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Conversations with Tyler
Joe Studwell on Africa, Asia, and What Development Actually Requires
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A
Conversations with Tyler is produced by the Mercatus center at George Mason University, bridging the gap between academic ideas and real world problems. Learn more@mercatus.org for a full transcript of every conversation enhanced with helpful links, visit conversationswithtyler.com hello everyone and welcome back to Conversations with Tyler. Today I'm speaking with Joe Studwell. Joe has a long and distinguished career as a journalist for many publications, but I know him best for two of his books. The first is How Asia Works, which is extremely well known and has had major impact. And now this winter, he has a new book coming out which I thought was great and enjoyed very much. It is called How Africa Works Success and Failure on the World's Last Developmental Frontier. Joe, welcome.
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B
Thank you. It's nice to be here.
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A
I have many questions about Africa. If lack of population density has been a major problem, does that mean we should now be especially optimistic about the Nigerian Delta, which is densely populated?
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B
Yes, you're right. The Nigerian Delta is more densely populated than most parts of Africa. And it reminds us that population density or increased population density alone is not enough to solve all of Africa's problems, because Nigeria has been a country plagued with problems since independence. But Nigeria has also been looking in much better shape in the last 20 years compared with the period before that since independence. And I would argue that a big part of that is increased population density. And more broadly across Africa, there's no doubt that very low population density has been the biggest, biggest problem for the continent's development, contrary to what the academic literature has told us in the last 50 years, which was that it's all to do with governance and civil war and civil strife and ethnic strife. In reality, the biggest problem that Africa has had, and largely as a result of the disease burden on the continent, which is absolutely unique in its virulence, is having population density, which in 1960 was 1/5 out of Asia as a whole and 1/7 what it was in East Asia.
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A
But is it the case Nigeria has relatively done so well compared to the rest of Africa? They have oil, of course, and they have remarkable talent in the population. And relative to oil and talent, it seems to me on average they quite underperform. I see so many years where they grow 1% or maybe zero or you're not sure because someone's fudging the numbers, like why should we think the population density matters if the number one example of that underperforms?
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B
So I would say that Nigeria has been something of an outlier in terms of underperformance. As a state which is densely populated by African standards, and as we all know, they had a terrible civil war there in the late 1960s. The ethnic divisions in Nigeria, east, even by African standards, are particularly acute. You have a nation which is broadly divided in three, with roughly equal numbers among those three groups. And they've always fought for power with each other. So the ethnic fragmentation problem has been particularly difficult in Nigeria. Nonetheless, I would say that the population density is what has allowed Nigeria to have a better performance in agriculture than most people expect over the last 20, 30 years, and has also contributed to the outperformance of the whole Lagos area on the coast, which is a real sort of hive of entrepreneurial activity. So I would agree with you that Nigeria doesn't give great hope to us that greater population density across Africa is going to produce better results. But I would say that there are particular reasons within Nigeria that we can point to as to why Nigeria hasn't delivered as much as one would hope so far.
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A
Now, you have very good coverage of Botswana in your book, which is arguably the greatest sub Saharan African success story. Putting aside South Africa as a special case. And they obviously have very low population density. Right. Diamonds, not too many people do the division. People are relatively rich. There's some decent heritage from British colonial administration. Does that also push against population density being a key issue?
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B
No, because Botswana is an outlier in another sense that essentially the economy is a giant diamond mine. I mean, there are three big diamond mines in Botswana, but that's where all the money for development has come from. And it's just been well managed and they didn't need people. I mean, mining doesn't require much labor. Modern mining. There's only 10,000 people work in the diamond industry in Botswana. So the low population density of Botswana doesn't prove anything. I think what we're talking about is possibilities that there are for development in countries that don't have outsized mineral or hydrocarbon assets and are going to rely on their people to deliver development. And of course, people are the key input in a poor country because you don't have cash and you don't have technology. You've got people. It's how you mobilize those people that determines your potential to develop rapidly. And if you don't have enough of those people, you can't move forward.
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A
Let me see if you are more optimistic about Africa than I am, because you might be. If I look at the history of economic growth in Denmark. There are hardly any years where Denmark grows at 8 to 10%. Or even 6%, maybe right after World War II. But that's a special time. Denmark does well because they have very few years with big negative growth rates. Every now and then, a recession like anywhere else, but they just keep on plugging along at something not too far from 2%. And you can trust that Denmark just won't do anything terribly stupid. Is there any sub Saharan African country where you have even a remotely equivalent faith in their governance, where you think, well, they're going to be the next Denmark. It might take longer than we would like, but you know, they're going to get there.
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B
Well, to go back to Botswana, they managed growth very well. They had a sovereign wealth fund that allowed them to stabilize growth rates. But you're absolutely right that this is something that African countries now need to do. African countries have been extremely bad about this. I talk about it in the book, but it's principally been the hydrocarbon states that have had the most volatile growth over time. And the evidence is that they're becoming a little bit better at managing that growth. And we have to hope that that continues going forward. I mean, certainly one of the biggest lessons of East Asia, and one that you almost never hear repeated, is, is that what developmental states in East Asia did was to get stable growth rates, which then signaled very effectively to the private sector that they could expect steady growth of 5, 6, 7, 8% going forward and encouraged private investment to increase. And you're absolutely right, you're not going to do that with growth rates that bounce around. But I do think that this problem is at least being recognized now.
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A
But even Botswana worries me in this regard. So they've had a pretty good heritage in history, but the last two years, corruption indices are up sharply. Their politics seems to have become a personal feud. There were all those recent articles that they can't deliver basic health services to their population. In terms of governance, they seem to be going backwards from a pretty good start, right?
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B
I think you could say that, but I'm not sure that it's fair yet to say that they are really going backwards. They're in a major transition. The Botswana Development Party is out of power for the first time since independence. So there's a lot of change going on in that respect. I think they're going through a difficult period, but I'm not sure that they're definitely going backwards. I mean, you could say similar things to what you've just said about Botswana, about the United States.
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A
Well, possibly we're going backwards, but Tanzania worries me also. So three years ago, I Had many friends and acquaintances telling me the reforms were going wonderfully. This is the next market oriented miracle. You know, bet on Tanzania. I've only been there once. I guess I was a little skeptical. And now in the last year and a half, Tanzanian politics seems quite volatile. It's not stable anymore. It's of course not a petro state. There's not an issue comparable to diamonds. So doesn't this problem just crop up again and again and again that there's not a stable place where you would really want to put much of your money?
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B
There certainly continue to be a lot of problems with politics, but you don't see the levels of civil strife in Africa that we saw in the 1990s. You don't see the number of coups in Africa that we saw in the 1990s. I mean, what we have at the moment, if you think of violence, is mainly violence that's, that is focused on the Sahel. All really relates to a very particular problem that's partly climatological, it's partly demographic, and it's just very difficult to manage. So I don't think that the political story is great, but the data tell us that there is considerably more democracy in Africa than there was in the 80s and 90s and that states are more stable. But is there still a lot of bad governance? I think that there is, but that is why my book concentrates when it's presenting optimism on what is going on in the private sector and particularly what's going on in agriculture, which doesn't require a lot of state input and state activity. And the numbers there are really pretty good. I mean, we've had the fastest average rate of agricultural GDP growth since 2000, about 4.5% in Africa compared with anywhere else in the world. It's been faster than anywhere else in the world. And that's really a kind of night and day change to where Africa was at in the 70s, 80s, 90s. So those sorts of things are very important. The, the growth of the agricultural sector is also creating the first large private sector firms in Africa. Because of course, agriculture has a manufacturing component as well. When we process all the stuff that is grown and we're getting large firms operating across borders in Africa now in the agribusiness sector, I mean, you just, you know, we're talking about the politics of Tanzania as a cause for concern. But I mean, equally, you could look at Buckraza, the biggest Tanzanian agribusiness firm. It now operates in eight, nine or 10 different countries in east and Southern Africa. It's moved into all sorts of other businesses. They own a football club, they own a TV station, they're in petroleum products, they're in all sorts of stuff. I mean, they're a proper diversified conglomerate of the kind that we would associate with or I would associate with Southeast Asia. All that's going on in the private sector. Despite the still concerning politics that you rightly refer to.
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A
Does Africa have a manufacturing future? There's robotics coming, AI, possibly some reshoring.
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B
Yeah, I mean, I believe that Africa does have a manufacturing future, but making.
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A
What and like at what cost of.
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B
Energy they will start as everybody does, producing garments, producing textiles, which in certain enclaves is already going on in Madagascar, in Lesotho to in Morocco, and they'll move on to other things and they'll start with those things because they are the most labor cost sensitive products. And Africa is now in a position where, depending on which state you're looking at taking China as a reference point, the cost of labor is now between a half and one tenth of what it is in China. So factory labor is now around $600 a month at its cheapest. In a country like Ethiopia or Madagascar, it's 60 or $65 a month. So it's a tenth of the cost. And that's already beginning to have a bit of effect and often with Chinese firms moving production to Africa. So I think there is a. I think there is a future for manufacturing. It will depend on the extent to which African governments understand that you don't really move forward fast for very long without manufacturing, that every developed country, apart from a few petro states and financial centers, has gone through a manufacturing phase of development. It depends on the extent to which African governments engage with that. But some without doubt will. The Ethiopians, for instance, have already attempted to do that. What they're trying to do has been somewhat derailed by the two year civil war that took place from 2020. But they're back on it now and they're trying to move forward. And the idea that robotics and AI are going to change the story, I personally just do not buy and principally for two reasons. One is the cost reason, because whenever people talk about what's happening with robotics, no one ever talks about the cost of robots. You know, in garmenting, for instance, even a basic robot will cost you in excess of $100,000. And you pay the cost up front and you've then paid that whether there's demand for your products or not. Also in garmenting and in textiles, robots don't work very well because they can't work with material very well. They're much better at working with solid things. So you've spent $100,000 for a robot when you can go out in somewhere like Tana in Madagascar and get another skilled. Because they've been doing it now for 20 years garmenting employee for $60 or $65 to make the new order that you just got. And if the order doesn't come through, you can sack them. So you see what I'm saying? There's a point about the cost of.
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A
Robotics, but think of automation more generally is not that expensive. Like most countries they are deindustrializing. Even South Africa has been deindustrializing for a while. And China maybe has peaked out at industrialization. Measured in terms of employment, it's hard to trust their numbers. But maybe just everywhere is going to deindustrialize and that will be very bad for Africa.
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B
I don't think so. I mean, I think South Africa is deindustrializing because the ANC has followed a hyper liberal approach to economic policy. I don't think the ANC has ever really understood economic policy, frankly. So South Africa is an outlier in that respect. There are many other states in Africa, whether Nigeria or Ethiopia, which understand they've got to have a manufacturing future and intend to pursue one. So as I was saying, the other point is what people miss is the flexibility. With robotics and AI there's very limited flexibility with robotic and automated production. When demand goes up, you can't just stick in more robots. But when demand goes up in a people operated factory where the cost of labor is low, you can stick in more people and produce more. And I mean just one example, you know, during COVID when everybody was having home deliveries of supermarket goods, the price of a UK firm called Ocado which was running runs a supermarket but was also developing the software and consulting around building blind warehouses went up through the roof, but now it's down through the floor. And only last week Kroger supermarket in in the US said we're closing five of these super modern blind warehouses. And the reason fundamentally is because they lack the flexibility that human labor brings to the job. So I'm not saying that robots, automation and AI are not important. They are important. What I am saying is that they are not going to derail a manufacturing future for a number of African countries that aggressively pursue it.
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A
But there's a lot of developing nations around the world. You could look at India, you could look at Pakistan, even Thailand, where Manufacturing has not taken off the way one might have wanted. There's just major forces operating against it. And in the US manufacturing employment was once 37% of the workforce, now it's 7 to 8%. It just seems like it's swimming upstream for Africa, which again has quite expensive energy to think it will do that well, and again, South Africa had very good technology, pretty high state capacity. I don't see the alternate world state where a WISE or ANC would have made that work.
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B
Well, oddly enough, I mean, pre the end of apartheid, the manufacturing performance of South Africa was really not bad at all with classic industrial policy, quite high levels of protection and so forth. I think that demand for manufactured goods will continue to be high around the world and that the labor cost will continue to be a prime determinant and of where producers go for low value added goods. And so I think that the opportunity is there for African countries.
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A
But say there's transportation costs internally, energy costs, political order, uncertainty, you know, where's the place where people really want to put all these manufacturing firms?
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B
So I mean, on energy costs, these have traditionally been very high in Africa because there has not been the investment in energy, but with the development of massively reduced cost for solar and wind, actually things look quite good. And the development of geothermal as well. There's no reason that I can see why African countries aren't going to be able to produce very cheap electricity, which as you say, is a critical input for a manufacturing economy. And in fact, we've seen that in Ethiopia already. Ethiopia has electricity which is at a fraction of the cost of other African countries because they set out with an aggressive industrial policy to make that happen quite a lot. A lot of it's through hydro because of course they are one of the great sort of water towers of Africa. But also wind and solar are being built out as well, and geothermal. So I think that there's no reason why Africa can't get towards cheap industrial electricity. And in terms of road connections, I mean, an awful lot of road connections have been built. I mean, Africa's not great, but road density has been actually significant success story not only of the last 20 years, but of the last 50 years, you know, if you go somewhere like Rwanda, you're kind of blown away by the, by the quality of the roads. And of course, since 2013, Belt and Road, you know, the Chinese have put in $150 billion, but a lot of.
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A
That is for their mining. Right. It doesn't necessarily help diversification.
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No, 80% of that has Gone to roads and power and water and other utility stuff.
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A
There's a long history of big infrastructure projects that are then not maintained very well. It's also a problem with solar power. Right. World bank in the past has put a lot of money into different projects involving dams or water systems and then over time, many of them just decay.
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B
Well, yeah, I mean, but again, Tyler, you know, this goes back to what I was saying about if you look at the government stuff, you can still be pretty miserable about Africa, but what we're seeing on the continent is a level of traction from the private sector that we haven't seen before. And I think, you know, so also in, if you, if you think about use of water, for instance, a big reason for the very good agricultural performance in the last 20 years and for around cities, African farmers now getting up towards Asian yields. A big reason for that is farmer led irrigation. So you referred to kind of state led projects that have just failed. And there were loads of. And to be fair, they were not always just African government projects in the past. You know, if you go back to the 60s and the 70s, often there would be UN projects, World bank projects, and they were the, they were misconceived, not least actually in relation to demographics, because they were projects which actually needed more labor and bigger markets than were there. And this is the reason that they fell into disuse very often. But what you have now all over Africa and there's already 3,4 million hectares of irrigated land that's been added in the last couple of decades. And it's been added by individual farmers who buy pumps and either themselves dig boreholes or get them dug by people who are providing that service. And it's this much more micro approach to building business, whether it's agricultural business or otherwise. That's what I think gives some cause for optimism.
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A
Djibouti aside, what do you think is the best run African port that I.
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B
Don'T have a good answer to because I didn't look at the ports very closely. But I mean the obvious answer would be we're talking the whole of Africa. The obvious answer would be the Tangier Med port that the Moroccans, well, but sub Saharan.
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A
Again, putting aside South Africa as a special case, the port seems to be another level of mess that if you're exporting you have to deal with a bad port system. If you're in East Africa, there's even a lot of property rights still up for grabs. There's Somaliland, there's Somalia, there's Ethiopia, there's Eritrea. They want access to the sea. There's Ethiopia versus Egypt, there's Rwanda involved in the Congo. That's the place where you ought to have a really great port driving growth in the whole region. But it just seems it's not coming anytime soon. Again, Djibouti does seem to have a fair degree of order because people put military bases there, but that's the exception.
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B
No, I mean, I agree, but again, what I've read in World bank reports suggest that situation's still bad but better than it was 10 and 20 years ago.
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A
Why is Benin doing so well now?
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B
Well, some people say the leader who's got talon, who's got his hands around the developmental situation. And you know, and I think that that is quite possibly the story. I mean, you know, we are seeing some genuinely positive leadership in Africa and Benin. Yeah, I mean, there's a sensible approach to agricultural development, you know, the beginnings of an industrial policy and just getting things done and delivering things. But then, you know, go back to Nigeria. I mean, Nigeria's defense. I would say that anybody really who follows Nigeria has been fairly impressed by what Tinubu has managed to do there. I mean, the guy came in and ended a petrol subsidy that everyone said would never end because it was too politically difficult to do it. It cost $10 billion a year, which is a lot of money in Nigeria. And he did and he came in and he ended it. And there was no serious violence around that.
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A
In sub Saharan Africa, which do you think are the two or three countries doing the best job on human capital?
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B
Well, in West Africa, I mean, if we're just looking here at the statistics about people graduating at different levels of education, you know, of course Ghana and Nigeria always did pretty well, always accounted for a high proportion of Africa's university graduates. In East Africa, I don't think that Kenya does badly in terms of, in terms of the human capital, it turns out very well educated and entrepreneurial people. Again, the problem is the politics. Ethiopia, big investment in vocational education, that's made a significant difference. Rwanda similarly has made a significant investment in vocational education. So I think there's, you know, there's a lot of stories around that are really not too bad. And I also think that we have to be fair to Africa and remind ourselves that back in 1960, start of the proximate start of the independence era, Africa had the least educated population in the world by a long, long way. I mean, in 1960, literacy in Africa was 16% 1 6. And according to a World bank report that came out in the 80s. They rolled out across Africa the fastest developed formal education system that the world has ever seen. And in some measures, education performance in Africa now exceeds South Asia, which is pretty remarkable given that South Asia was very far ahead in 1960. So I don't think that it's fair to criticize Africa too aggressively on its, on its education performance. I think that governments around the continent have taken education very seriously. I mean, you know, the classic was again, Tanzania. Right. So we can talk about how terrible the politics are in Tanzania. But, but Nayereri's government increased literacy from just over 10% to 80% in one generation. And that was a huge mobilization of resources to achieve that. And that's, you know, another thing that African governments had to do that Asian governments didn't have to do. After independence, Asian governments didn't have to worry about having an illiterate and innumerate population.
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A
The comparison with South Asia, I think I see that differently. India has high variance, but at the upper end, the IITs are amazing. Right. If you come out of a good iit, your life is set, you'll earn a lot of money, you'll be highly productive. You could get employment in the UK or the us. Africa doesn't seem to have anything like that. Not Sub Saharan Africa or Sri Lanka, which is quite literate, well educated. It's hard to find a sub Saharan country that's at all like Sri Lanka. On educational indicators, rural Pakistan clearly might be worse than much of Africa. But isn't South Asia just making much bigger strides?
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B
I don't think so, in the sense that I wouldn't point to the IITs in India as evidence of the strength of India's education system. And I agree the people who come out of the IITs are fantastic. But there are only 30,000 people in the IITs. I mean, they're just like numerically inconsequential.
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A
But how much output they produce is what matters. Right. And it's evidence that there's feeder systems. If you can produce some number of very, very, very good people, your feeder systems must also be doing pretty well, at least some of them.
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B
Yeah, but there's also a question of timing. I mean, I think that the point that you make about very high performing institutions in Africa begins to become more relevant now. You know, the order of priorities in Africa after 1960 was to get the population literate and numerate. And that's where resources went. Now there's a change. Yes, Africa going forward needs really elite universities. You know, there's A beginning of efforts to create that in Rwanda, where there's a couple of US Universities that have gotten involved in the random tertiary education system. So, yeah, I mean, I hear what you say, but I think that's a problem for Africa going forward and not a problem around which we should judge Africa today.
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A
We agree that disease burden is very important. Which do you think are a few countries making the most progress on that?
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B
Well, again, I'd say that there's been huge progress continent wide because partly because outside institutions like the WHO or the Gates foundation have operated in multiple states, but partly also because African states themselves have made it a high priority. I mean, the performance in terms of the reduction of deaths of under fives, for instance, which is fairly sort of critical measure when you look at demographics. I don't know where in the world beats Africa in terms of what's been done over the last 50 years, but.
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A
Say predictively that the places that have cut disease burden down the most should do better first. Right. There's an implied prediction. And which particular places do you think those are?
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B
I haven't looked in sufficient detail, country by country to be able to say where. I think, again, I mean, I would say that, you know, in Central Africa, the. Rwanda's done very well on health. I'd say that Ethiopia's done very well on health. But I do think that, you know, it's just a generally positive story across the continent what has been done in terms of reducing this horrific disease burden that really has dominated African history.
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A
Bruce Eserdote of Dartmouth, he has a famous article where he argues, or some would say shows, that the longer a country has been colonized for, the better it's likely to be doing. Do you agree with that result and do you think it's true for Africa?
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B
I think that you can find cases that bear that out, but I'm not sure that it's a great rule of when you're just looking at duration rather than also how colonialism operated, what it did. You know, when you look at the qualitative difference, for instance, between, oh, French colonialism in West Africa and Japanese colonialism in Taiwan, it's not just about duration. Yeah, Tyler, I don't have a great answer to that question. And, you know, most colonial stories in Africa were pretty short and fairly similarly short.
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A
Right.
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B
Because most colonization happens in the 1880s and most colonization is over in the 1960s.
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A
Do you think the UAE will become a major financial center for much of Africa?
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B
Very possibly. It's already happening to a significant extent. There'll Be Mauritius trying to compete as an offshore center. But certainly when you get up to the Horn of Africa, UAE is already the sort of preferred destination.
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A
Let's say you're running a hedge fund and you're investing some number of billions of dollars. Would you be more likely to invest in east or West Africa if you had to say, I like the look.
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B
Of both for different reasons. Certainly Nigeria tops out in terms of venture capital money coming into Africa at the moment. But when you've got a country like Ethiopia with 150 million people, that's an attractive market if you develop a business that works. So I think that it won't necessarily be about east or west going forward. I think that early entrants and whether they're hedge funds or whether they are multinational companies, they'll think first about the most populous countries on the continent. So they will think about Nigeria and Ethiopia and then go down the list from there. I think that there'll also be differentiation based on regions, based on what's grown in agriculture, what's manufactured and so forth.
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A
Should Africa have more special economic zones, say the way the Dominican Republic has?
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B
Well, Africa's already had a good number of special economic zones and they haven't worked well. But the seven that the Chinese have opened seem to have worked better. So I think the jury is out on that question. I think down the road, yes, Africa will need more zones, but there's no point in opening investment zones unless they get the political attention that is going to make them successful.
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A
But don't they just need a bit to be left alone? I mean, Tattoo City in Kenya is going pretty well and the government hasn't wrecked it and there's a lot of energy behind it and some capital. Isn't that likely to succeed?
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B
It is if there's a clear demand there to begin with and private sector actors who are going to make it work. And in that case, yes, zone should always be left alone. I mean there are, for instance outside Addis Ababa there's a successful Chinese managed and Chinese owned investment zone and it does absolutely fine. So that type of investment zone, I think, yeah, just let people get on with it and leave them alone. State, I was thinking more of state led investment zones where there'd be many failures. And that's where African governments need to be more careful, more thoughtful and more clearly committed when they, when they open a zone to making sure that it works.
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A
Should Africa experiment with charter cities?
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B
With charter cities.
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A
Charter cities, right. So it's like a special Economic zone except more radical there's some actual surrender of sovereignty. Like Hong Kong was a charter city of the British Empire. Obviously they did very well.
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B
I think that Africa should and probably will experiment with all sorts of things. I wouldn't offer it as a prescription, but if there's a government that's thinking, right, let's try this, you know, good, good luck to them. It's not impossible. It's not impossible that it will work just as Hong Kong works for colonial Britain.
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A
How permanent do you think are the current borders of Africa, say over the next 30, 40 years, not 500 years out, but the foreseeable future?
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B
I think, Tyler, that we will continue to see the form that we've seen since independence in Africa. I'm sure you're aware of that the African Union really, since inception, has operated to head off any changes in borders in Africa. And that is really because the leading politicians have always taken the view that if you let African borders change once in one state, you open the door to absolute mayhem in this ethnically very diverse continent. So there is kind of very built in hardwired AU opposition to any change in borders. And so you get kind of classic cases where no one will even talk about it. I mean, for instance, the Somalis, where the Somalis is split between Ethiopia, northeast Kenya, British Somaliland, is it French and then Italian Somaliland, I can't even remember that. It's a five way split. And they went to the AU back in the 60s and have done it subsequently, said this is ridiculous, where all Somalis, why are we living in five different countries and the AU won't touch it? And as I say, that is because the received opinion of the senior leaders in the AU has been if you start changing borders in Africa, you'll never stop it. And I suspect that will remain the case going forward because the fear is there. I mean, really, the only case of a border change that you have in Africa since the Second World War is when Eritrea split from Ethiopia. And that was the result of a referendum that was, you know, 99%.
- [38:14]
A
But as we're taping in late January 2026, it at least seems as if the US and France will recognize Somaliland and the UAE and Israel already has. Israel probably wouldn't do that on its own without assurances. So that will be a border change. Doesn't that in fact predict mayhem under your theory? Which is in fact my expectation, I'm sorry to say.
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B
Well, I think the AU will continue to resist and resist and not recognize this. You know, it's like the EU you.
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A
Think won't recognize it?
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B
No, no. The au, I think.
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A
Oh, au. But does that matter if the US and France and the UAE have recognized it? Isn't that just what matters?
- [38:57]
B
It doesn't. So it may not matter in practice for the outside world, but it matters in practice for Africa, you know, so the AU will retain its position. I mean, it's a bit like Morocco and Western Sahara. I mean, the AU still says that there are 55 states in Africa because it still counts Western Sahara as a state, even though the US is now in favor of that being turned over to Morocco.
- [39:25]
A
Now, your recent book is on Africa. I'll just hold this up again, how Africa Works. I don't agree with everything in it, but I do really think it's an excellent, well researched, extremely well written book. I'll recommend it again to everyone. But I also have some questions for you about Asia, if you're game.
- [39:42]
B
Yeah, yeah.
- [39:42]
A
What has gone wrong in Thailand? The 1990s, it looked so good. Foreign investment fell off. They're going to lose manufacturing to China. It seems there's a lot of stagnation. Politics hasn't gone so well. They were a relatively wealthy country for their region. Why didn't that go better?
- [40:02]
B
Well, it hasn't gone so badly. I mean, Thailand's always had a pretty strong currency, partly as a result of tourism being a great big part of the economy. You know, the manufacturing has hardly been sort of hollowed out. And the politics has always been a total mess. Right. I mean, nothing's anything. The politics has become any worse. And the position of the monarchy, you know, it's always been a disaster. But Thailand has always functioned fine despite all of that. So I don't. To me, Thailand doesn't look like a big mess relative to what I've seen in the past at all. I suspect that they will carry on with this very messy politics that they have until at some point the relationship between the monarchy and politics is confronted. But that. That's an almost kind of revolutionary thing to contemplate. In terms of Thailand, I'm sure you're.
- [41:12]
A
Familiar with South Korean birth rates. What do you think is actually going to happen there? Over time? The country just disappears, or it becomes filled with immigrants, possibly from Africa, or they somehow manage massive birth subsidies which work. Those all seem quite improbable to me, but I'm not sure what I'm left with.
- [41:31]
B
Yeah, it's certainly very interesting. And I mean, of course China has a very low birth rate, a little bit higher than Korea, but still Very low. But, I mean, one observation I would make is that China actually is much more cosmopolitan society than either Korea or Japan. And so having a falling population is more difficult for Korea in Japan because the populations don't want foreigners coming in to do the jobs. They don't want those Africans coming in to do the jobs. So then what else are you going to do? Well, you know, you're going to offer them these great big subsidies, but there is a very poor record for offering all kinds of subsidies in all kinds of countries around the world to try and get people to have kids when they don't want to. So, I don't know. I mean, the only forecast I have is that the problem will have to become, you know, significantly more acute than it is now before they begin to talk about it seriously.
- [42:32]
A
But it can be too late. Right. Peter Thiel has this notion that you get stuck in a trap once your economy starts shrinking. It's harder to do something about it because you have fewer resources, even if your per capita numbers are fine.
- [42:44]
B
Yeah, well, maybe they're relating. Maybe they're relying on the robotics and AI that we were talking about. Do you not feel confident about robotics and AI solving the, the Korean depopulation problem?
- [42:59]
A
Well, it may solve their production problem, but it doesn't solve the problem of no one being around to enjoy it. Right. That's still there. Now, Japan, as you know, depending how you measure it, has debt to GDP ratios of something between 200 to 230%. How will they get out of that mess? They have a higher birth rate, but it's not that high. Right. It's like 1.3.
- [43:22]
B
Yeah, yeah. So I don't know. I mean, the same way that Britain got out of the same level of debt after the Napoleonic wars, you know, with, with inflation.
- [43:31]
A
But when they inflate, their interest rate goes up. Right. And their future borrowing costs rise. Can they even get traction that way?
- [43:39]
B
I don't know. I mean, I know that there are people who think that they. That they can. Yeah. I don't know what the answer is, but, you know, not crazy inflation, but just a bit of sort of steady inflation. I'd have to go back and look at what happened in the UK after the Napoleonic wars in order to understand how it was. But I do remember that it was largely inflation that solved the problem.
- [44:02]
A
You know, UK at that. Well, Britain, we'd have to call it, at that time, had fantastic demographics, especially early to mid 19th century. And east Asia doesn't. Should we just way downgrade our estimate of East Asian futures. Like, is there a positive scenario for any of the main countries?
- [44:21]
B
Yeah, I think it certainly looks difficult. I mean, I tend to sort of not get much further when I think about this than being profoundly amused by the fact that we have spent the last 250 years being obsessed with the Malthusian view of the world and, you know, believing that we're going to breed ourselves into disaster. And of course, at the end of the day, there never was a Malthusian risk, at least in practical terms. But depopulation is way more serious than population growth ever was, I think, for.
- [45:01]
A
The world as a whole. How well do you feel industrial policy has worked?
- [45:05]
B
Oh, it's worked extremely well. And it's been refined over, you know, well over a century. Yeah, I mean, the whole approach of targeting cheap money at manufacturing, putting some protection in place, rewarding exporters of manufactured goods, you know, it's created jobs, it's raised the technological level at which the economy operates, and there's really no substitute for it because, as has been shown, manufacturing is the only bit of the economy that really delivers the convergence that we're supposed to get across the whole economy in the sort of orthodox view of life. So I think that industrial policy has done very well. The problem is, of course, getting away from it then proves extremely difficult. Not only getting away from industrial policy, but getting away from the trade surpluses that it tends to produce. So whether it's Japan or Germany or now China, the countries that have run the most effective industrial policy become a problem for the whole of the rest of the world. But as a means to develop your economy, as a means to raise your people up, I think it's had a very good performance.
- [46:37]
A
But say you're Brazil. Brazil seems to have underperformed for almost 50 years, and they do plenty of industrial policy. They have actual scale. It's now considered happy news that this year they might grow at 2%. I mean, hasn't it just failed in Brazil in addition to Mexico and many other places?
- [46:55]
B
I don't know Brazil terribly well. I mean, the first thing I'd say about Brazil is that it's underperformed for the last 200 years, not just the last. And the country is just a mess in terms of development. I mean, if you look at the agriculture sector, the dominance of scale agriculture, the appalling way in which smallholder agriculture is treated and how it's undervalued, and I think if I knew more about industrial policy in Brazil, I think what I would be saying is that it's been ineffectively applied, patchily applied, not applied consistently over a long enough period. And sure, sure enough, a large part of it is a total failure. But at the same time you can point to bits that are clearly a success. And the obvious one that everyone always points to is embryo.
- [47:49]
A
Or take India now, the world's most populous country. They had plenty of industrial policy, mostly a failure, right? Like why be so convinced industrial policy on average is a good thing. It works maybe when there's very high human capital, which would be East Asia and the rest of the world. It seems to me to underperform.
- [48:09]
B
No, I think it failed in India because people like Mahalanobis after the Second World War were just absolutely clueless and India just never ran any kind of effective industrial policy. I mean, they didn't understand that competition is fundamental to effective industrial policy. They thought it was much more organizational and you just pick your winners and you don't subject them to competition. I think they're pretty straightforward reasons why industrial policy didn't work in India.
- [48:47]
A
How much of economic growth do you think is just explained ethnically? So the Chinese do well virtually everywhere. Hong Kong didn't have industrial policy. It became rich just like the Chinese based economies that did.
- [49:01]
B
Well, I'd say that, I mean actually I'd say to an extent that Hong Kong did have industrial policy in as much as. While Hong Kong was always very free in external trade, the domestic economy was a kind of colonial stitch up. And there were sort of two of everything, two supermarket operators, you know, one one firm running the airport, the other firm running the airline and so on. And also that, you know, of course when the textiles trade arrived in Hong Kong after 49, it was already highly efficient. It had gone through a very long period of development in Shanghai. So it wasn't like it was beginning with zero knowledge. But as to how much is ethnic, I mean, ethnicity often embodies certain education backgrounds. It embodies. Some ethnicities have got to a point where they're better off than others. So I think it's kind of easy to confuse what might be ethnic with what is just something reflected in that particular group of people for reasons other than ethnicity.
- [50:09]
A
You know, there's the famous Koman Gong Easterly paper that shows per capita income in the year 1000 predicts per capita income today surprisingly well. So maybe culture is just super persistent. Ethnicity is one of the things that carries it. And a lot of development economics is maybe spinning its wheels. I like to think that's not true, but I've never found a flaw in their paper.
- [50:33]
B
I mean, for me, policy makes a difference. And wherever I've looked in the world, I've seen clear evidence of policy making difference.
- [50:43]
A
Oh, that's true for sure. But it could be something like ethnicity carries good policy, right?
- [50:48]
B
It could be. But there's so much, you know, for me, there's so much noise in the data. I find it personally just find it hard to sort of maintain credible attention.
- [51:02]
A
What's so interesting to you about central Italy?
- [51:05]
B
There's nothing particularly interesting other than that, I suppose it was an area where there was a bit of land reform, an area where industry took off in. In rural. So there's kind of stuff to be seen there which is not what the tourist normally looks for.
- [51:27]
A
And you've lived there, right?
- [51:28]
B
Yeah, so I lived, but I really just lived in Italy for 10 years just because it was a sort of relatively cheap place to live.
- [51:38]
A
And this was Perugia or where.
- [51:40]
B
Yeah, near Perugia. Near Perugia.
- [51:43]
A
Before my last question, just to recap, Joe's two books, How Asia Works and How Africa Works, are essential reading. His earlier books are interesting as well on Southeast Asia and finance. Final question, what will you do next?
- [51:58]
B
I'm not sure what I'll do next. I'm kind of thinking about a developmental history of the UK because I've never written about my own country. And I think there are a number of things in the development of the UK that are not spelled out particularly clearly in what is generally a very good literature. I mean, there have been some excellent books written about the UK economy. But I think there are one or two things that I'd like to explore more that haven't really been covered. And I think it's also partly that I feel like I've done a lot of traveling and I'd like to not travel for a while.
- [52:37]
A
Travel in the UK though, right? That's travel too.
- [52:40]
B
Yes. I can go and see the UK and go and see the kind of grim post industrial cities of the uk.
- [52:47]
A
Anyway, Joe Studwell, thank you very much.
- [52:49]
B
Thank you, Tyler.
- [52:55]
A
Thanks for listening to Conversations with Tyler. You can subscribe to the show on Apple Podcasts, Spotify or your favorite podcast app. If you like this podcast, please consider giving us a rating and leaving a review. This helps other listeners find the show on Twitter. I'm TylerCowen and the show is OwenConvos. Until next time, please keep listening and learning.