economically efficient? Does it benefit rural households and farmers? What is the opportunity cost also of investing in rice production? In the end, you know, what is the best approach to support food security?

I think just to go back also, I think to your first question about the study that we conducted, I should say that it all comes from the 2008 food price crisis. And sorry to go back to the past, but I think we should remind the auditors that this crisis caused serious concerns for policymakers, particularly in Western Africa, with the high prices and the protests in some places that it led to.

And following these events, policymakers invested a lot of effort in improving rice production in African countries and in pursuing self-sufficiency. And we'll come back to it but there's a number of tools that are relevant for promoting agricultural development.

But this situation of high import dependency raises the question of the role of trade policies. And not to conclude before analyzing the problems that trade is the main problem or too liberal policies; not protectionist enough is the problem or that, on the contrary, we should rely even more on trade.

But our work really aimed to understand the role of trade policy amongst many factors in ensuring food security and Agricultural and Rural Development, and how this factor - this trade factor - played out in different contexts in the region, and then what policy implication we can draw from that.

Now allow me to come back quickly to the case of Nigeria, which I find fascinating. I think we should say also that rice importation also takes place in a particular context, I think the Nigerian government has always been somewhat protective of its domestic market. And there's a rationale for that. And provided that at the same time there's a strong commitment and also an economic rationale for protecting the investments of farmers and industrial actors in this sector.

But while Nigeria was more protective than its neighboring countries, this has also had the effect of diverting trade flows with certain quantities of rice still entering the country perhaps in more informal ways. I think we know that in West Africa, borders are largely porous. There's a lot of informal trade, which is, of course, a fact it's not good or bad. But this reality also has played a role in the Nigerian reactions in the trade policy area.

We know that other countries in Western Africa have quite different policies than the Nigerian government. And again, this is not necessarily good or bad, it's a fact. But this raises the question of the policy coordination amongst Western African countries to attain food security and rural development objectives.

Now, the import ban imposed by the Nigerian governments perhaps two years ago, which has lasted for some time has led to some disruption in the Nigerian market, in the rice market in particular. And as you were hinting, there's been a rise in rice prices [and] also in the context of a general inflation trend.

And these rising prices, of course, have undermined the purchasing power of urban households. At the same time, the Nigerian government has been very active in supporting rice farmers, and the central bank has played an important role in making available money to access fertilizer and other inputs, and also to help farmers sell their rice.

So, a lot of public support may also have contributed to some extent to inflation trends. And indeed, we see that this policy has had some impacts, some different impacts on different segments of the population. With farmers, at least, in some areas being relatively happy. But of course, urban households [are] suffering from the price increases and general inflation.

So, I think it's in this context, also, that we should discuss the role of trade policies. Which again, I think should be a nuanced discussion looking at the different aspects of it.

Tobi;

So, talking about trade policies and around agricultural development of food policy generally, one thing that usually comes up in my conversation with people, and I've also read or heard so many people argue this point is the issue of domestic producers versus consumers, you know, like some kind of dilemmas that countries face on whose interests you should protect.

As you pointed out, through the CBN and various other schemes here in Nigeria, there has been a lot of support for domestic production, in terms of credit facilities, in terms of access to fertilizers, and all that. But sometimes you hear retailers and so many people who are involved in rice particularly will tell you that the market price for rice is double what the price of rice is at the border. So, it is from the border to Nigeria that over half of the price of rice gets added.

And now, my thinking is that we really don't see the government do enough domestically in other areas beyond simply supporting cultivation, other supply issues like storage and transportation, which raises domestic prices, which they do not make domestic producers’ price competitive with importers, we don't see a lot of emphasis on this issue.

So, I want to ask you, why is that? Is it because these are big problems to solve generally, or because policymakers do not realize that these are problems? Right. So, I guess, ultimately, my point would be that, should domestic consumers pay higher prices to support producers?

Because I know that urban consumers particularly are a good source of income for a lot of farmers. So, is this a policy that should be sustained or even actively maintained? Or is there a way to make this a not so difficult adjustment for all involved, including producers and consumers? That's a bit of a long question so don't mind me.

Fabien;

It's a long question, but it's a complex problem, also. So, I think it's normal to ask it in this way. I think you're talking about a dilemma for policymakers that is seen almost everywhere. Consumers would like to have low food prices, because it's such an important part of their budget, while farmers like to have high prices for agricultural and food products, because it's their revenue, and they need to compensate for their cost.

So, there are two things. I think there can be in the short run, perhaps, some imbalance provided that these high prices entice farmers to invest more to increase the supply which should lead then to a decrease in prices which will also be beneficial to consumers.

But the problem is not as simple because as you said, between the farmer and the household, there are a lot of steps to aggregate, process, and distribute the food products. And what I am talking [about] here is what we call the value chain.

And so, we see that to actually expand the supply of the products, but also to ensure that the quality of these products satisfies the needs and the preferences of the consumer, there is a need for investments in enterprises that will move the products from the farms to the markets, that will process, package and distribute the products.

For this to happen, public investment is needed in infrastructure, in roads, in rural areas, in physical markets, in skills, also, to ensure that the sanitary and phytosanitary standards are followed to ensure certain quality norms. And of course, all of these are important for the quality and the safety of the food.

And all these different steps in the value chain often depend on multiple different policy areas that need to be coordinated for this value chain to develop. And that's perhaps a bit the technical side of things. In the reality, there are also [the] political and business interests that play a role in the planning and the implementation of these investments.

So, it's a complex problem that requires coordination of policies, but also different actors with sometimes diverging business and political interests to work together to develop the whole value chain. And this is not just a problem from Nigeria, because for every country at every stage of development, the context, the technology, trade relations, the market, the preferences of consumers evolve, and it requires adapting the supply chains to these changes.

So, in this case, and I can't, you know, talk too much about how well or not Nigerian policies are doing to support the development of these value chains. But yes, perhaps, we could say that a lot of attention has been given to supporting rice farmers, and also in investing in processing units. But it's probably not been enough to develop strong linkages between farmers, processors, and distributors, and in the end with urban markets, for various reasons.

And also because of some limitations, a processor needs paddy of a certain quality at a certain time, fulfilling certain criteria to process it efficiently and to break even with its investment cost. A distributor, a trader, also has some constraints. If it's going to distribute local rice to sell it to supermarkets or to street markets, it needs to fulfill certain deals in certain quantities, which he might not be able to do if the linkages higher up in the supply chains are not solid enough. If he does not receive enough rice of a certain quality to fulfil his own contracts.

If not, he might actually prefer to import and distribute rice produced in Asia that has a certain quality and for which also the shipments can come quickly and surely. So, we see also how the incentives of all these actors across the value chain play a role. And so, like other sectors, I think the government has a difficult task to do to develop these value chains, and also some choices to be made about to what extent to rely on imported rice versus domestically produced rice.

Tobi;

Okay, I'll get to my second dilemma in a bit. But to focus more on your last point is, how can countries better increase output? Should they focus more on these linkages in the value chain that you speak of?

Because what we see in terms of policy responses is a lot of policy support goes into farming and land cultivation itself. And we have seen the limitations of that in terms of increasing output because, of course, it's a complex problem and there are other areas that are not fulfilling their promise in terms of linkages.

On the other hand, policy support can be limited because of the balance of payment crisis that we know that some of these countries like Nigeria suffer. Public resources are not infinite. So, my question essentially is, if the government has to prioritize public support for agricultural development for domestic production, where is it better to focus a lot on resources, knowledge, and support?

Fabien;

Yes, Tobi. So, I start by saying that there is a consensus among experts and other actors that there's a potential for growth in the rice sector in West Africa, and perhaps even in Nigeria. And this growth can be attained in particular by raising yields and productivity in the production, processing, and distribution of rice.

And raising yields is, of course, the key for many agricultural products. And it requires investment in the management of land, in inputs, improved seeds, in particular for rice; and mechanization, skills, and also in processes to reduce post-harvest losses beyond the farm. That's critical for the development of the sector.

At the same time, policymakers should not lose sight of broader objectives. In the end, what matters is for farmers and rural populations to have better living conditions to have higher income and access to better public services in rural areas. It also matters to create jobs in and around agri-food value chains.

These value chains can generate a lot of jobs in trading, logistics, in processing. And it also matters to ensure the food security of households. So with these broader objectives in mind - and the rice sector is only a small part of this agricultural and food system.

It's important also to consider the opportunities for diversification away from staple food commodities, because as the middle class is emerging in Nigeria and other West African countries, as consumers, urban consumers especially gained purchasing power, as we tell also people to eat more fruits and vegetables for health reasons, new economic opportunities appear for farmers and agri-food value chain actors in sectors that are more profitable than rice, probably.

So of course, I'm thinking about horticultural products, spices, livestock products, pulses which can provide proteins... and in these sectors, the returns on investment for [not only] farmers, but also for other actors in the value chain can be higher than for rice.

So that is something... rice is important, you know, this is what we were saying at the beginning. But the problem of rice has to be seen in the broader context of the agricultural and food systems.

And perhaps there is a role to play for trade, for imports, to balance the supply and the consumption in a country like Nigeria... letting farmers but also policymakers invest more resources in these other value chains that are more profitable for all these sectors.

Tobi;

Going further on that I want to ask you, especially relevant to this conversation, there is also the talk of industrial policy. A lot of domestic agricultural policies take place within the context of domestic industrial policies for countries. I know Nigeria has been on that path for the last six years.

My question then would be, what role do exports play in food policy generally? Isn’t the better path to development through exports, and relying maybe slightly more on imports of staple food commodities, such as rice, rather than focus on growing domestically, I mean, rice, what are your thoughts?

Fabien;

Yes, I think perhaps, just to make sure that we understand each other and that also it's clear to our auditors, there is a rationale for ensuring that a certain part of a population's need for food is supplied by the country's farmers and domestic supply chains.

We see also that in less favourable times, like during the food price crisis, the instability of international markets can disrupt domestic markets. But it's only one consideration among others. It also has to be based on the other opportunities for the domestic economy to grow and to lead to shared prosperity.

And so, countries have to think also about the way they participate in the international economy, if not the regional economy. And they should not think, at least in our times, of that. So of course, exports are very important to create economic opportunities for domestic producers to generate foreign earnings because any country has to import certain goods that it cannot produce. And within the agricultural and food sectors, that's also the case.

I think we see today that whether we are in Europe, in Africa, or any other part of the world, on a daily basis, we consume products produced somewhere else. And by that, I don't mean that this is the most efficient and sustainable way of securing our food security. But I think it's a reality to start with.

And so, for Nigerian farmers and the broader Nigerian economy, it's important to be competitive in some sectors that produce exports and generates foreign earnings for tropical products that grow well in Nigeria, perhaps for specialty products, some fruits, and vegetables, cacao, perhaps coffee, medicinal plants, anything, you name it, I think it's important for Nigeria, also to export.

And it is also the earnings from the exports that can allow the country to import the staple food commodities that it cannot produce so that policymakers can ensure stable markets and stable access to food for vulnerable households. So, I think, taking into account this reality, that we should think about policy choices, that doesn't mean that we should not change or, you know, actors should not think about the change.

Again, there is perhaps a good economic rationale for increasing the production of rice and other staple foods, provided that it makes economic and social sense. And that it is, importantly, I think we haven't mentioned yet, in line with the boundaries of natural resources, with sustainability criteria.

Because perhaps you might want to discuss this also, rice is a very demanding crop in terms of water, in terms of land, in terms of nutrients, it also generates greenhouse gases. So, we do also have to take these environmental aspects into consideration when promoting such a crop.

Tobi;

In the report, which you co-authored, which is kind of like the background to this conversation, generally. I'm going to put up a link - both the long and short version - in the show notes. You used Senegal as an example of how policy on food and in this case, rice, can evolve productively. So, I mean, for the sake of the audience, can you discuss briefly why Senegal stands out? What did it get right?

Fabien;

Yes, I think that Senegal stands out not only for its policies directed at the rice sector but also in other agricultural and food sectors. In recent years, the Senegalese government made efforts to better regulate agricultural and food markets, and also production. And it has done that, I think, in the context of efforts to modernize the economy while promoting inclusive development.

So perhaps I think without going back to the origin of the story, I think, in Senegal, there was a certain potential to improve, to augment rice production and agricultural policies after 2008 promoted this increase in production. But quickly, policymakers were confronted with the fact that it was difficult for farmers to sell rice, to market their rice.

And so given this now realized production potential, the government had to think about how to facilitate the access of this rice to the market. And of course, there was then the dilemma, I think, what to do in the situation where the imports are so important to fulfil the needs of the populations.

And so, Senegal undertook a process that, for me, is very interesting by bringing together the rice importers and the actors of the domestic value chain to find a way to remedy the problem of difficult sales for locally produced rice. And these actors worked together to promote investments in the local rice value chain, which has produced some positive effects for the farmers and the local value chain actors.

But that relied also on a choice, perhaps a difficult choice, to better control imports of rice to create a room in the market for the locally produced price. So currently, the government is trying to make the import licenses for rice based on the amount of locally produced rice that the wholesalers and the importers buy in a way to couple the imports with local purchases, and so, with investments in the domestic rice sector.

This, of course, is a complex undertaking. It requires a rigorous approach to calculating the cost and benefits. And it's still uncertain to what extent this initiative will succeed. But we think based on our research that it is a very good experience to learn from and to exchange with other countries in the region that would like to develop the rice sector in a sustainable way, from an economic standpoint in particular.

So it is also in the sense that, you know, our study concluded that countries in the ECOWAS area should collaborate more closely with each other to share experiences, to see what works, what doesn't work, for the development of the rice sector. And also, to coordinate their policies, because I come back to the beginning of our conversation, as our analysis showed [and] also as many people know, if one country adopts a certain import policy for rice and if the neighbouring countries have different policies, and the policy of the first one will affect the other ones, because of the transshipment of rice, both formal and informal, that takes place in the region.

So, I wouldn't want, not only to emphasize the example of Senegal, but also the interdependencies between rice policies in the region.

Tobi;

That sort of leads into my next question, because, yeah, you talked about the importance of policy coordination and cooperation, especially in the region, West Africa, a lot in that report. And of course, we know that the African Continental Free Trade Agreement was recently ratified, we know that implementation is not going to be simple. It's a very complex, long process.

So, my question is, I know your organization, the European Center for Development, Policy Management [ECDPM], engages a lot of players on policy, what are you guys doing to make sure that there is better policy coordination and cooperation in the area of food policy?

Fabien;

Yes, it's true, Tobi, that ECDPM is very active as a keen interest in regional economic integration processes, and more generally, regional and continental level cooperation. But I will just say before starting that our ambitions are limited. We are a center based in Europe. And our aim is, I think, primarily to understand economic development dynamics on the African continent, and to facilitate interactions and cooperation between different actors, between European partners, and African actors in particular.

It is, you know, with this approach in mind that we've been working on specific sectors that I think are meaningful from a development point of view, I think it's still the case of the rice sector. But of course, rice, like other commodities are traded in a regional context, we could say that there's probably also some rice being traded across borders, beyond the boundaries of ECOWAS.

I think there is some trade with Cameroon and with Chad and other countries. So that's also why ultimately, it's also a question that's relevant to the process of the African Continental Free Trade Agreements. But I think also the realities of rice trade, as an example, shows the complexity of economic integration, of designing and implementing common trade policies, and of moving towards better integration of economies in a way that is beneficial for different actors in the value chain.

So, I think, already, starting at the level of ECOWAS, it's a relatively old regional organization, which has attained a certain level of maturity. And so, it has a number of sectoral policies that are now relatively well defined, although there's still much to be done in terms of implementation. But I think that's... it's a long-term process, as you said.

And I think we should say that the ECOWAS commission is currently leading an initiative to promote production in the trade of rice in the region in a sustainable way. It's actually one of the flagship initiatives of the ECOWAS in the area of agriculture and food security.

And so, there are a number of aspects in the rice sector that have to be addressed at the regional level, as we said, there is the transshipment of rice across the region. And in some cases, it leads to reactions, like bans on land imports, which is going to have repercussions for other sectors, including those who don't have much to do with rice.

And of course, this can impede the process of regional and continental economic integration. At the same time, rice is a good example...again, there are trade relations within the region that play a role in the development of the domestic rice sector. Locally produced rice is traded within the region. For instance, between Burkina Faso and Mali.

Malian consumers appreciate the organoleptic qualities, I mean, the taste of rice grown and parboiled in Burkina Faso, largely by small-scale women enterprises. And despite the fact that Mali is almost self-sufficient for rice, it still imports from Burkina Faso. And this is not just a curiosity, but it's also an opportunity for the development of regional agri-food value chains that can create jobs, generate more income for farmers and ensure food security.

And of course, that's also a challenge at the continental level. So these processes at the regional level are one part of the puzzle, but they can play a big role in formulating better trade policies, but also in supporting the work at the national level, as in Senegal, with better regulatory frameworks for the agri-food sectors, and also to share experiences and to coordinate with perhaps the ultimate objective being to go towards like a regional market with some common policies, common norms, that can ensure the good functioning of cross border value chains.

So, yes, that's something that we are paying close attention to in partnership with West African think tanks in particular. And I should say that this work of ours that you have mentioned has been done in partnership with IPAR, a think tank based in Senegal and specializing in rural development and food security.

Tobi;

So, given the situation that countries face today and also particularly in the region as you have said, I know we may not quite be in the same situation as the 2008 crisis, but there are familiar currents of the same problem. My question is you work on policy a lot, so what are some of the automatic policy responses or stabilizers that countries can adopt in the interim that does not make the situation worse, both for consumers and producers, and other stakeholders involved in the food value chain?

What policy heuristics or intuitions can policymakers rely on? What tool is available to them to use in a time like this?

Fabien;

You're right, Tobi, that the COVID crisis has generated a number of disruptions that we should learn from to develop more resilience, agri-food systems in particular, and we've seen in a number of countries disruptions in agricultural and food supply chains, which also meant losses of jobs, livelihoods for certain people.

And this also then can really push people back in terms of wellbeing and development. So, the problem of risk management at different levels is probably even more acute after this crisis. But it's good also to see that progress is being made.

And again, if I just keep talking about the agricultural and food sector, at the ECOWAS level, there is an interesting initiative to put in place regional food reserves to deal with instability in the agri-food system at the regional level, and especially also to address emergency needs for food assistance for vulnerable populations.

So, this regional reserve initiative, which is being piloted by the ECOWAS Commission, was developed as part of the ECOWAS agricultural policy. And it has two components, the physical reserve of staple food commodities that can be quickly mobilized to address the need of vulnerable populations. And there's also a financial reserve to procure food products quickly, either in the regional market or elsewhere on the continent, or even in international markets.

To address supply disruptions, this is an important tool that is being developed and that should probably be encouraged in the following years. But that's only one part of the policy instruments to deal with instabilities, with shock.

I think what we see in a number of African countries but even well beyond in the global south and also in more advanced countries is the importance of social protection and public services to deal with difficult times, including in the health sector. So why not a specialist of social protection, I think that there's an important role to play for food assistance, but also cash transfers and other forms of social insurance to ensure that vulnerable populations are not left on their own in very difficult situations - when a crisis hits when it disrupts economic activities when people get sick and can't go to work.

And of course, one of the basic needs is food. So social protection and food policy should work hand in hand to protect livelihoods and well-being.

There are a number of other instruments to deal with risk, to manage risk, I think. We've seen also that part of the problem that you have presented at the beginning is also related to the cost of fertilizer, which has gone up in [the] international market and of course, makes it more difficult for farmers, including in West Africa, to boost production.

What I would say just to conclude is that going back to our example of rice, in the end, it's not so much about attaining self-sufficiency, but it's about managing the vulnerabilities that are due to these interdependencies. Whether it's because of the importation of rice, but also the reliance on exports of extractive commodities, as well as movement of populations and with them of Coronaviruses that can destabilize an economy and, of course, health systems.

Tobi;

You sort of...and I don't know, that has been happening a lot over the course of this conversation, your answer preempted my next question, which is like my final question.

So, it is like a big picture question. What is or are the differences between food security and food self-sufficiency? Because this is a debate that has been going on for a while. And the two get mixed up quite a lot.

So, you are an agricultural economist, you're an economist... some Agric economists have argued that the policies that countries that have a little more access to ports or the coast, that the policies that they adopt around agriculture should be a little bit different from countries that are landlocked... so many issues and it can be quite confusing. So, I want to hear from you, what is the difference? What are the nuances between food security within the context of a national economy and self-sufficiency?

Fabien;

Yes, I think it's a difficult question because there are really different views about how things work behind these two notions. But I think we have to go back to what they mean in the first place.

I think food security is first in outcome about how well people access food of good quality, in conditions that will ensure good nutrition for children, for women, and for men, and certain stability. So, it's a desirable outcome that depends on a multitude of factors.

Now, if we look at self-sufficiency, it's probably seen by policymakers and others as an important means to attain food security. But perhaps it is sometimes confused with an end in itself. And the policy objectives, perhaps, lose sight of the bigger picture and aim to pursue self-sufficiency, even though it's not the best policy that will lead to desirable outcomes.

For rice also, you know, we can question, and if we go back to the beginning of our discussion, to what extent it is a good use of public resources to put so much of them into rice production. And if this rice production is not well channeled to the markets or is risky, because of the agro-climatic conditions in some countries, it can actually be a factor of risk, you know, if we cannot rely on the international market as a result.

So, we should not confuse means and ends. But I will say that the question is actually more complicated than that because agriculture and the food sector play an important role in economic and rural development. Policymakers also look at these objectives, ensuring that out of agricultural production, rural households can generate some income can lift themselves out of poverty, and then perhaps some of them will move to urban areas, etc.

And agriculture is also a sector that plays an important role in the management of natural resources. In taking care of sparsely populated areas, generating economic activities in relation to non-agricultural activities that maintain life and cohesion in rural territories.

So, I think we also have to look at this role, and perhaps behind this objective of self-sufficiency, even though perhaps not everything is well thought through, there's also this intent. Now, I think there's perhaps another motivation that we should mention is that agricultural policies aiming at self-sufficiency is also a way for policymakers to gain the support of rural populations - by way of providing subsidies, resources that will improve their popularity for the next election.

I think we can say that because it is, you know, it's part of the political game. And it is seen everywhere, I think, not just in developing countries, but also in advanced economies. So, but in the end, I think what's important, especially with all this matter of rice, is to look at the broader agricultural and food systems.

And rice self-sufficiency at the national level, you know, if you want my own opinion, based also on my work, it's probably something to be careful with. It might not be the right policy for every country. But I will emphasize the opportunities in the sense that there are other sectors where it's important to invest, you know, where the potential for generating income and job is more important.

At the same time, ensuring a good supply of locally produced rice, which can be of better quality than the imported rice, it's important, but it can be done in cooperation with other countries with a greater role for intraregional or even intra African trade.

At an even higher level, I think it's important while promoting the production of African rice, where it makes economic sense, you know... it's important also to secure access to the international market. Because we don't know what can happen, especially in the context of climate change, a drought, a shortage of water can decimate the rice production in a certain year, in a certain country.

And that country in these circumstances will probably have to rely on the international market to secure the food needs of its population. So, I think we have to keep in mind the multiple factors that contribute to the desired outcome of food security, and also rural development and find the right balance between the different policy objectives.

And that's where I think the importance of regional cooperation, but even more so of, you know, inclusive policy dialogue that takes into account different perspectives is critical to achieving this right balance or, at least, a good enough balance between different policy objectives.

Tobi;

Thank you so much for clarifying that. Bonus question, if I may. We have a bit of a tradition on the show. We call it the one idea. So, what is the one idea that...it may be from your work, it may be from another field which you admire, what's the one idea that excites you so much, you want everybody to know about it, you'd like to see it spread, you'd like to see more people think about it. What is that one idea?

Fabien;

It's a difficult question Tobi, but I think I like this question. I think if I look forward, I think the role of young farmers and entrepreneurs is very important to solve the questions that we are discussing now. Because these entrepreneurs, farmers, you know, represent the future of agriculture. And I think I very much like how you aim also to target them through this podcast, amongst others. And I think that

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you know, we, in general, you know, as policymakers, policy commentators, development partners, have to invest more in the potential of these young people to develop new ideas, new technologies, also new trade linkages to exploit the potential of these agri-food systems.

Tobi;

Thank you. Thank you so much. My guest today has been Fabien Tondel, the policy officer at the European Centre for Development and Policy Management. It's been an absolute pleasure speaking with you.

Fabien;

Thank you, Tobi. It was my pleasure as well.

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Human cooperation has been one of the most common human experiences, yet one of the most contentiously debated. For some, human cooperation is a unique moral achievement given our multitude of interests and differences. Others proclaim that we are ‘‘selfish’’ individual utility-maximizers - and cooperation is only achieved via separate institutional arrangements. Researchers on human behaviour and biology are also divided on whether our instincts for cooperative behaviour originated from individuals or groups. Hence, it was refreshing to read an account of human cooperation that does not pretend to settle these debates but transcends them by placing cooperation in the mix of other natural human instincts. In her book, The Social Instinct, Nichola Raihani - a professor of Evolution and Behaviour at University College London - traces the trajectory of cooperation from the microcosm of cellular organization to the complexity of human societies. In this conversation, I explored most parts of her book, and what motivated her to write it now.

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Welcome to another season of your favourite podcast! We are starting off the season by exploring the many explanations of The Industrial Revolution with economic historian and writer Davis Kedrosky. You can learn more about Davis' work from his excellent newsletter here. You can also listen to this podcast through all the other options here. The transcript of the conversation is below.

TRANSCRIPT

Tobi;

So briefly, what is the Industrial Revolution? And what is its significance? I mean, we've all seen the charts, you see these different trend lines charting world living standards from the Middle Ages, and then somewhere in the middle 18th century, there's this huge jump, you know, that is generally termed as around the time the Industrial Revolution started. So what's the Industrial Revolution, basically? And why is it significant?

Davis;

Right. So I guess what you've asked here is two impossibly three questions. So what is the Industrial Revolution? The Industrial Revolution is actually multiple events, which is the bad historian answer. But essentially, you first have the British Industrial Revolution. This is a period that starts around 1760 and continues for about a century until 1860. That's sort of the standard periodization and basically consists of the structural transformation of one economy, the British economy, from a largely agrarian country to one based on manufacturing, especially in a couple of key sectors, those being textiles, iron, and various types of steam goods.

So this event is transformative in a number of ways. It's not transformative, in that it brings about a titanic increase in living standards. Because really, for most of the period, living standards in Britain do not rise. It's significant because it is really the first true stirring of economic dynamism anywhere in the world, with the possible exception of the Netherlands in the 17th century. But in this case, in Britain, the industrial revolution is truly sustained.

And that brings us to the second part of the question, what is the Industrial Revolution? Because there's first the British Industrial Revolution, and then a European and then a Global Industrial Revolution. By the middle of the 19th century, the technologies that sustain the British Industrial Revolution are spreading to the European continent, and Britain's rivals - France, Germany, parts of Eastern Europe, and Northern Europe and southern Europe - are all starting to take part.

And this becomes a continental phenomenon. And this is occurring toward the middle and the latter half of the 19th century, eventually spreading to North America, and is based on new technologies. Primarily based on the application of science to the growth process. And this growth, unlike, perhaps the British industrial revolution, and certainly unlike any growth episode in world history was sustained. Because we are where we are today.

It was the beginning of modern economic growth. And so that actually gets into why this episode is significant because it is the spontaneous transformation of a largely stagnant, slow-growing economy, perhaps less so in Britain, but certainly the case in Europe and the rest of the world until something that increasingly approach the relatively rapid pace that we're seeing today, and learn to apply technological advances in a consistent fashion to the improvement of human welfare.

Tobi;

I'm curious, yeah, like you said, the data is usually put somewhere around 1760, to about 1860, for the first Industrial Revolution. Why did it happen when it did? Because usually, you get two sides of this story, where some scholars will argue it was a really long, slow buildup; while you get the impression from some other scholars that was a sudden discontinuity from a previous, longer trend. So why that period in time, what was different?

Davis;

If I said that I believe that the Industrial Revolution was a discontinuity from a long trend, I would have historians barking at my door for the next year, and I, you know, might not ever have a career in this discipline. But what I will say is that there are a number of theories about why the industrial revolution happened and how it happens. And this paints me as a historian, but I think it's sort of irresponsible to settle on one. So I borrow from all of them. But I'll just, you know, for the benefit of the listener, I will lay out as many as I can, that I think are relevant.

So I guess in the classic phase of the debate, starting in the 19th century when people realize starting with people like Karl Marx... realized that the changes that had been occurring over the previous century in the economy of Britain had been of truly historic magnitude.

Two competing theories for why the industrial revolution happens: and I'm borrowing from Deirdre McCloskey here - the conservative approach, which is to say, basically capitalists saved, they were frugal, they built up a larger capital stock, and eventually learned to make whatever gains and growth that they were achieving self-perpetuating. And of course, more capital per person means more productivity, more productivity means greater income per head. So that's the conservative interpretation.

The Socialist interpretation is that of Marx, which is that the industrial revolution is based on expropriation, that a process of force was involved in first, the primitive accumulation of capital by capitalists and by capitalist farmers; in dispossessing the peasantry from the countryside and driving them into the factories where they could serve as low wage labour. This increase the profits of the capitalists, and in turn created the self-perpetuating growth process that we are observing continuing today.

Both of those continue to be influential, and certainly, their strains have been incorporated into the modern economic history discourse. But so far as we're concerned in talking about economic history, I think that there are really three main theories. And so one of them is definitely the slow growth over time take. And that's the unified growth theory of people like Oded Galor and David Weil, and they essentially argue that an evolutionary process occurs over time whereby a combination of selection and population growth leads to the accumulation of technologies, increase in the rate of innovation.

And then this innovation in turn leads to economic growth. And that is also abetted by fertility transition, such that population growth is no longer correlated with economic growth. And that leads to a growth in income per head. Then we have... I think it's about the same year - the end of the first decade of this millennium, we had two theories that have really transformed economic history come out that really set the terms for the causes of the Industrial Revolution debate.

The one that's been, I think, most influential among economists is that of Bob Allen. And in his book, The British Industrial Revolution and Global Perspective, he argues that Britain had a unique combination of factor prices - that wages were extremely high in Britain, and capital and energy were extremely cheap.

And so what this led producers to do was to substitute labour for capital and also make innovations that would have this labour-saving effect by using lots of capital and energy. The prime example is the steam engine, which used cheap British coal to perform the work that would otherwise have been performed by muscle power. And so the continual creation of these labour-saving inventions is sort of the basis for the Industrial Revolution and increases worker productivity.

This is the Allen theory. The Allen theory has received some very strong critiques. People like Jane Humphries and Judy Stevenson have really attacked the empirical basis of Allen's work. They've suggested that wages in Britain were not nearly as high as Allen had computed and that his series made some improper assumptions that led it to be inflated and this really changed the sorts of profits to technological innovation that Allen had to suppose would be driving this process.

And so that's where the Allen theory stands today. It's sort of the cleanest mechanism for describing the industrial revolution in an economic sense, but it faces some factual challenges. The other one that occurred about the same time is that of Joel Mokyr. He wrote a book called The Enlightened Economy, I believe in 2009, in which he argued that it was rather ideas rather than economic incentives that led to the transformation of Britain.

That it was industrial enlightenment that occurred, and a culture of improvement that swept Britain and led many people of the intellectual class of the country to start taking an interest in practical matters, devising innovations that would improve society, that would make doing practical tasks easier, and then crucially, sharing them with the people around them in a sort of Republic of Letters - in which intellectuals across England and across the continent all communicated to iterate upon each other's technical ideas.

And this, in turn, provided the creative spark for modern economic growth and crucially incorporates the sort of scientific aspects that is the foundation of the second or European Industrial Revolution. These are the two main competing theories and people like Nicholas Crafts have attempted to synthesize them into a single argument suggesting that, you know, one explains the demand and one explains the supply of inventions. But others hold that they're incompatible. But you can kind of pick and choose your favourite aspects as Crafts did.

Tobi;

Yeah, I mean, I get that. But from a global perspective, you're looking at other parts of the world like India, Africa. There are other - I'd say, maybe within the economic history profession - not so popular, but quite popular with the lay public. For example, the institutionalist view of Acemoglu and Robinson who claim in their book and also in some of their papers that the Glorious Revolution laid the foundation for the Industrial Revolution. That's one, I'll like you to address some critiques of that. And secondly, what's the difference between Galor's Unified Growth Theory and sort of the Neo Malthusian story that people like Gregory Clark are constructing?

Davis;

Okay, I'll start with the Acemoglu and Robinson theory about the Glorious Revolution. So [what] they essentially argue is that the Glorious Revolution is a watershed event that turns England into a participatory democracy, in which people are free to possess, transfer and use private property without fear of expropriation from the supposedly tyrannical monarchy that existed beforehand.

And in the institutionalist view, the security of property rights and participatory democracy are both crucial for economic growth because they allow people to transfer assets to their most productive uses. And these sort of efficiency gains also lead to investment and modern economic growth is supposed to follow from that.

Yeah, so Acemoglu and Robinson are sorts of making a distinction between inclusive and extractive institutions. Extractive institutions are supposed to be the sort of, European and broadly global pattern whereby elites have no incentive to promote economic growth and do not allow participation by the common citizen in the political discourse. Whereas inclusive institutions are very much the exception but are established in Britain in the sense that I've previously described, in both the economic and political spheres.

They allege that, and I quote, "the industrial revolution started and made its biggest strides in England because of her uniquely inclusive economic institutions. These, in turn, were built on the foundations laid by the inclusive political institutions brought about by the Glorious Revolution, and that they gave man of talent and vision such as James Watt, the opportunity and incentive to develop their skills and ideas and influence the system in ways that benefited them and the nation".

So yeah, that's the Acemoglu and Robinson view. Um... I'm not so fond of this one.

Tobi;

Why?

Davis;

I have to be careful because there are many people who see a sort of, attack on Acemoglu and Robinson, or even a critique of Acemoglu and Robinson as a critique of institutionalism itself, and I am by no means an anti institutionalist. Because I mean, it's painfully obvious that institutions are extremely important in explaining differential development.

But some empirical flaws with the Acemoglu and Robinson contention, especially in its "Why Nations Fail" iteration is that the Glorious Revolution really didn't actually bring about the sort of sweeping political changes that they suppose occurred. British Parliament was still corrupt, the electorate was tiny and dominated by landed elites rather than merchants. Certainly, industrialists come [in the] early part of the 18th century. So those sorts of sweeping changes couldn't really have had a very big influence on the beginning of Britain's economic transformation.

Second of all, Parliaments just do not guarantee economic growth anyway, there are plenty of examples of Parliaments filled with wealth holders and merchants who use their political powers in order to just extract rents from the economy at large. So this happens in places like Poland, for example, where parliament is so strong that the ruler cannot issue any legislation without its consent. But that power is then used by the Polish parliament to support the feudal rights of landowners over their serfs and that leads to agricultural stagnation rather than economic growth.

So parliament is not necessarily the keystone of economic transformation. Finally, private property in England was already quite secure by the time of the Glorious Revolution. And that event did not bring about any kind of radical transformation in the way that property was treated in England. The Bill of Rights that was passed in 1689 did not impose any limits on Parliament's ability to confiscate property.

So you basically see the replacement of the monarch's despotic power over property such as it existed, which was in curtailed form by Parliament. So it's not clear to me that you can attach an economic discontinuity to a political discontinuity in this way. I mean, indeed, in the century following the Glorious Revolution, there really isn't an economic discontinuity.

There is perhaps an acceleration in the rate at which the British population is moving out of agriculture, but that had been occurring for over a century in Britain. Those are some of the main difficulties with the Acemoglu and Robinson theory. Then I believe you asked about...um...

Tobi;

Yeah, Greg Clark and...

Davis;

Right. So this is not an area that I've really worked with very much. And by the way, there are a number of iterations on the Unified Growth Theory. But as best as I understand it, unified growth theory is concerned with the sort of, the transition between a Malthusian regime and a post-Malthusian regime through the lens of the demographic transition and the returns to innovation.

And in their model, population growth tends to increase the rate of technological progress, and technological progress, in turn, increases the returns to investing in human capital. And there's sort of a positive feedback loop between investment in human capital and the rate of technological growth, which has the additional effect of decreasing fertility and a sort of quality versus quantity trade-off.

Clark's hypothesis is a little bit different. So Clarke, as I recall, argues most famously in the Farewell to Arms, sorry, A Farewell to Alms. (That is quite a slip there). His argument there is that, basically, the differential reproductive rates of the wealthy lead people of their habits and mindset to become the dominant subset of the population in certain advanced regions, and their behaviour - the behaviour that made them wealthy - is sort of the basis for growth-inducing economic interaction. Those are the main differences.

I guess they don't interact with one another that directly, in my point of view.

Tobi;

So I mean, as long as we are interrogating several theories of the causes of the Industrial Revolution, I read McCloskey's trilogy, right? And I mean, she spent a lot of time criticizing all these other theories about the causes of the Great Enrichment, as she called it. And at the end of the day, she basically, well, I'm not an expert, but in my opinion, she resorted to a bit of a sleight of hand as well, which is to say that well, the cause of this Great Enrichment is liberalism. The spread of freedom, and basically attributed that to luck. Do you buy that? And how does that differ from say, Acemoglu and Robinson, you know... Feels a bit arbitrary.

Davis;

As I understand it, liberalism is only a part of the McCloskey hypothesis. There's also an aspect to which it has to do with the spread of the bourgeois virtues among the people of Britain and an economic mentality that had not previously existed, and that these sorts of behaviours are the key to an efficiently transacting and innovating culture.

Yeah, so there's not just liberalism uber alles. But as far as liberalism is concerned, it's clearly not a sufficient condition for economic growth, it has to be combined to be even beneficial with certain kinds of state capacity such as the provision of some kinds of basic essential services, especially infrastructure, and the provision of social overhead capital in order for the benefits of industrialization not to be winnowed away.

I mean, a good example is Britain, in fact, where certain kinds of laissez-faire behaviour by the state are actually detrimental to the British economy. British cities grow much too fast for their infrastructure, and in many ways, they really are the sort of hives of scum, filth, and overcrowding they're drawn up as in your standard Charles Dickens novel.

And part of the reason for that is because much of the investment in public infrastructure was shunted away from the state and toward private individuals and this process did not occur as seamlessly as it might have. And so, you know, there's poor sanitation, improper access to good drinking water, inadequate housing stocks, and all these social bads, actually, probably, reduced the rate of economic growth.

So if liberalism is to be helpful, it has to be an appendage of a larger growth process. And I really do not think it's either sufficient or necessary for industrialization. You can look straight to one of the foremost industrializing countries of the last four decades in China, where industrialization has occurred apace in, really, the absence of political liberalism.

And you can make arguments about whether that growth will be sustained. But there is certainly dynamism and there is certainly an improvement in per capita living standards and convergence with the West. You can even make the argument for Soviet Russia and its early years as Bob Allen has - that from about the late 1920s until 1970, Soviet Russia under a planning regime grew quickly enough to have some measure of convergence with the West, and certainly an increase in living standards.

Tobi;

Two final questions before I let you go. One of which would be, as you mentioned in the introduction, after the 1760 or thereabout event, a lot of economies in Europe, France, and of course, Germany, caught up with the British economy and, of course, by the end of the Second World War, America had become the preeminent global economic power. Why did the British economy decline?

Davis;

That's a question that some economic historians don't accept at all, and that I'm hoping to explore in the relatively near future. But the old Edwardian argument that Britain has just matured, and that it's had its spell as the leading industrial nation, but there are inevitable limits to growth, and that they've reached the limit of their possibilities and handed over the torch to the United States and to Britain's European rivals.

You know, the answer here is obviously a little bit more complicated. But one of the standard responses is to say, well, the kind of growth that Britain experienced from 1760 to 1860, was of a fundamentally different character than that that made the United States and Western Central Europe successful during the 19th century.

And that's basically down to this distinction between tinkering and engineering-based innovation that is responsible for the creation of many of the main inventions of the British Industrial Revolution and the application of science to technology, drives innovation during the Second Industrial Revolution. So in the first industrial revolution, you see, particularly in the textile sector, a range of innovations arising from learning by doing, from people within the industry solving problems that occur to them in the production process and making incremental improvements, really, without the aid of any kind of formal knowledge.

Not all of these improvements are incremental, like inventions like the flying shuttle, the water frame, the spinning jenny, all these things bring about colossal improvements in productivity, and they make Britain by 1850 the world's leading textile exporter, but none of them required deep formal knowledge of how to construct machinery of the physics of the engineering process.

Whereas by the end of the 19th century, some of the leading sectors like steel, electricity, the construction of automobiles, chemicals, all of these industries require significant scientific knowledge in order to advance to an appreciable degree. So there's the argument that Britain's success in tinkering-based innovation-led it to undervalue the importance of investment in human capital, specifically through an education system.

And consequently, there was sort of an inadequate generation of young scientists and professional engineers coming through the ranks just at the time when they were most needed in transitioning the British economy toward the modern industries that we're taking hold in Germany and the United States.

That's probably true to an extent. But there's also a degree to which Britain is simply following its comparative advantage in other kinds of industries in the face of the industrialization of the United States and the Central European powers.

Britain is always going to have an advantage in the provision of financial services and shipping, and that is really one of the directions that the British economy takes in the years before World War One. And so the economic historian Simon Carly has argued that this isn't senescence, this is not the ageing and stagnation of the British economy, but really a movement in a new direction to conform with her resource possibilities and comparative advantages.

Obviously, the United States is always going to have a much larger advantage in heavy resource-based industrialization, because of the massive reserves of ores, minerals, timber at its disposal.

Tobi;

Final question before I let you go, if we look at contemporary economic growth and policies, especially in countries that are still behind income-wise, what can we learn from the Industrial Revolution? Because a lot of people project different things depending on the causal story that they buy, or that they want to believe.

Advocates of industrialization and the East Asian style of industrial policy take different lessons, people who favour the Institutionalists also use that to give their own sort of policy advice. People who favour liberalism will say, well, it's about political freedom. So what are we supposed to learn from the Industrial Revolution, so to speak, does that particular period of history have anything to teach us at all?

Davis;

You and every sort of public, economic intellectual in every country that has tried to develop ever since the Industrial Revolution wonders the same thing. And the thing that's really interesting and unique about the British Industrial Revolution is not just that it's the first of its kind, but that it's the only Industrial Revolution that occurs without a model.

Because every other industrialization process in history looked back on the British experience, and said, you know, we should imitate this aspect and that aspect. And that where Britain has been successful, we should expect to be successful too. They've taken Britain's successes and applied them to their own, to some extent. The British Industrial Revolution is unique because there is no precedent, there is no model for what occurred.

It really did happen spontaneously, because even though there may have been some elements in the British government that wanted to promote economic growth, that's the famous mercantilism of the 17th and 18th centuries and really, one of the reasons why Adam Smith writes his great book, The Wealth of Nations in 1776, is because these are all people interested in making the country wealthier. But they had no idea that industrialization was sort of what could or would follow.

And so, in terms of the lessons that we can draw from this, they are to some extent limited. We know that because of the degree to which all of these countries that have attempted to follow the British model have either successfully or unsuccessfully failed to do so.

The United States, for example, was moderately successful at industrializing, say, in New England, along British lines, but immensely successful in going its own way in a variety of Heavy Industries toward the end of the 19th century. Partly because of the simple scale, but also because of the human capital and skill advantages that we've been talking about.

You know, it's quite reasonable to argue that many of the East Asian countries would have struggled to industrialize in the spontaneous fashion that Britain did because they were situated in a position in the global economy in which they did not have a comparative advantage in the industries that would end up transforming them until they employed industrial policy in order to break free and to get out of low level local agrarian traps.

And I know that people will shout at me and say that Meiji Japan was already growing prior to the world wars. But I don't think it was necessarily true that Meiji Japan was set to grow in the spectacular fashion that Japan did after 1945. But all this is debatable. But what is certainly true from the British example, is that it demonstrates, in some respects, the extent to which a different combination of political liberalism and state capacity can make a difference in producing some economic separation.

So if you have the right political economy, by comparison with your neighbours, you can have a bit of a growth advantage. This is not to say that if you have had Britain's political economy from the 18th century, you would somehow grow faster today. Rather, if you had Britain's advantage in political economy, you might have.

But in my opinion, and this is not to sound too down, the genesis of the Industrial Revolution is primarily in the long process of the transformation of productive forces from the 16th century onward. And no hand was taken really by any institution in shaping them. And that spontaneity, and that mystery really, is what makes the Industrial Revolution so interesting. And so also just why it has been so difficult to copy. And why nations that have intentionally industrialized have needed to find their own recipes for doing so.

Tobi;

Finally, what are you working on right now? And why are you excited about it?

Davis;

Yeah, so I'm planning on obviously continuing with my Substack and blog, I never really know what to call it. I don't know if it's a newsletter or a blog, or what? I guess it just depends on...

Tobi;

I think it's both.

Davis;

Yeah, I guess it depends on how you access it. But yeah, I've got a couple of projects in various stages of production. I have an economic history paper that is presumably being refereed at the moment, so we'll see how that's received and whether major transformations will be needed to bring that toward publication.

And then I also am in some of the very early stages of what could be an exciting project in Canadian economic history. But I don't want to reveal too much about that at the present. I'm not exactly like throwing spaghetti at the wall and hoping that it sticks because I have way too much time in order to, sort of, incentivise desperation like that.

But I do think it's, at this point, beneficial to engage in a diverse array of possibilities for work that I can consider doing.

Tobi;

It's been great talking to you, Davis, and I wish you all the best.

Davis;

Yeah, thanks. Fun conversation.

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Supply chains have been in the news a lot lately - because there have been shortages of many important things like food, semiconductor microchips, heating and cooking gas, and even shipping containers. Prices of many commodities have gone through the roof because of these shortages, and policymakers globally are scrambling to find a solution especially with the holiday season coming around. I tried to unpack some of the issues with Decision Scientist Oliver Beige. We also revisit some of the themes from our last conversation (note that this was recorded before the new Omicron variant!). It is always informative to talk to Oliver, and many thanks to him for his time. The transcript for the conversation is available below for everyone.

TRANSCRIPT

Tobi;

My guest, who is making his second appearance on the show, is Oliver Beige. He is a decision scientist and, welcome back to the show.

Oliver;

[A] pleasure to be on your podcast.

Tobi;

Yeah. So, the last time we talk pretty much about the pandemic. Mostly about some of the predictions that experts were making about the patterns of infection, and fatality, and so many of the public health implications of that.

But one thing we are now seeing, that as is quite becoming so clear, is some of the other I should say secondary "effects" of some of the measures that were taken because of the pandemic policy-wise.

One metaphor you use which I like so much - it pumps my intuition in all the right ways - is like the lockdown is like telling half of the cars on the route to stop instantly and the other half to just speed right ahead.

You know, and there is a global shortage of so many things. Supply chain is so much in the news now, from shipping costs going up about over 400%, food inflation is high. It's crazy in Nigeria, India is experiencing hunger, poverty has definitely worsened for a lot of vulnerable demography. There is also the issue of joblessness, businesses have gone under.

Again, I'll ask you and this may seem like picking up from the theme of where we stopped the last time. Could some of these problems we are now seeing, which we are going to delve into, could it have been prevented?

Oliver;

Clearly, like most of the policy has been over the last year and a half were not taking this into account. And the analogy you're saying about half of the cars on the highway, like being forced to stop and the other half being forced to speed up - the situation in 2020 was basically a lot of people were calling for a complete shutdown of the global economy until we're done with fighting this virus.

I remember like the prominent German economist, I think, probably two [to] three weeks into the lockdown was making fun of the German government's decision to bring in asparagus harvesters - so [who] usually [do] not come from Germany, they usually come from Czech [Republic] or Poland.

This particular economist [was like] whatever, asparagus is not important enough, we cannot let people in that might bring in the virus or something like that. Of course, very, very, very quickly, we had massive problems on both food production and, of course, we had food shortages very, very quickly.

So we basically had harvests dying on the field, and shortages within the supply chain in between the production and the consumption of things. We have, like, abattoirs and [...], [...], and so on.

So we are very much into a severe food crisis very quickly, and always a predictable food crisis very, very quickly. And so then we had fairly massive measures taken in order to alleviate that [by] giving people money, at least, in the Western world here.

That seemed to have stopped it. And suddenly people had got the feeling really [that] the economy is working again, and we can still buy our car and we can still consume, and people had money to spend and use the money to buy products because there was not a lot of other things they could spend it on. The movie theatres were closed.

So this is the situation. It looked like we're good for a while. Seemed like we had resolved this quickly emerging problem of a stopped economy. And of course, that's not how it works. And we've seen increasing numbers of reports of an economy that is not working anymore, because of the basic things we take for granted like, basically, shipping containers.

The basic things are not where they should be. We not only have severe shortages, we also have the situation where we're piling up empty shipping containers in certain ports, and they cannot be moved anywhere else because we don't have the shipping capacity.

And the current situation that things are not what they should be. Things we take for granted are in short supply which has all kinds of effects on other things. So, basically, we're having a global supply chain that is locking down just in time for Christmas and next year, you know, Chinese new year, sort of the highest capacity, highest load times.

Always the situation in supply chain is that it affects the most vulnerable parts of the supply chain the most. And that is usually the ports part, right? So the ones that don't have the alternatives… if you are a rich participant in a supply chain, if you are a big carmaker [or] something like that [and] you cannot get shipping capacities, you're currently moving your raw materials by airplane. It's more expensive, far more expensive, of course, but you need to stop to build your cars.

The worst thing you can have is... no, the second-worst thing you can have is an almost finished product, 99% of [a] finished product that sits on your parking lot and it's still missing one part. And this one part is like three months away from being delivered.

Companies that are rich enough [and] that can afford it are using any means possible to get these missing pieces. But what we're also seeing now, you have in automotive (it's not only in automotive, it's general but automotive fits very much) is missing microchips.

Microchip supply chain topic is the production topic. We don't have enough production capacity to fulfil demand. But of course, now that we see car manufacturers closing down plants - they used to close down for (a) week[s], now they're closing down for months.

Now you have a whole dependent supply chain that feeds into these plants that had nothing to do with microchips. They're doing whatever... glove compartments, plastic, glass, paint, everything else; they're not being used because [this] particular facility is not producing anymore [and] now they're being affected by this.

And this is the situation we have right now and this is something I've been predicting for a long time, basically, since last February [which] is that we're running into a situation where basically the whole thing goes out of control.

And the one thing I just posted like last week, I think, is Northern Europe, especially the UK is experiencing a gas shortage, which affects flower production. Flowers are usually grown in greenhouses in Europe, and Ireland and UK, apparently.

But they're closing down, which opens an opportunity for Kenya, which is also a flower producer to have less competitors (who are now in the situation to put fewer flowers on the market, of course), but they can't because they don't have the shipping containers they need to bring flowers to Europe or North America.

And this is a situation where basically the whole thing freezes up. I heard for the longest time, especially coming from something like the politically relevant economists said, Okay, "markets tend to self regulate," which is true for most of the time. "All of this is basically driven by capitalism and we should see all of these problems being short term. So we should see all of this to be temporary, and then it is just going back to normal eventually."

Now they have to admit that it's probably not gonna go away anytime soon. Basically, everything I see in global shipping assumes that these problems are with us through 2022 talking 2023 already. So, yeah, this was foreseeable. And it was like a situation where people who did not want to predict this for whatever ideological reason, like, basically, ignoring the pointers we had all along.

Tobi;

That's just depressing. But a bit of a trivia, well, maybe not so trivial question. You work on supply chains, I don't want to name names of some of the firms you work for, but like right now, who are the people calling you the most demanding for your expertise and help [in] understanding or solving this problem? Where I'm going with that question is, where exactly are the bottlenecks?

Oliver;

I don't currently work on a supply chain. This is some, just basically, 25 years of expertise. I think basically, where the most interest comes from right now is actually startups.

I think, of course, from what I see, [a] lot of current procurement managers, also logistics managers, they do everything they can to handle the situation, they're not really the ones that need my expertise. They have, what, 25 years logistics[of] experience, they don't really need me.

But what I see and what I'm trying to help [with] is sort of like resolve the underlying information problem we have and this is not something we can resolve within a couple months. Basically, people who are supply chain bottleneck managers do whatever they can with the tools they have.

Really to give better tools to be better prepared for these crises is all about having the information, shifting information across five, six tiers within the supply chain for someone with at the end of a supply chain to see what's happening at the beginning in order to make better plans. Also, like, if we have a surplus of shipping containers in the Port of Auckland, New Zealand, while the rest of the world is in severe shortage, how can we resolve these problems?

Yeah, this is definitely something that has to happen that I normally don't work on, like trying to come up with quick fixes. I'm usually working with people that sort of try to resolve this in the long term.

Tobi;

So there are two explanations that I've seen in the media and which I want you to help assess. So one explanation goes like [this] "We had the lockdown. Everybody stay at home. You work from home. You order whatever it is you want at home." A lot of countries give stimulus in form of money to households, though we weren't very successful with that in Nigeria, it was a massive failure and had its own problems. But you know, so the theory goes, that demand for most items went through the roof and that is what we are seeing feeding through the supply chain now.

But another explanation goes that what we are experiencing now is the result of economies starting to open up and that is where the surge in demand is coming from and that's why companies are struggling to meet this demand, you know, but usually, I don't see anything about the massive restriction on supply that also was policy during the pandemic, because, companies that had no house delivery capacity basically shut down or went out of business. So, I mean, how do you assess some of these explanations, perhaps there are others that we've seen in the media, from The Economist to the Financial Times to so many people trying to explain this?

Oliver;

They're not mutually exclusive, the explanations. This is probably definitely a combination of all of it that's coming all at the same time.

For one, both on the supply and the demand side, we had an expectation that the economy will shut down for a long time. So people stopped whenever... ordering cars, and then like two, three weeks, months on, they realize that so okay, it's still going on, I can actually order my car. And of course, all the manufacturers have to catch up with this. This has been going on two, three months of no production had to be produced in double triple shifts afterwards.

Stimulus money, the interesting thing is not so much word [about] where the stimulus money went to but where we see it now, which is actually popping up in venture capital. Happy for all the startups that are [a] beneficiary of this money, but stimulus money should not go to venture capital. So something went wrong here.

But money, people were able to spend, which they did. And the third thing [is] we have a shift from money spent on things you can do outdoors - entertainment is an obvious one - to money being shifted on things you can do indoors, which is like stationary bicycles, bread makers, or PlayStations, all these things.

Basically physical goods that have to be shipped. And in general, we had a shift from shopping in stores to things being delivered by deliveries and this has put its strain on the whole supply chain and our supply chain is built to run at 90% capacity. And so pushing this over that limit, over a 100% limit, well there will be points where it gives out.

This is just [like] taking a leaky old pipeline system and you're putting like whatever, whether 100% of liquid you want to run through this pipeline, and [the] pipeline will burst in certain points. And that's exactly what happened. And it's usually the most vulnerable point of the pipeline system where it bursts. We're seeing that it emanates out from there.

Tobi;

One other thing (which is a point you've also made, albeit in different words), that the pandemic also, sort of, exposes is the pattern of economic specialization of the global economy. Because for one, I didn't know how Malaysia was important to the supply of hand gloves before the pandemic and so many other things like tissue paper, and so many other overlooked everyday household commodities that we found out through shortages and empty shelves, you know, [to] how important and how the supply chain is configured.

And I mean, this brings up issues around the theories of economic trade and the geopolitics of that, you know, and so many people have been - although for political reasons - talking about a reconfiguration of the supply chain. Joe Biden is talking about putting money in bringing America's supply chain closer to its borders, South Korea is spending so much money. There's so much talk of developing domestic capability. We've seen that too with the supply of vaccines, you know, so are politicians or I mean, local stakeholders just having an overreaction, or can the economics of [the] supply chain be reconfigured? Basically?

Oliver;

Yes, basically, we can think of the last 70 years as, what, the post-war economy which we had until like [the] late 80s, early 90s. If you look at the post World War, we had two very distinct periods, which was like the post-war, Cold War era, where every country had a strategic reserve on things they thought they needed in terms of a future war.

So, like, a lot of production was still in the country even if it was not economically efficient for those reasons. And then we had the end of the Cold War and economic efficiency overruled all kinds of strategic considerations. And we had the period of global sourcing, which matched the time, basically, I think, the mid-80s… sort of the time when we started having the enterprise systems that allowed us to source everything globally.

We need to take from wherever it's cheapest, or wherever we get the best quality for the least money and transportation cost, logistics, is not a concern. I wrote a thing like two years ago, as I said, we cannot simply ignore the rumblings of global supply in our considerations because, in comparison to production costs, or marketing costs, logistic costs are negligible, right?

So you can see very, very weird things that basically is being produced in say, Lebanon, and then it's being shipped to China where it's being manufactured and being brought back to Europe, because it's just cheaper.

Of course, we are in a situation where the supply chain layer, which basically nobody paid any attention to other than the operation and logistics people is the thing that's causing the problem and realizing that okay, we should probably be producing our own chips because the global chip manufacturers (microchip manufacturers) are not taking our urgent calls, they're taking others' calls.

So, they are basically sorting their customers by considerations which are not aligned with ours. I see this as a global trend going up, and probably over the next 20 years. Largely being connected to manufacturing trends like 3d printing, but also economies of scale becoming less important.

But this bringing production back home thinking is really at the root of what's happening in the United Kingdom now, because they basically decided that if they sort of disconnect themselves from the EU, they can do this by helping production back home. And that did not turn out to be correct in this case.

So this is like a major trend we're seeing overall. But this is something that will unfold over the next 20 years.

Tobi;

A bit of a side question, I'll say, on that point. I remember my operations research professor telling me in school that one of the wrong assumptions economists have is thinking that prices always clear markets. So which brings me to the question that, why does economics as opposed to other important parts on this particular issue, like operations research and the like...why does economics have so much influence on policy and the nature of public discourse?

Oliver;

The discipline is tasked with setting the ground rules for capitalism, in a way. So like, usually, if you get an operations research degree, you work for a company and you do like production or logistic stuff we're talking about and if you get an economics degree you end up in the white hallways in Washington, DC or similar.

And of course, it's always more attractive to set policy than to work in the trenches of manufacturing or logistics or the other operational stuff that is clearly not as appealing.

In the United States, we have very clearly the shift in operations research where they were, like, really world-leading to economics. I think one reason is because there's a Nobel Prize for Economics and not a Nobel prize for operations research.

Like, the operational stuff became less attractive, less interesting and sort of moved on to others. And of course, if you're very important, you always want to capture the strategic things.

So something I did not like seeing, um, I went to the United States and study operations research at a time when the United States [factories] were just shedding their manufacturing base. This was like the mid-90s. So it's a clearly recognizable decline.

Then [on] the other hand you saw economics on the ascendancy, but economists really don't know very much about production, or logistics, as we've seen. They're basically caught completely by surprise by this whole supply chain thing.

I remember having discussions "is this is a supply shock? Or is this demand shock? And I was like "it's an in-between shock, it's the stuff that happens in between supply and demand, and this is stuff, economists don't usually pay any attention to."

For me, the problem is really these very adjacent fields, right? If you're studying operations research, you're automatically studying economics along. But if you're studying economics, you're not studying operations research.

Tobi;

How is that possible?

Oliver;

Exactly. This is the problem of academic specialization [...], right? If you don't know how things are being made, and if you don't know how things are being shipped, that's a huge gap in your knowledge.

Tobi;

I think we've gotten to where I'd say [is] the most uncomfortable part of this conversation for me...

Oliver;

Okay...

Tobi;

Which is something that you and I have talked about so many times - which is, there are actual, real-life consequences or effects for some of these problems and the decisions that were made in terms of policy during the pandemic.

And I do not think it would be an exaggeration - even though that's where the world is currently fixated, but I don't think it would be an exaggeration to say that the fatality or the welfare consequences of some of the measures taken in terms of the pandemic response, lockdowns particularly, would have more cost in human lives than the pandemic itself.

I can certainly speak for Nigeria. Not as any kind of expert, but we see in the news every day [how] 2020 was a very tragic year both in terms of poverty, hunger, insecurity, that were all exacerbated by the measures during the lockdown. And I've seen so many other stories from all around the world, India, Kenya, Congo, Brazil, of the real-life consequences of lockdowns, you know, in terms of jobs, in terms of livelihoods.

Now, are we ever... this is like asking you to play a psychologist, I'm sorry I'm always asking you to put on so many hats. Are we have are going to get a reckoning from some of the experts who gave legitimacy to some of these policies that I would say were not well thought out, or maybe were developed in panic... Or, like you've also copiously documented were based on wrong models, wrong assumptions, are we ever going to get to a point where there will be a public reckoning for some of these policies?

Because what I see is a lot of these same people are sort of taking a victory lap, you know, we save the world, the curve is flattening, we are vaccines, you know, and are we ever going to discuss these other problems that we've relegated as secondary, but which may actually have more effects and even lasting consequences for people? Are we ever going to get to that point?

Oliver;

Sadly, I think, also a couple of weeks ago this career academic columnist, you had two career-defining events, and that's like 2007 and it's like 2020 and quite a remarkable majority of economists got both wrong.

Basically in 2007, they just didn't see it coming and in 2020, economics had a large part in actually triggering the event we were talking about, and none of them will lose their jobs over this. None of them will lose tenure over this.

Usually, the reckoning is generational - if incoming economists after 2007 came in to also understand and, sort of, have knowledge that is hopefully enough to avoid another 2007.

And I think emerging countries - Africa - in balance was much more negatively affected by all kinds of hapless attempts to stop the pandemic. There's also young people, basically young people [globally] got dropped off the two years of their lives, but severely restricted for something that they had really no part in.

And, of course, Africa is a very young continent too. So a lot of younger Africans were robbed of opportunities. Yes, but reckoning is generational. Young emerging generation basically realizing that they were shortchanged in this situation. So it's gonna unfold over 20 years. Yeah.

So but in the immediate, we will expect that, like they did in 2007, I remember Kirkman saying basically, "we did almost everything right, in a great financial crisis. We missed out on this big event. But afterwards, we did everything right." We'll see same things, just as normal. I predicted that the tenure system will crumble over this, but I'll wait [to see] if that happens. Yeah.

But there's definitely a problem if you have highly paid experts being so wrong on these momentous events, they should be trained to be able to predict.

Tobi;

For a layperson...Because I think there was this metaphor by the venture investor Naval. And I don't agree with him on a lot but I sort of agree with him on this one where he said, "the pandemic created a situation where epidemiologists were running the economy and economists were doing public health," you know? And I don't know if that's exactly correct but that creates this miasma of confusion for the public.

And we know with social media, there is so much talk about misinformation, disinformation campaign right now, and people just generally have a hard time telling what's what sometimes, or knowing basically sometimes what is good advice. And even for some of us who would like to be a bit more active in our local political process, we also struggle to know where to demand accountability or even common sense.

So, again, I'll ask you, like I did in the last podcast when we're talking about the infection models. Again, regarding associated policies for public health crisis, whether it is how to run the economy, how to run the transportation system, how to tell people what to do and what not to do, how should the public approach expert advice? Are there heuristics?

Oliver;

There was a lot of like reaching out from one's own expert domain into others. And then, of course, the incumbents trying to fend them off. My view of the problem is that we allowed people to get prominent positions, both academically and in the public discussions, who are very good at that and not very good at their field.

Like my field is highly mathematical, I would not be able to deal without having fairly in-depth math knowledge, but I have to understand what's happening in the ground. This is expertise, right? And we have people who are very good at math and have very little understanding of how does math translate into the real world. This is something to stop, right?

If I can contradict mathematical prediction models with 20 minutes of Excel work, then we have a problem. Because someone is living in their very very cloistered mathematical world with very little interaction with the real world they should be dealing with.

So we have to have people who are good at being actual epidemiologists and epidemiologists as modellers, you have to understand how the economy works. And not only what the academic knowledge [or] mathematical knowledge of economics portends to be. And this was the problem, we basically handed the control over to people who have extremely little exposure to how things work.

Tobi;

One last question though, one last question. And I may or may not put this in the podcast, it depends. The delta. Which I know you were tracking for the UK, and I mean, maybe possibly for other places...for a while it seemed like the delta is actually the strain that many people have predicted, you know, but you were also saying that It holds pretty much with the previous pattern.

But now, talk of the Delta has pretty much faded in the same media. What did you learn from that brief experience tracking the data?

Oliver;

We still continue to track the [...] virus more closely than we did before. I mean, it's been like testing procedures, like the amount of testing we do are still going up. In terms of predicting outbreak pattern, I was wrong...at least the ones that was like, the first time England happens up and down, we say this was over which is not over, it's like going up and down again.

It's definitely not going exponential but it didn't stop at the point with the others. Poland, Scotland, a good rate. India is not going through the roof. Yeah, I don't really see the predictive significant difference between what we're seeing with Delta and what we saw before.

What you should expect in the course of the pandemic if you think in terms of population heterogeneity, which is something we should always think about, is sort of, like, variants that emerge later are trying to capture the parts of the population that have not been affected yet. So they're basically closing the pocket.

And this is like, basically, a new vulnerable part of the population that were shielded from the variants before that's vulnerable to this particular new variant. And that goes up very quickly. It reaches this part of the population very quickly. And that's what happened with delta.

And of course, then you had the modellers who ignore population heterogeneity just extrapolating this as though it's gonna capture the whole population extremely quickly and this is definitely not.

I mean, India was the first obvious contradiction to that theory and, of course, India was ignored. And then we had the UK. The UK was like the first time where a government refused to take action. So you cannot retroactively attribute it to whatever kind of [...] action we took.

Of course, Boris Johnson said, "we're gonna open anyway." And most of the exponentialist modellers got it horribly wrong. They're still in the media, I'm still reading guarded articles about their dire predictions, it has not stopped. I think the general population is slowly catching up with the pattern.

Yeah, I expect more to come. We have a world population [and] there are still pockets that have not been affected by this. And this is like my claim from the very beginning [which] is the best strategy we can run is not hurt [halt] all interaction. We've seen that it doesn't work in Australia and New Zealand, that's another thing I predicted. At least for Australia that the virus will make a comeback in the southern winter, which it did.

But that we reduced the point of interaction to situations where we kind of have a buildup of the virus. So basically go away from close indoor events with crowded people until enough people are vaccinated.

And the big supply chain task we have, as of now, is like this massive surplus in vaccines we're building up in the developed Western world. I think we have more than 200 million charges of vaccines coming into Germany with a population of 80 million. So we should not be talking about registered Shot boosters until we get the rest of the world vaccinated.

And hopefully, we do this on a voluntary basis. Voluntary vaccination. That's the other major problem we have that we try to force the... I don't know what the number is 10% of [...] to also get vaccinated by stupid, exclusionary measures. This is not our primary concern, in a way. I think in Germany, we're good. We're just starting to realize that we are undercounting, as usual. So our much much more urgent target is to get the vaccine to people who want or need them.

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Surely the biggest development in the last year is the record speed with which vaccines were discovered for the Covid-19 virus that shut down the entire world. I spoke to medicinal chemist and science blogger Derek Lowe about the many issues surrounding drug discovery like regulatory constraints, funding, and many other issues in the industry.

Enjoy the conversation with Derek Lowe - and the transcript is available for paid subscribers.

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I spoke to Christopher Ogunmodede about some of the major themes from the events in Nigeria over the past year. We also talked about some of his more radical ideas - like the abolition of the nation-state. Talking to Chris always leaves me more informed and perceptive - and I want to thank him for being always willing to share his knowledge.

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''Rule of law'' is the generally accepted description for how well a political system conforms to formal rules - rather than functioning through the whims of the most powerful social or political agents. For a society to be described as one functioning under rule of law - there must be rules and those rules must be equally applied to everyone in the society. Let us call this Letter of the Law. These rules are usually expressed through the constitution of a country and enforced through the courts. But simply having rules and enforcing them does not suffice in the making of the rule of law - and it is an incomplete (however accurate) conception of it. Some rules can be drafted in bad faith or with the express purpose of protecting the interest of the political elites responsible for governance. This is why many scholars have argued that the rule of law can only be said to exist in a state that functions under rules designed to protect the civil liberties (individual rights, freedom of speech, freedom of association, etc.) of the people living within its territory. Let us call this the Character or Spirit of the Law.

The character of the law understood as the fulfilment of constitutionally-guaranteed civil liberties is the most common standard by which governance is judged to conform or deviate from the rule of law. For example, countries that routinely violate the rights of citizens in whatever form cannot be said to be governed by the rule of law, even if it has a written constitution. Consideration of the character of the law is the context to understanding the work of my guest on this episode, Paul Gowder.

He is a professor of law at NorthWestern university with a broad research interest and expertise. Paul departs from this common derivation of the character of the law as rooted in liberty - and argued that for the rule of law to be broadly applicable in different societies (not dependent on the political institutions and ethical ideals of any specific society) with varying cultures and traditions of governance, it must be rooted in Equality. To understand Paul's argument, I will briefly state two important aspects that set the tone for our conversation - this should not be taken as an exhaustive summary of his work and I encourage you to check out his website and book. The first is that the rule of law as a principle regulates the actions of the state (government), and it is not to be conflated with other rules that regulate the actions of citizens.

This is such an important point because one of the most egregious expressions of the law is when a government uses it to oppress citizens. Secondly, Paul outlines three components of the rule of law based on equality as 1) regularity - the government can only use coercion when it is acting in ''good faith'' and under ''reasonable interpretation'' of rules that already exist and are specific to the circumstances. 2) publicity - the law has to be accessible to everyone without barriers (''officials have a responsibility to explain their application of the law, ...failure to do so commits hubris and terror against the public"). 3) generality - the law must be equally applicable to all. Putting all these elements together gives us a rule of law regime where everyone is equal before the law, and the state does not wantonly abuse citizens or single out particular groups for systematic abuse.

I enjoyed this conversation very much, and I want to thank Paul for talking to me. Thank you guys too for always listening, and for the other ways you support this project.

TRANSCRIPT

Tobi;

I greatly enjoyed your work on the rule of law. I've read your papers, I've read your book, and I like it very much. I think it's a great public service if I can say that because for a lot of time, I am interested in economic development and that is mostly the issue that this podcast talks about. And what you see in that particular conversation is there hasn't really been that much compatibility between the question of the rule of law or the laws that should regulate the actions of the state, and its strategy for economic development.

Most of the time, you often see even some justification, I should say, to trample on rights in as much as you get development, you get high-income growth for it. And what I found in your work is, this does not have to be so. So what was your eureka moment in coming up with your concept, we are going to unpack a lot of the details very soon, but what motivated you to write this work or to embark on this project?

Paul;

Yeah, I think for me, part of the issue that really drives a lot of how I think about the rule of law and you know, reasons behind some of this work is really a difference between the way that those of us who think about human freedom and human equality, right? I think of it as philosophers, right. So they're philosophers and philosophers think about the ability of people to live autonomous lives, to sort of stand tall against their government, to live lives of respect, and freedom and equality.

And that's one conversation. And so we see people, like, you know, Ronald Dworkin, thinking about what the rule of law can deliver to human beings in that sense. And then, you know, there's this entire development community, you know, the World Bank, lots of the US foreign policy, all of the rest of those groups of people and groups of ideas, talk about the rule of law a lot and work to measure the rule of law and invest immense amounts of money in promoting what they call the rule of law across the world.

But mostly, it seems to be protecting property rights for multinational investment. And I mean, that makes some kind of sense, if you think that what the rule of law is for is economic development, is increasing the GDP of a country and integrating it into favourable international networks of trade. But if you think that it's about human flourishing, then you get a completely different idea of what the rule of law can be, and should be.

And so this sort of really striking disjuncture between the two conversations has driven a lot of my work, especially recently, and especially reflecting even on the United States, I think that we can see how domestic rule of law struggles - which we absolutely have, I mean, look at the Trump administration, frankly, as revolving around this conflict between focusing on economics and focusing on human rights and human wellbeing.

Tobi;

It's interesting the polarization you're talking about. And one way that I also see it play out is [that] analyst or other stakeholders who participate in the process of nation-building in Africa, in Nigeria… a lot of us that care about development and would like to see our countries grow and develop and become rich, are often at opposite ends with other people in the civil society who are advocating for human rights, who are advocating for gender equality, who are advocating for so many other social justice issues.

And it always seems like there's no meeting ground, you know, between those set of views, and I believe it does not have to be so. So one thing I'm going to draw you into quite early is one of the distinctions you made in so many of your papers and even your book is the difference between the conception of the rule of law that you are proposing versus the generally accepted notion of the rule of law based on individual liberty in the classical liberal tradition.

I also think that's part of the problem, because talking about individual liberty comes with this heavy ideological connotation, and giving so many things that have happened in Africa with colonialism and so many other things, nobody wants any of that, you know. So you are proposing a conception of the rule of law that is based on equality.

Tell me, how does that contrast with this popularly accepted notion of the rule of law [which is] based on individual liberty?

Paul;

So I think the way to think about it is to start with the notion of the long term stability of a rule of law system. And so here is one thing that I propose as a fact about legal orders. Ultimately, any kind of stable legal order that can control the powerful, that is, that can say to a top-level political leader, or a powerful multinational corporation, or whomever, no, you can't do this, this violates the law and make that statement stick depends on widespread collective mobilization, if only as a threat, right.

And so it's kind of an analytic proposition about the nature of power, right? If you've got a top-level political leader who's in command of an army, and they want to do something illegal, it's going to require very broad-based opposition, and hence very broad-based commitment to the idea of leaders that follow the law in order to prevent the person in charge of an army from just casually violating it whenever they want.

Okay, accept that as true, what follows from that? Well, what follows from that is that the legal system has to actually be compatible with the basic interests of all. And what that tends to mean and I think this is true, both historically, and theoretically, is leaving aside the philosophical conceptual difference between liberty and equality, which I'm not sure is really all that important. Like I think, ultimately, liberty and equality as moral ideas tend to blur together when you really unpack them.

But practically speaking, any stable legal order that can control the powerful has to be compatible with the interests of a broad-based group of the human beings who participate in that legal order. And what that entails is favouring a way of thinking about the rule of law that focuses on being able to recruit the interests of even the worst off.

In other words, one that's focused on equality, one that's focused on protecting the interests of the less powerful rather than a laissez-faire libertarian conception of the rule of law that tends to be historically speaking, compatible with substantial amounts of economic inequality, hyper-focus on ideas - like property rights, that support the long-standing interests of those who happen to be at the top of the economy, often against the interests of those that happened to be at the bottom of the economy, right. That's simply not a legal order that is sustainable in the long run.

Lately, I've been thinking a lot about the way that this has played out in [the] United States history, in particular. I might have a book that's coming out in December that focuses on a historical account of the development of the rule of law, particularly in the United States. I mean, it's my own country. And so at some point, I had to get talked into writing that book.

And we can see that in our history right at the get-go, you know, in the United States, at the very beginning, the rule of law dialogue tended to be focused on protecting the interests of wealthy elite property holders. And this actually played a major part, for example, in the United States' most grievous struggle, namely the struggle over slavery, because slaveholders really relied on this conception of the Rule of Law focusing on individual freedom and property rights to insist on a right to keep holding slaves against the more egalitarian idea that “hey, wait a minute, the enslaved have a right to be participants in the legal system as well.”

And so we can see these two different conceptions of legality breaking the United States and breaking the idea of legal order in the United States right at the get-go. And we see this in country after country after country. You know, another example is Pinochet's Chile, which was the victim of [the] United States' economics focused rule of law promotion efforts that favoured the interests of property holders under this libertarian conception over the interests of ordinary citizens, democracy and mass interests. In other words, over the egalitarian conception, and again, you know, devolved into authoritarianism and chaos.

Tobi;

Yeah, nice bit of history there, but dialling all the way, if you'll indulge me... dialling all the way to the present, or maybe the recent past, of course; where I see another relevance and tension is development, and its geopolitical significance and the modernization projects that a lot of developed countries have done in so many poor and violent nations, you know, around the world.

I mean, at the time when Africa decolonized, you know, a lot of the countries gravitated towards the communist bloc, socialism [and] that process was shunted, failed, you know, there was a wave of military coups all over the continent, and it was a really dark period.

But what you see is that a lot of these countries, Nigeria, for example, democratized in 1999, a lot of other countries either before then or after followed suit. And what you see is, almost all of them go for American-style federal system, and American-style constitutional democracy, you know. And how that tradition evolved... I mean, there's a lot you can explain and unpack here... how that tradition evolved, we are told is the law has a responsibility to treat people as individuals.

But you also find that these are societies where group identities are very, very strong, you know, and what you get are constitutions that are weakly enforced, impractical, and a society that is perpetually in struggle. I mean, you have a constitution, you have rules, and you have a government that openly disregards them, because the constitutional tradition is so divorced from how a lot of our societies evolve.

And what I see you doing in your work is that if we divorce the rule of law from the ideal society, you know [like] some societies that we look up to, then we can come up with a set of practical propositions that the rule of law should fulfil, so walk me through how you resolve these tensions and your propositions?

Paul;

Well, so it's exactly what you just said, right? I mean, we have to focus on actual existing societies and the actual way that people organize their lives, right. And so here's the issue is, just like I said a minute ago, the rule of law fundamentally depends on people. And when I say people, I don't just mean elites. I don't just mean the wealthy, I don't just mean the people in charge of armies, and the people in charge of courthouses, right?

Like the rule of law depends, number one, on people acting collectively to hold the powerful to the law. And number two, on people using the institutions that we say are associated with the rule of law. And so just as you describe, one sort of really common failure condition for international rule of law development efforts - and I don't think that this is a matter of sort of recipient countries admiring countries like the US, I think this is a matter of international organizations and countries like the US having in their heads a model of what the law looks like and sort of pressing it on recipient countries.

But you know, when you build institutions that don't really resemble how the people in a country actually organize their social, political and legal lives, you shouldn't be surprised when nobody uses them. You shouldn't be surprised when they're ineffective.

But I mean, I think that it's been fairly compared to a kind of second-generation colonialism in that sense where countries like the US and like Germany, attempt to export their legal institutions to other countries, without attending to the ways that the people in those countries already have social and legal resources to run their lives.

And so I'll give you an example that's interesting from Afghanistan. So in Afghanistan, sort of post the 2000s invasion, and so forth, some researchers, mostly affiliated with the Carnegie Institution, found that the really effective rule of law innovations, the really effective interventions were ones that relied on existing social groups and existing structures of traditional authority.

And so, you know, you could build a courthouse and like, ask a formal centralized state to do something, maybe it would work, maybe it wouldn't, maybe people would use it, maybe they wouldn't. But if you took local community leaders, local religious leaders, gave them training, and how to use the social capital they already have to help do things like adjudicate disputes, well, those would actually be effective, because they fit into the existing social organization that already exists.

So I'll give you another example. I have a student who... I had… I just graduated an S.J.D student from Uganda who wrote a dissertation on corruption in Uganda. And one of the things that he advocated for I think, really sensibly was, “ okay, we've got this centralized government, but we've also got all of these traditional kingdoms, and the traditional kingdoms, they're actually a lot more legitimate in the sociological sense than the centralized government.

People trust the traditional kingdoms, people rely on the traditional kingdoms for services, for integrating themselves into their society. And so one useful way of thinking about anti-corruption reforms is to try and empower the traditional kingdoms that already have legitimacy so that they can check the centralized government. And so that kind of work, I think, is where we have real potential to do global rule of law development without just creating carbon copies of the United States.

Tobi;

The process you describe, I will say, as promising as it may sound, what I want to ask you is how then do you ensure that a lot of these traditional institutions that can be empowered to provide reasonable checks to the power of the central government also fulfil the conditions of equality in their relation to the general public? Because even historically, a lot of these institutions are quite hierarchical...

Paul;

Oh, yeah... and I think in particular, women's rights are a big problem.

Tobi;

Yeah, yeah and there's a lot of abuses that go on locally, even within those communities, you know. We have traditional monarchies who exercise blanket rights over land ownership, over people's wives, over so many things, you know, so how then does this condition of equality transmit across the system?

Paul;

Yeah, no, I think that's the really hard question. I tell you right now that part of the answer is that those are not end-state processes. By this I mean that any realistic conception of how we can actually build effective rule of law institutions, but also genuinely incorporate everyone's interests in a society is going to accept that there's going to be a kind of dynamic tension between institutions.

You know, sometimes we're going to have to use the centralized state to check traditional institutions. Sometimes we're going to have to use traditional institutions to check the centralized state. Elinor Ostrom, Nobel Prize-winning political scientist and her sort of the Bloomington School of Political Economy, emphasized for many years this idea that they called Polycentrism.

That is the idea that multiple, overlapping governance organizations that are sort of forced to negotiate with one another, and forced to learn from one another, and really integrate with one another in this sort of complex tension-filled kind of way, actually turns out to be a really effective method of achieving what we might call good governance.

And part of the reason is because they give a lot of different people, in different levels of [the] organization, ways to challenge one another, ways to demand inclusion in this decision, and let somebody else handle that decision, and participate jointly in this other decision. And so I think that neither the centralized state alone, nor traditional institutions alone is going to be able to achieve these goals.

But I think efforts to integrate them have some promise. And India has done a lot of work, you know, sort of mixed record of success, perhaps, but has done a lot of work in these lines. I think, for example, of many of the ways that India has tried to promote the growth of Panchayats, of local councils in decision making, including in law enforcement, but at the same time, has tried to do things like promote an even mandate, the inclusion of women, the inclusion of Scheduled Castes, you know, the inclusion of the traditionally subordinated in these decision making processes.

And as I said, they haven't had complete success. But it's an example of a way that the centralized state can both support traditional institutions while pushing those institutions to be more egalitarian.

Tobi;

Let's delve into the three conditions that you identified in your work, which any rule of law state should fulfil. And that is regularity, publicity, and generality. Kindly unpack those three for me.

Paul;

Absolutely. So regularity is...we can think of it as just the basic rule of law idea, right? Like the government obeys the law. And so if you think about this notion of regularity, it's... do we have a situation where the powerful are actually bound by legal rules? Or do we have a situation where, you know, they just do whatever they want? And so I'd say that, you know, there's no state that even counts as a rule of law state in the basic level without satisfying that condition, at least to some reasonable degree.

The idea of publicity really draws on a lot of what I've already been saying about the recruitment of broad participation in the law. That is, when I say publicity, what I mean is that in addition to just officials being bound by the law, ordinary people have to be able to make use of the law in at least two senses.

One, they have to be able to make use of the law to defend themselves. I call this the individualistic side of publicity, right? Like if some police officer wants to lock you up, the decision on whether or not you violated the law has to respond to your advocacy, and your ability to defend yourself in some sense.

And then there's also the collective side of this idea of publicity, which is that the community as a whole has to be able to collectively enforce the boundaries of the legal system. And you know, we'd talk a lot more about that, I think that's really the most important idea.

And then the third idea of generality is really the heart of the egalitarian idea that we've been talking about, which is that the law has to actually treat people as equals. And one thing that I think is really important about the way that I think about these three principles is that they're actually really tightly integrated.

By tightly integrated, I mean you're only going to get in real-world states, regularity (that is, officials bound by the law) if you have publicity (that is, if you have people who aren't officials who actually can participate in the legal system and can hold officials to the law). We need the people to hold the officials in line.

You're only going to get publicity if you have generality. That is, the people are only going to be motivated to use the legal system and to defend the legal system if the legal system actually treats them as equals. And so you really need publicity to have stable regularity, you really need generality to have stable publicity.

Tobi;

Speaking of regularity, when you say what constrains the coercive power of the state is when it is authorised by good faith and reasonable interpretation of pre-existing reasonably specific rules. That sounds very specific. And it's also Scalonian in a way, but a lot of people might quibble a bit about what is reasonable, you know, it sounds vague, right?

So how would you condition or define reasonable in this sense, and I know you talked about hubris when you were talking about publicity. But is there a minimum level of responsibility for reasonability on the part of the citizen in relation to a state?

Paul;

That's, in a lot of ways, the really hard philosophical question, because one of the things that we know about law is that it is inherently filled with disagreement, right? Like our experience of the legal system and of every state that actually has something like the rule of law is that people radically disagree about the legal propriety of actions of the government.

And so in some sense, this idea of reasonableness is kind of a cop-out. But it's a cop-out that is absolutely necessary, because there's no, you know, what [Thomas] Nagel called a view from nowhere. There's no view from nowhere from which we can evaluate whether or not on a day to day basis, officials are actually complying with the law in some kind of correct sense.

But again, I think, you know, as you said, to some extent, that implies that some of the responsibility for evaluating this reasonableness criterion falls down to day to day politics, falls down to the judgment of ordinary citizens. Like, my conception of the rule of law is kind of sneakily a deeply democratic conception, because it recognizes given the existence of uncertainty as to what the law actually requires of officials both on a case by case basis.

And, broadly speaking, the only way that we're ever going to be able to say, Well, you know, officials are more or less operating within a reasonable conception of what their legal responsibilities are, is if we empower the public at large to make these judgments. If we have institutions like here in the US, our jury trials, if we have an underlying backstop of civil society and politics, that is actively scrutinizing and questioning official action.

Tobi;

So speaking of publicity, which is my favorite...I have to say...

Paul;

Mine too. You could probably tell.

Tobi;

Because I think that therein lies the power of the state to get away with abusive use of its legitimacy, or its power, so to speak. When you say that officials have a responsibility to explain their application of the law, and a failure to do so commits hubris and terror against the public. So those two situations - hubris and terror, can you explain those to me a bit?

Paul;

Yeah. So these are really, sort of, moral philosophy ideas at heart, particularly hubris. The idea is there's a big difference, even if I have authority over you, between my exercising that authority in the form of commands and my exercising that authority in the form of a conversation that appeals to your reasoning capacity, right.

So these days, I'm thinking about it in part with reference to... I'm going to go very philosophical with you here... but in reference to Kant's humanity formulation of the categorical imperative, sorry.

But that is a sense in which if I'm making decisions about your conduct, and your life and, you know, affecting your fundamental interests, that when I express the reasons to you for those decisions, and when I genuinely listen to the reasons that you offer, and genuinely take those into account in my decision making process, I'm showing a kind of respect for you, which is consistent with the idea of a society of equals.

As opposed to just hi, I'm wiser than you, and so my decision is, you know, you go this way, you violated the law, right? Are we a military commander? Or are we a judge? Both the military commander and the judge exercise authority, but they do so in very different ways. One is hierarchical, the other I would contend is not.

Tobi;

Still talking about publicity here, and why I love it so much is one important, should I say… a distinction you made quite early in your book is that the rule of law regulates the action of the state, in relation to its citizens.

Paul;

Yes.

Tobi;

Often and I would count myself among people who have been confused by that point as saying that the rule of law regulates the action of the society in general. I have never thought to make that distinction. And it's important because often you see that maybe when dealing with civil disobedience, or some kind of action that the government finds disruptive to its interests, or its preferences, the rule of law is often invoked as a way for governments to use sometimes without discretion, its enforcement powers, you know.

So please explain further this distinction between the rule of law regulating the state-citizen relation versus the general law and order in the society. I mean, you get this from Trump, you get this from so many other people who say, Oh, we are a law and order society, I'm a rule of law candidate.

Paul;

Oh, yeah.

Tobi;

You cannot do this, you cannot do that. We cannot encourage the breakdown of law and order in the society. So, explain this difference to me.

Paul;

Absolutely, then this is probably the most controversial part of my account of the rule of law. I think everybody disagrees with this. I sort of want to start by talking about how I got to this view. And I think I really got to this view by reflecting on the civil rights movement in the United States in particular, right.

Because, you know, what we would so often see, just as you say about all of these other contexts, is we would see officials, we would see judges - I mean, there are, you know, Supreme Court cases where supreme court justices that are normally relatively liberal and sympathetic, like, you know, Justice Hugo Black scolding Martin Luther King for engaging in civil disobedience on the idea that it threatens the rule of law.

It turns out, and this is something that I go into in the book that's coming out in December... it turns out that King actually had a sophisticated theory of when it was appropriate to engage in civil disobedience and when it wasn't.

But for me, reflecting on that conflict in particular, and reflecting on the fact that the same people who were scolding peaceful lunch-counter-sit-ins for threatening the rule of law and, you know, causing society to descend into chaos and undermining property rights and all the rest of that nonsense, were also standing by and watching as southern governors sent police in to beat and gas and fire hose and set dogs on peaceful protests in this sort of completely new set of like, totally unbounded explosions of state violence.

And so it seems to me sort of intuitively, like these can't be the same problem, right, like ordinary citizens, doing sit-ins, even if they're illegal, even if we might have some reason to criticize them, it can't be the same reason that we have to criticize Bull Connor for having the cops beat people.

And part of the reason that that's the case, and this is what I call the Hobbesian property in the introduction to the rule of law in the real world...part of the reason is just the reality of what states are, right? Like, protesters don't have tanks and police dogs, and fire hoses, right? Protesters typically don't have armies. If they do, then we're in a civil war situation, not a rule of law situation, the state does have all of those things.

And so one of the features of the state that makes it the most appropriate site for this talk about the rule of law is this the state has, I mean, most modern states have, at least on a case by case basis, overwhelming power. And so we have distinct moral reasons to control overwhelming power than we do to control a little bit of legal disobedience, right, like overwhelming power is overwhelming.

It's something that has a different moral importance for its control. Then the second idea is at the same time what I call the [...] property... is the state makes claims about its use of power, right? Like ordinary people, when they obey the law or violate the law, they don't necessarily do so with reference to a set of ideas that they're propagating about their relationship to other people.

Whereas when modern states send troops in to beat people up, in a way what they're doing is they're saying that they're doing so in all of our names, right, particularly, but not exclusively in democratic governments. There's a way in which the state represents itself as acting on behalf of the political community at large. And so it makes sense to have a distinctive normative principle to regulate that kind of power.

Tobi;

I know you sort of sidestepped this in the book, and maybe it doesn't really fit with your overall argument. But I'm going to push you on that topic a bit. So how does the rule of law state as a matter of institutional design then handles... I know you said that there are separate principles that can be developed for guiding citizen actions, you know...

Paul;

Yes.

Tobi;

I mean, let's be clear that you are not saying that people are free to act however they want.

Paul;

I'm not advocating anarchy.

Tobi;

Exactly. So how does the rule of law state then handle citizens disagreements or conflicting interests around issues of social order? And I'll give you an example. I mentioned right at the beginning of our conversation what happened in Nigeria in October 2020.

There's a unit of the police force that was created to handle violent crimes. Needless to say that they went way beyond their remit and became a very notoriously abusive unit of the police force.

Picking up people randomly, lock them up, extort them for money. And there was a situation where a young man was murdered, and his car stolen by this same unit of the police force and young people all over the country, from Lagos to Port Harcourt to Abuja, everywhere, felt we've had enough, right, and everybody came out in protest.

It was very, very peaceful, I'd say, until other interests, you know, infiltrated that action.

Paul;

Right.

Tobi;

But what I noticed quite early in that process was that even within the spirits of that protests, there were disagreements between citizens - protesters blocking roads, you know, versus people who feel well, your protest should not stop me from going to work, you know, and so many other actions by the protesters that other people with, maybe not conflicting interests, but who have other opinions about strategy or process feel well, this is not right.

This is not how to do this. This is not how you do this, you know, and I see that that sort of provided the loophole, I should say, for the government to then move in and take a ruthlessly violent action. You know, there was a popular tollgate in Lagos in the richest neighbourhood in Lagos that was blocked for 10 days by the protesters. And I mean, after this, the army basically moved in and shot people to death.

Today, you still see people who would say, Oh, well, that's tragic. But should these people have been blocking other people from going about their daily business? So how does the rule of law regulate issues of social order vis-a-vis conflict of interest?

Paul;

So I think this is actually a point in favour of my stark distinction between state action and social action as appropriate for thinking about the rule of law. Because when you say that the state used...what I still fundamentally think of as like minor civil disobedience...so, like blocking some roads, big deal!

Protesters block roads all the time, right, like protesters have blocked roads throughout human history, you know, like, sometimes it goes big, right? Like they love blocking roads in the French Revolution. But oftentimes, it's just blocking... so I blocked roads.

I participated in, you know, some protests in the early 2000s. I participated in blocking roads in DC, right, like, fundamentally "big deal!" is the answer that the state ought to give. And so by saying to each other and to the government, when we talk about the rule of law, we mean, the state's power has to be controlled by the law, I think that gives us a language to say... even though people are engaging in illegal things, the state still has to follow legal process in dealing with it, right.

The state still has to use only the level of force allowed by the law to arrest people. The state can't just send in the army to shoot people. And the principle that we appeal to is this principle of the rule of law.

Yeah, maintaining the distinction between lawbreaking by ordinary people and law-breaking by the state helps us understand why the state shouldn't be allowed to just send in troops whenever people engage in a little bit of minor lawbreaking and protests.

Tobi;

So how does the law... I mean, we are entering a bit of a different territory, how does the law in your conception handles what... well, maybe these are fancy definitions, but what some people will call extraordinary circumstances. Like protests with political interests? Maybe protesters that are funded and motivated to unseat an incumbent government?

Or in terrorism, you know, where you often have situations where there are no laws on paper to deal with these sort of extraordinary situations, you know, and they can be extremely violent, they can be extremely strange, they're usually things that so many societies are not equipped to handle.

So how should the rule of law regulate the action of the state in such extraordinary circumstances?

Paul;

Yeah, so this is the deep problem of the rule of law, you know, this is why people still read Carl Schmitt, right, because Carl Schmitt's whole account of executive power basically is, hey, wait a minute emergencies happen, and when emergencies happen, liberal legal ideas like the rule of law dropout, and so fundamentally, you just have like raw sovereignty. And that means that the state just kind of does what it must. Right.

So here's what I feel about Schmitt. One is, maybe sometimes that's true, right? And again, I think about the US context, because I'm an American and you know, I have my own history, right? And so in the US context, I think, again, about, Abraham Lincoln and the Civil War, right.

Like Abraham Lincoln broke all kinds of laws in the Civil War. Like today, we'd call some of the things that he did basically assuming dictatorial power in some respects. I mean, he did that in the greatest emergency that the country had ever faced and has ever faced since then. And he did it in a civil war. And sometimes that happens, and I think practically speaking, legal institutions have a habit of not standing in the way in truly dire situations like that.

But, and here's why I want to push back against Carl Schmitt... but what a legal order can then do is after the emergency has passed...number one, the legal order can be a source of pressure for demanding and accounting of when the emergency has passed, right. And so again, I think of the United States War on Terror, you know, we still have people in United States' custody imprisoned at Guantanamo Bay.

September 11 2001, was almost 20 years ago. It's actually 20 years ago and a month, and we still have people locked up in Guantanamo Bay. That's insane. That's completely unjustifiable. And one of the jobs of the legal system is to pressure the executive to say, okay, buddy, is the emergency over yet? No, really, we think that the emergency is over yet. I want reasons, right, publicity again, I want an explanation from you of why you think the emergency is still ongoing. And the legal system can force the executive to be accountable for the claim that the emergency is still ongoing.

That's number one. Number two is that law tends to be really good at retroactively, sort of, retrofitting things into legal order, right. And so again, I think about the Civil War. You know, after the US Civil War, lots of civil wars, sorry. American-centric person trying to fight against it.

But after the US Civil War, you know, the courts took a pause. And then we have a lot of cases where they took a lot of the things that Lincoln did, they said, okay, some of them at least were illegal, some of them were legal, but only under very specific circumstances.

And so they actually built legal doctrine that took into account the emergency that Lincoln faced, and then later wars, such as in the Second World War, the courts took the lessons from the experience in the American Civil War, and used that to impose more constraints.

So to bring it about that the emergency actions that Franklin Roosevelt took in the Second World War weren't completely sui generis, sort of like right acts of sovereignty, but were regulated by legal rules created during the Civil War, and after the Civil War.

And again, they weren't perfect, right? You know, during the Second World War, the United States interned Japanese Americans, you know, again, sort of completely lawless, completely unjustifiable, but you know, it's an ongoing process. The point is that the legal system is always... the law is always reactive in emergencies.

But the reactive character of the law can nonetheless be used as a way to control and channel sovereign power, even in these sort of Schmittian emergency situations.

Tobi;

So two related questions, your work is interdisciplinary, because you try to blend a lot of social science into legal philosophy. But speaking of legal order and your primary profession, I mean.. for the sake of the audience parties into a lot of other cool stuff, I'm going to be putting up his website in the show notes.

But speaking of legal order, and the legal profession, why is so much of the legal profession fascinated with what I would say the rule by law, as opposed to the rule of law. A lot of what you get from lawyers, even some law professors in some situations is [that] the law is the law, and you have to obey it.

And even if you are going to question it, however unjustified it may seem, you still have to follow some processes that maybe for ordinary citizens are not so accessible or extremely costly, you know, which I think violate regularity, right, the way you talk about it retrospective legislation, and so many other things. So why is the legal profession so fascinated with the law, as opposed to justification for the law?

Paul;

Yeah, I think that question kind of answers itself, right. It's unfortunate... I mean, it's sort of natural but it's unfortunate that the people who most influence our dialogue about the way that we, you know, live in [the] society together with a state, namely by organizing ourselves with law happen to be people who are the specialists who find it easiest, right?

And so I think the simple answer is right on this one, at least in countries like the United States, I'm not sure how true this is in other countries. But in the United States, the domination of legal discourse by lawyers necessarily means that the sort of real practical, real-world ways in which ordinary people find interacting with anything legal to be difficult, oppressive, or both just aren't in view, right? This is hard for them to understand.

But I think in the US, one of the distortions that we've had is that we have an extremely hierarchical legal profession, right. So we have very elite law schools, and those very elite law schools - one of which I teach at - tend to predominantly produce lawyers who primarily work for wealthy corporations and sort of secondarily work for the government. Those lawyers tend to be the ones that end up at the top of the judiciary, that end up in influential positions in academia, that end up, you know, in Congress.

The lawyers that, you know, see poor people, see people of subordinated minority groups and see the very different kinds of interactions with the legal system that people who are worse off have, that see the way that the law presents itself, not as a thing that you can use autonomously to structure your own life. But as a kind of external imposition, that sort of shows up and occasionally inflicts harm on you.

Those lawyers aren't the ones who end up in our corridors of power. And it's very unfortunate, it's a consequence of the hierarchical nature of, at least in the US, our legal profession. And I suspect it's similar in these other countries as well.

Tobi;

In your opinion, what's the... dare I say the sacrosanct and objective - those are rigid conditions sorry - expression of the rule of law? The current general conception of the rule accedes to the primacy of the Constitution, right.

I've often found that problematic because in some countries you find constitutional provisions that are egregious, and in other cases, you find lawyers going into court to challenge certain actions that they deem unjust, or that are truly unjust on the basis of the same constitution. Right. So what do you think is the most practical expression of the rule of law? Is it written laws? Is it the opinion of the judges? Is it how officials hold themselves accountable? What's the answer?

Paul;

So I think I'm gonna like sort of twist this a little bit and interpret that question is like, how do you know the extent to which the rule of law exists in a particular place? And my answer is, can ordinary people look officials in the eye, right, you know... if you're walking down the street, and you see a police officer, you know, are you afraid? Or can you walk past them and confidently know you're doing nothing wrong so there's nothing really effectively but they can do to you, right?

If you're called in to deal with some kind of bureaucratic problem, like the tax office, can you trust that you exist in a relationship of respect? You know, can you trust that when you show them, actually here are my receipts, I really did have that expense, that that's going to be taken seriously? You know, if people, everybody, feels like they can stand tall, and look government officials in the eye, then to that extent, I think that the rule of law exists in a society.

Tobi;

Final question, what's the coolest idea you're working on right now?

Paul;

Oh, gosh. So like I said, I've got two books under contract right now. The first book is a history/theoretical constitutional law account of the development and existing state of the rule of law in the United States.

The second book, which I'm more excited about, because it's the one that I plan to write this year, but it's also a lot harder, is I'm trying to take some of the governance design ideas that we see from the notion of rule of law development, and others such as governance development things and apply them to Private Internet platforms, right? Like, basically to Facebook.

Um, I was actually involved in some of the work, not at a super high level, but I was involved in some of the work in designing or doing the research for designing Facebook's oversight board. And I'm kind of trying to expand on some of those ideas and think about, you know, if we really believe that private companies, especially in these internet platforms are doing governance right now, can we take lessons from how the rest of the world and how actual governments and actual states have developed techniques of governing behaviour in highly networked, large scale super-diverse environments and use those lessons in the private context?

Maybe we can maybe we can't I'm not sure yet. Hopefully, by the time I finish the book, I'll know.

Tobi;

That's interesting. And I'll ask you this, a similar, I'll say a related situation is currently happening in Nigeria right now, where the President's Twitter handle or username, tweeted something that sounded like a thinly veiled threat to a particular ethnic group. And lots of people who disagreed with that tweet reported the tweet, and Twitter ended up deleting the tweet in question, which high-level officials in Nigeria found extremely offensive, and going as far as to assert their sovereign rights over Twitter and say, well, it may be your platform, but it is our country and we are banning you.

How would you adjudicate such a situation? I mean, there's the question of banning Donald Trump from the platform and so many other things that have come up.

Paul;

Yeah, I mean, it's hard, right? So there are no easy answers to these kinds of problems. I think, ultimately, what we have to do is we have to build more legitimate ways to make these decisions. I mean, here are two things that we cannot do, right?

Number one is we can't just let government officials, especially when, you know, as with the Donald Trump example, and so many others, the government officials are the ones who are engaging in the terrible conduct make these decisions.

Number two is we also just can't let a bunch of people sitting in the Bay Area in California make those decisions. Like, ultimately, this is on, you know, property in some abstracted sense of like the shareholders of these companies. But we cannot simply allow a bunch of people in San Francisco, in Menlo Park, and you know, Cupertino and Mountain View, and all of those other little tech industry cities that have no understanding of local context to make the final decisions here.

And so what we need to do is we need to build more robust institutions to include both global and local and affected countries, grassroots participation, in making these decisions. And I'm trying to sort of sketch out what the design for those might look like. But, you know, talk to me in about a year. And hopefully, I'll have a book for you that will actually have a sketch.

Tobi;

You bet I'm going to hold you to that. So, a year from now. So still on the question of ideas, because the show is about ideas. What's the one idea you'd like to see spread everywhere?

Paul;

Oh, gosh, you should have warned me in advance... that... I'm going to go back to what I said at the very beginning about the rule of law. Like I think that the rule of law depends on people, right? Like there is no such thing as the rule of law without a society and a legal system that genuinely is equal and advantageous to ordinary people enough to be the kind of thing that people actually support.

Like ordinary people... if you cannot recruit the support of ordinary people for your legal political and social system, you cannot have the rule of law. That's true whether you're a developing country, that's true whether you're the United States, right. Like I think, you know, part of the reason that we got Donald Trump in the United States, I think, is because our legal system and with it our economy, and all the rest are so unequal in this country, that ordinary voters in the United States didn't see any reason to preserve it.

Right and so when this lunatic and I mean, I'm just going to be quite frank here and say Donald Trump is a complete lunatic, right... when this lunatic is running for office who shows total disregard for existing institutions, like complete willingness to casually break the law.

An electorate that actually was full of people who felt (themselves) treated respectfully and protected and supported by our legal and political institutions would have sent that guy packing in a heartbeat. But because the American people don't have that experience right now, I think that's what made us vulnerable to somebody like Donald Trump.

Tobi;

Thank you so much, Paul. It's been so fascinating talking to you.

Paul;

Thank you. This has been a lot of fun. Yeah, I'm happy to come back in a year when I've got the platform thing done.

Tobi;

Yeah, I'm so looking forward to that.

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