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Welcome to the LSE Events podcast by the London School of Economics and Political Science. Get ready to hear from some of the most influential international figures in the social sciences.
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Good evening, everybody. My name is Francesco Gazelli. I'm a professor of economics here at the lse. I just realized I left my notes somewhere, but I don't think I need notes to introduce Danny, so it'll be fine. I think everybody knows here. Dani Rodrik is one of the most influential and famous economists in the world right now. He has written extremely important work on economic growth, globalization, development, political economy, and he's also been massively influential in the global debate about these problems. Danny teaches at Harvard and he has written a new book called Shared Prosperity in a Fractured World, which is a book about how we get out of the horrible mess we have created. So it's a very much needed book. A couple of logistical things. There is a hashtag for this event, which is, I believe, LAC events. There will be a Q and A after Danny's comments, and there will be a book signing after the talk and the books going to be available on sale outside, and then the signing will take place here. I think that's all I have. And now, with great pleasure and anticipation, I hand it over to Danny.
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Thank you. Thank you. Thank you very much, Francesco, for the introduction. It's always very nice to be at LSC and to see so much interest in this work. Can you hear me? Is the microphone working? Okay, wonderful. Thank you. So Francesco and I were discussing just now, before the event, how long it takes for publishers to put out books. In fact, this book, which do I have. Yes, this book was written actually when the first draft was written, when President Biden was in office, when it seemed pretty unimaginable that Trump would be coming back. Furthermore, it seemed at the time quite clear that there was, we were on a kind of a different path for economic policy which one could criticize and I've criticized from a number of different perspectives, but in some ways put us on a better path towards addressing the kinds of problems that this book deals with. And so it was. The tone in the book was and is a kind of a hopeful and optimistic one. And then, of course, Trump happened. And for a while I thought, you know, it was, you know, the book was now totally naive given how everything seems to be changing, even from the very first weeks. But eventually, maybe this was this. Maybe this is motivated reasoning. Eventually I convinced myself that actually we needed a book like this even more, because in my mind, it provides a kind of Approach, a set of policies, a kind of a way of thinking, a framework for addressing what I think are our most important economic problems. And that we need that this kind of guidelines to hold us hope that when and if we have some sane politicians and political administrations in the US and elsewhere, that there are things that we can do. So this is, if you ever look at the book or if you buy the book, you'll see that this is an optimistic book. This is a book that cheers me up. I hope it'll cheer you up a little bit in these very, very difficult times. But it is not, and this is an important point, it is not sort of an idealistic book. It's not like a utopian book. It says that we need to be doing things differently. And I'll say a little bit about that, obviously in this talk about what that means, but not so differently in the sense that the kernel, the germ of all the types of new practices that I think we need, the new approaches we need, are already embedded in existing institutions and experiments and practices that exist in the world. So it really builds on what we are already doing. So in that sense, the hopefulness, the optimism is based on the reality of actual practice. And why is it that that practice doesn't catch our attention or we don't see it? I think there's two broad reasons. One, one is in the case of Chinese industrial policies and green industrial strategy, which I'll talk about as one of the key dimensions of this, is that it's been caught up in geopolitical debates about competition with China. And I think sort of the enormous advances that we've had towards addressing climate change through renewables have somehow gotten lost in that. And the second reason is that I think that many of these experiments remain small scale and very local and that sort of national economic authorities or focuses on sort of national strategies on growth or middle class or jobs, typically don't see those hopes in these or those the existing practices at the local level that have actually worked. So that's my task, to convince you that my optimism is not necessarily misplaced, that there is a common framework that helps us think about these issues. And if I don't convince you in my talk this evening, do buy the book. And there are even more convincing arguments there. So why these three? Well, I don't need to make a case for these particular challenges, but obviously the climate change is probably the one that I need, to say the least in terms of why it's important. It's obviously the most significant threat to our Physical existence. Rebuilding the middle class, I would say, is sort of like the analog of climate change for a social and political life, not our physical environment. Because I think much of the erosion of our democratic norms and the rise of far right populist forces all over the North Atlantic and US and Europe, Britain is clearly linked. And I think there has been a fair amount of empirical work that shows this. It's been clearly linked to labor market dislocations, the disappearance of good jobs, which are the basis essentially of the middle class, which is really supports cohesive societies and functional, sustainable democracies. So if you want our social and political life to regain a certain degree of cohesiveness and democracy to become stronger, I think rebuilding the middle class is going to be critical. And of course, we can't lose sight of global poverty reduction as an important challenge as well. Now, this actually was one front on which we had made significant gains, at least until Covid struck, with significant reduction in the number of people who live in extreme poverty, largely, but not exclusively through China's economic growth. But we've had sort of serious reversals since COVID and developmental prospects look much more uncertain today. But one of the important points I think that I make in the book is that even there, we'll need different strategies than those that worked in the past. Okay, so when you look at these problems and you look at what we're doing today, that even in the relatively rosy world of Biden era economic policies, there were clear tensions among these things. So Biden was very much focused on the green transition and rebuilding the middle class at home, not so much on global poverty reduction. And one can argue that many of the trade and industrial policies that America pursued during that period was averse to the interest of the global poor. So we need a framework, we need a way of thinking that's going to take all of these on board and avoid some of the trade offs. Now, these seem very, very different kind of challenges, different tasks requiring a lot of expertise in different domains. What gives me the authority or confidence to take them on in the same book? I think there's a common element that ties these challenges together that allows me to talk about all of them as a kind of something that requires a strategy that's broadly similar because all of these are tasks that require structural transformation of our economies, that is moving economic activity from certain type of sectors and firms and activities to others. So in the case of rebuilding the middle class, it's really a question of creating good jobs, expanding the good jobs in the economy. Good Jobs, of course, being those that not only pay high wages, but also provide greater agency and autonomy, a sense of accomplishment, career ladders being treated well on the job, and so forth. So that's a problem of structural change because we need to foster those firms and activities and sectors that are, are the source of good jobs. In terms of climate change, of course, it's very definitely a problem of structural change because we want to move the direction, move the economy in the direction of green industries and sources of energy and poverty reduction. That's a structural change, structural change challenge as well, because historically that's how we've gotten poverty reduction. Not by simply transferring income to the poor or making them somewhat better at what it is that they're already doing, but moving them to other occupations or to qualitatively different types of jobs which are more productive. So all three therefore share this common element of structural change. And economists know that structural change is rife with market failures. There are externalities, there are coordination failures, there are missing public inputs, all of which mean that the markets left to their own are not going to provide the adequate levels of structural change at the speed that society needs. And therefore we need corrective policies. What are those corrective policies? Well, in the past, we really thought about the policies that address structural change as policies that are, loosely speaking, industrial policies. Because what does industrial policy do? Industrial policy promotes some activities over others. It is called industrial policy because typically those policies were trying to promote manufacturing industries and hence industrial policy. Okay, so that type of policy is what we required, except that the term industrial policy now is a bit of a misnomer because it's not manufacturing industries that we need to necessarily promote when we're talking about jobs. I'll come back to that in a second. The jobs are actually going to be mostly in services. So if you're going to want to promote good jobs, they'll have to be in services. By and large, that also happens to be true for developing countries. Developing countries. In developing countries, manufacturing is no longer, for the most part, labor absorbing sector in the way that it was traditionally under the East Asian industrialization driven model. So we need much more of a services driven model in the developing countries as well. So first is, we're talking about an industrial policy for services. Okay, so maybe we shouldn't talk about industrial policy at all instead of productive transformation policy or productive development policy or what I call in the book, you know, this ugly term, productivism really may be a little bit more appropriate, of course, in the direction of green sectors. So the Direction of these productive policies are very different than from traditional industrial policies. What are the new elements? The new elements are going to be that first, when we're talking about good jobs, you talk, talk to policymakers and politicians in the United States, I think, and in continental Europe as well. I get the sense that in Britain the manufacturing hope has basically gone. But talk in continental Europe and in the United States about good jobs, they'll talk about sort of how it's important to reshore manufacturing, get basic manufacturing up and running. This is not going to work. Just mathematically it doesn't work out, I'll say. So this is going to be, you know, it's going to be really about services and mostly about non traded services. So a lot of our focus when we talk about the middle class, about trade imbalances, protectionism, the global trade rules, the kinds of stuff that was my bread and butter when I was writing about globalization, this really becomes much less important now because really talking about sectors that are largely sheltered from international competition, whether it is for advanced countries or for the lower income countries. With regard to climate change, I think the big change, and this is important, is that economists have traditionally focused on taxing carbon emissions and there's a very good logic for that. In practice, what has worked a lot more effectively is actually subsidizing green activities. Now it's a second best way of dealing with the climate transition, subsidizing R and D and innovation. But it's been extremely effective. And there are political economy reasons for that, the most basic of which is that it's a lot easier to give people a carrot, an incentive, a subsidy than it is to actually tax actively. So the carrot versus the stick, the carrot approach, even though it's second best, has been much more effective. But this is also something that can be done at the national level, in fact at the sub national level, because you can combine a lot of the motivations for pursuing green industrial policies with other objectives, whether it's geopolitical, political, whether it's jobs, whether it's fostering new technological competencies and therefore you get over the global free riding problem. Right. So we thought that solving the climate problem was going to be subject to this incredible problem of how do you get people to agree and to invest in a global public good. Well, China has been doing it through its green industrial policies in a remarkable way. You know, the decline in the cost of renewables that Chinese industrial policies has produced is an incredibly significant global public good. But they're doing it for their own essential sense of who they are, you know, they're, you know, gaining competitiveness, their sort of vision of, of their national project and so forth. So variety of political economy reasons that, that, so, so these are, you know, the, that some of the common elements in the way that I discuss how we're approaching these is general preference over second best approach over first best. I just gave an example of that. In the area of climate change, carbon taxation might be first best, or cap and trade might be first best, but second best policies have evidently been much more effective. My doctoral advisor used to say the world is second best at best. And it's a kind of a very vivid reminder of that experimentation over fixed remedies. So another common feature of the type of policies, whether it is local policies that affect good jobs and productive transformation or the green transformation, a common theme running through is that they tend to be experimental in nature, that involve a different kind of nature between governments and business economists. Traditional model of government regulation or industrial policy is a top down kind of a model that you can think of in terms of a principal agent model that works very well if the dimensionality of uncertainty is small, but when there is huge uncertainty, a kind of iterative collaborative approach that has a large degree of experimentation, try something, monitor results. If it doesn't work, try something else. That approach works a lot better than the principal agent model. So experimental governance takes over. And another important feature, especially in a world where global cooperation is, you know, we can rely even less on global cooperation going forward than we could until now, is that if you can show that many of these things can be addressed without a whole lot of global governance, that this can be done through local incentives, local experimentation, international level countries doing it on their own for their own good reasons, then that's another big plus, that it can actually be done without necessarily relying on those ex machina of global governance. Okay, so those are some of the large teams. The question, of course, is that this all sounds good, but are there in fact such policies, in what form do they take in practice? Okay, so the book is largely about trying to illustrate what these general principles actually mean concretely. So let me start with the one, let me enter this sort of directly with what might have seemed to be the most intractable of these problems, both because of how serious the nature of the challenge is, climate change, global warming, and how much apparently it relied on the one thing that we lacked the most, which is global cooperation. This is the archetypal global public good addressing global climate change. Here, the big story, the big, big really Huge, really amazingly big story of the last 10, 15 years is how much progress has happened primarily through the collapse in the price of renewables. So now, in terms of the price of solar, wind, electric vehicles, electric batteries has collapsed to the point that now they become viable substitute for fossil fuels. All over Africa now, new sort of installation, new power sources are being essentially driven by imports from China, solar cells and solar power and so forth. And what's important to understand is that no one actually had predicted this. No one thought that there would be such a huge increase in, for example, in installation of solar capacity. This was way outside the kinds of projections, the range of projections that international agencies were making, even in their most optimistic scenarios. And just to give you a sense of how big that is, some of you may know Bill McKibben. So Bill McKibben became very well known in the United States as a climate activist and was one of the first authors to ring the alarm bells about climate change and how we're all getting, you know, sort of getting, essentially getting fried under our existing policies. And his most recent book, which came out last year, is called Here Comes the Sun and is actually a kind of a relatively upbeat account of how this transformation in the power, in the cost of renewable energy, is really now, for the first time, making it look possible, as if we must be on a path where we won't get the one and a half degree, we still will exceed that, but we now conceivably on a path where we actually won't get extinct. It's hard to understate what a momentous transformation this is and what a good news this is at a time when you mention solar cells, solar power, renewables. The focus of most American and European policymakers is on the competitive threat of Chinese producers, because this has been essentially the result of what China has done. Now, it's interesting that it was the Europeans and Americans who were the original pioneers in renewables, but starting 10, 15 years ago, China went into this in a very big way. And essentially this transformation, this renewables miracle, has been the result of China's green industrial policies. What are these industrial policies? Sort of how did we get this variety of supports for renewables that leads to an increase in capacity, that leads to learning. By doing so, costs go down and that allows these firms to charge lower prices, the market expands, that leads to sort of more capacity expansion. And so this virtuous cycle of industrial policies that support expansion of renewables capacity, joined together with the miracle of learning by doing, is really what has gotten this now when our image in the west of Chinese industrial policies is still very much kind of a top down process of state planners telling what producers what to do implemented through subsidies to kind of a traditional model of industrial policy. You set targets, you give firms subsidies to meet them, and then you harshly punish firms that don't meet their targets. This is actually not what Chinese industrial policy was. And I think this is where the entire sort of, this new understanding of how productive transformation can happen, how industrial policy does work in practice, how it's much more iterative, collaborative, experimental, really comes into its own. Because as you look at China's practices, yes, it was a strategy that was developed at the top in Beijing. It was developed as a kind of a national project. So that's where prioritization comes in. It's helpful when the national government says we're going to move into renewables in a big way because we think that's going to be new competitive frontier, the new, and the world eventually will move into renewable energy and we want to be pioneers there and therefore we're going to make this a national objective. But there was a huge amount of experimentation with policies, as been generally the case with Chinese economic policies, with demonstration zones set up, localities given national resources to pursue their own experimental approaches with local, lots of variation across different kind of regions. So with lots of autonomy at the individual level, especially at the municipality level, for different cities to do different kinds of things. There were subsidies, but there was a lot more than simply subsidies. Subsidies are generally easier to quantify. And that's why when you see descriptions of Chinese industrial policies, mostly in terms of subsidies, but there was a lot more. It was public investment in R and D, specific infrastructure, government procurement, this demonstration program, regulatory changes at the national and local levels to incentivize renewables. It's not in the list, but it should be. Public venture capital was a very important form where a lot of localities, municipalities set up public venture capital firms to invest in renewables and then electric vehicles and so forth. This was not simply a top down process. There was very close collaboration with the government, between the government and business, as well as between the national government and localities. So iteration on both counts and lots of feedback loops of monitoring and a process of iteration and revision. Okay, so these are all sort of, in some sense they were features of China's green industrial policies, but they are general features of successful industrial or productive transformation policies elsewhere. If you look at history of what South Korean or Taiwanese or even in fact US industrial policies, whether it's the DARPA model or other local economic development initiatives, they tend to have these features rather than the sort of the economist caricature of top down command control, hard conditionality and so forth. Now, I said earlier that China was a relative late comer to renewables. And in fact, you know, the United States and Europe started on this earlier. And some of that early experience in the United States in particular helps us also qualify perhaps some of the optimism about, you know, and understand better the conditions under which actually industrial policy work and when they can fail. Because the Obama administration instituted a fairly extensive industrial policy program for renewables and green technologies in 2011. And there was largely implemented through loan guarantees of the Department of Energy. And those programs were essentially shuttered after a very public failure. How many people here have heard of Solyndra? Okay, good. So Solyndra was the signal failure of this program, was actually what made it a failure in part, and why it marked the entire renewables green industrial policies of the Obama administration was that the Obama administration made one critical mistake of even though these loan guarantees were supporting potentially hundreds of different firms, of which one, by the way, was Tesla, which was saved through these loan guarantees of the Department of Energy because it was on the verge of bankruptcy at the time, the Obama administration picked on Solyndra as sort of its flagship. And essentially President Obama went to California to highlight Solyndra as sort of as an example of this fantastic problem. So you can imagine the political difficulty when six months later or eight months later, it turns out that the kind of technology that Solyndra had invested in was not going to be viable, given, you know, this very sharp decline in the cost of PV cells. And there was a very public failure and this marked because precisely because, you know, rather than treating this program as a kind of in this traditional public venture capital form, which is to say, well, some of them will fail for sure, but those that are successful will pay for all the failures, plus more. Which in this case was by the way true, because Tesla alone, given what a successful company does end up being, Tesla alone paid for all the failures of Solyndra multiplied a thousand times. But because the way that was, you know, the way that the approach of the administration was simply not to present this as a kind of as a portfolio of programs, but to sort of put plant the flag on the one company that was going to going to fail in a very public way, essentially this became politically unsustainable. So Congress actually, in 2012, I believe, even passed a law that was called no more Solyndras Act. Okay, so in other words, no green industrial policy. So I think so. This failure obviously illustrates a number of things. One is obviously the point about industrial policy is not that you're going to make a success of every firm that you support. That's the wrong way to think about industrial policy. You simply want to make sure that the portfolio itself pays off and that the losers, you don't keep supporting them after it became. So it's not the real test for industrial policy is, is not whether you can pick winners, but whether you're able to let the losers go. Right, which may still be demanding, but it's a lot less demanding than requiring governments to be omniscient and knowing exactly what will be successful. The private sector doesn't know that either. Okay, but it's also not simply the case that Chinese industrial policy has been successful because China is a hard state, it's authoritarian, and countries like the US can't do industrial policy because they are democracies. US has been traditionally very good at carrying out industrial policy. Look at darpa, which has been singularly successful in promoting frontier technologies, everything from GPS to Internet, which is essentially run as a kind of a semi autonomous agency through public funds and is a kind of precisely the kind of a model of thinking about industrial policy renovation policy, kind of a portfolio of different activities that certain things will be eventually successful. So I think China's green industrial policies are important both in their own right, because they are a direct example of how one of our three fundamental challenges can be addressed through these second best measures. Green industrial policies that directly incentivize new green technologies. But they're also useful as an example to lead us to pose the question. Is a similar transformation also possible in those other areas where we need transformation when we need structural change, namely in terms of restoring the middle class and achieving poverty reduction and economic growth in the developing countries? This, the China's green industrial policies are good for the green transition, but they're not going to be the solution either to the growth challenge or to the jobs challenge. Okay, so those need their own policies. They need policies that are going to directly promote good jobs, to sustain democracy and to promote economic growth. And, and the question is, are there sort of the analog of these in green industrial policies for these labor absorbing sectors, the services in the middle income countries and in the advanced countries as well? Is there an equivalent of these kinds of policies? I'm going to suggest that there is, although the evidence is scattered and much less direct than in the case of the green industrial policies. But first, let me say a few words about the importance of good jobs. We're in the London School of Economics and I know the LSE is not just about economics, but I assume many of you are economists or have been in the process of being indoctrinated or being inducted. But I want to make an important point about how, you know, sort of where this emphasis on good jobs is coming from because it's not something that you'll be focusing on in mainstream economics. And that I think, because, you know, conventional economic theory, going all the way back to Adam Smith, which put the focus on the consumption side of the economy to draw a sharp distinction from the or cantalists, has had this blind spot on jobs because in the traditional conceptualization of what we as individuals maximize our preferences, right, our utility functions, jobs don't enter directly. In fact, they enter indirectly through the budget constraint. That jobs are important only to the extent that they allow us to earn an income, which in turn relaxes our budget constraints, which in turn allows us to pursue the main objective, the main arguments that go into the utility function, which is to consume. And to the extent that jobs enter into utility function, they enter with a negative sign because leisure goes into the utility function, which is jobs or work with a negative sign. Okay, now, you know, you look at sort of other social sciences and of course, you know, sociology. There's a lot of work in sociology on this and in social psychology, but also increasingly recent work in economics that's sort of asking what are the sources, real sources of, you know, well being and happiness and life satisfaction. When you ask people those questions, it turns out that jobs have a very direct effect on well being because jobs are not just a source of income. They're a source of personal esteem, they're person source of dignity, they're a source of social recognition. And what these studies of life satisfaction have shown is that in fact job losses are associated with losses in perceived well being, personal well being, that are multiple of the monetary costs, direct monetary costs. So that if your idea of good jobs of jobs is simply as a kind of source of income, is that you could, even if the government actually did, was actually to provide transfers to compensate people who lose their jobs. And even if they did it in full, which they never do, right. You know, you'd still not go nearly the whole distance required to, to make people whole again because the job loss goes much beyond the income loss, but that's at the level of individuals. Then jobs also have, I think, a very large big element of social externality. That once again, I mean, this is something that's not news for sociologists. But economists have increasingly found out, so that there's a recent wave of studies that job losses, whether due to globalization and trade, due to automation or to fiscal austerity, produce a significant social, economic and political externalities. So they may take the form of breakdown of families, rise in health, problems, in suicide, rise in addiction, all sort of whole bunch of social problems and ultimately political dysfunction as well. So there are studies that show that when communities lose jobs, also there is a tendency for authoritarian values to increase. Support for authoritarian and populist demagogues tend to rise. So it stands to reason that when people feel personally economically insecure, that there's a much greater tendency to want to identify culprits. And those culprits would be those from outside the community. They could be immigrants. They could be religious or ethnic minorities. They could be foreign nations. So there's a direct link between many of the syndromes of social and political malfunction that we've observed and that we associate with the rise of politics, populism that is directly linked to job losses. And finally, from the perspective of social justice, I think most economists tend to think about social justice in terms of redistributive justice. That is, who gets what I think at least as important, building on those sort of, you know, the first two ideas is the notion of contributive justice. And that term is from my college at Harvard, Michael Sandel. And he defines contributive justice as the opportunity to win the social recognition and esteem that go with producing what other needs and value what others need and value. So it's not just that we want to compensate people. We want to redistribute assets and income. It's also that we want to give people the chance to do the kind of jobs or the kind of work that gives them meaning as sense of contribution to society. Okay, so those are all reasons why, I think, you know, both the reasons why I think economics traditionally has underplayed the role of jobs sort of now there's kind of correction being built in, but also why, you know, sort of with, you know, it's important to bring it in to understand, you know, this new dimension of this new objective for public policy, which is the objective of creating good jobs now. So where will these jobs be? I've already said this one thing. We know for sure, these jobs are not going to be in manufacturing. Manufacturing jobs have been declining in all the advanced countries in the world. So this is for The United States. This fair picture goes all the way back to, I think it's 1980. You see the share of, of the share of all manufacturing employees as a share of total employees. And what I want to draw here is that if you look at sort of this last bit is blown up here. So this is really just from monthly figures from 2020 or something. I can't read this, so there's no way you will be able to read them. But take my word for it. What is the point I'm trying to make for this? The point I'm trying to make is that there's been an ongoing decline in manufacturing in the United States. Now it's about, you know, one job in 12 only in manufacturing. And it simply has not mattered what country, what governments have done, because ever since Biden, the objective has been to basically to re industrialize, to increase jobs in manufacturing. Biden did it through chips and Iraq. Okay? Trump has been doing it, okay, with, you know, tariffs, but they both pursue these objectives. You look at the numbers, it makes absolutely no difference. So, you know, up until the last time I could, I looked before, you know, BLS was shut down and therefore couldn't get the data, was that every month that Trump was in office, the manufacturing jobs, the share of total employment would continue to fall. The Biden administration touted these beautiful numbers about investment and construction in manufacturing that was due to chips. The investment, the construction numbers were really quite awesome, but didn't create any manufacturing jobs. So manufacturing jobs now you might say maybe Biden and clearly Trump haven't been going about it the right way that there is. If you pursue the right policies, you know, the right industrial policies and so forth, that you would be creating more jobs. But how much better can you get at supporting your manufacturing than China? Right? China has been losing employment in manufacturing by the millions. In fact, 31 million fewer workers in China's manufacturing since 2011. 31 million, by the way, is more than the sum of total US And German employment in manufacturing. So over a decade, China has lost the equivalent of the total number of manufacturing jobs in the United States, Germany combined. Okay? Now the big amazing thing, of course is you don't see it in the output or export numbers for China keep increasing. That's just a miracle of labor productivity in manufacturing. So you can increase, you can reshore, maybe you'll increase product, maybe you'll increase production, maybe you'll decrease your imports from China, but there will be. The point is that there will be virtually no impact on manufacturing, given how Skilled and capital intensive and automated. Modern manufacturing today is okay, so that's. It's remarkable to me how mainstream politicians, whether it's the center right or center left, have still this fixation with manufacturing as a source of bringing the middle class back and creating good jobs. It's sort of like running history in reverse because that's manufacturing was a traditional route to creating good jobs of manufacturing. But that's not going to happen in the future. Where will the jobs be if not in manufacturing? Okay, I hope maybe you can read this. This is for the United States. Can you. No, I'll tell you what it is. Okay, so this is, you know, the Bureau of Labor Statistics makes projections for, you know, how many jobs there will be be in different occupations. This is for the next decade. So this is looking for the composition in 2034 in the United States. Okay. And I've ranked Here the top 10 occupations in the United States. Okay, the top occupation, home health and personal care aids. Second one, fast food and counter workers, retail salespersons, general and operations managers, registered nurses, laborers and freight stock and material movers, stalkers and order fillers, cashiers, customer service representatives, janitors and cleaners. Except maize and housekeeping cleaners. Okay? Of those, none of them, with the possible exception of the tiny bit here in labors in manufacturing. Not a big super surprise. But here's the other surprise. Of 10 of these, only two require college degrees or more general managers and registered nurses. None of the others requires college degree. So what does that mean? It means that again, the economist's standard knee jerk response to the problem of how do you increase productivity in these sectors? How are you going to increase earnings earnings and create more good jobs where these jobs will exist? The knee jerk response that you invest in education, you get more people into college, that's not going to work here. So neither reshoring nor investment in education in the traditional way that we think about it is going to do the job. That's why I think we need a strategy that focuses much more directly along the lines of industrial policies that focus on increasing productivity in these services through increasing the productive capacity of the workers and the firms that employ them. That's going to bear the hallmarks of more of an industrial policy than these general across the board types of approaches. Is rapid productivity growth in services possible? Now? Traditionally, the reason that there has been deindustrialization is precisely because labor productivity in manufacturing grows much more rapidly than in services. But there are lots of encouraging signs. Much more recently, look at the United States. Since 2005. In some of these large labor absorption absorbing services, productivity is actually increased much faster, not either at the same or at higher levels than in manufacturing. Wholesale trade, retail trade, accommodation and food services. These are all sectors where in fact productivity, labor productivity is increased more rapidly than manufacturing. How? Well, think about, you know, online ordering, Uber, the deployment of all these digital tools in Amazon warehouses. But these are all directly productivity increasing. Except that given the way that our current services are organized, the Amazon Uber model are organizational models that ensure that all the benefits are appropriated by the owners rather than the workers themselves. In part that's because of the type of technologies that are being employ. So if Amazon has a choice between investing in technologies that would allow managers to routinely monitor every single thing, every single movement that warehouse workers do versus investing in technology that is going to increase the autonomy agency and the range of tasks that warehouse workers can do. Essentially implementing sort of in services in warehouses the equivalent of a Toyota model of production as opposed to a Taylorist model of production. Amazon managers. Amazon is much more likely to invest in the first because it gets most of the profits, it has more control and therefore it finds it more beneficial. So that's going to tie importantly with a point that I'll come back to shortly about how part of this industrial strategy and services has to be in a public effort to direct innovation in a more labor friendly direction, which is not what we're going to get if we follow our current model. Okay, but let me run through now very quickly because what I've lost track of time.
- [48:19]
B
It's 7:25, so you've been speaking for about 50 minutes.
- [48:23]
C
I say 50 minutes. Oh my God. So let me wrap up. Okay, so the, these are many of the things that I already mentioned that you know, the traditional remedies are not going to work very well. The strategy based on productivity. There's a lot of evidence in economics on how there's this complementarity between good firms and good jobs. This is particularly important for Britain for example, where a lot of the productivity gap in Britain has to do with the fact that low paying jobs are precise in those regions where you have a scarcity of good firms and so investing in those good firms as part of this strategy. So what might these policies look like? In part they're going to be highly local. So you'll have to rely much more on regions because these tend to be sort of highly customized local partnerships. There are, there's a fair amount of evidence from the United States that there went know about how this, this actually happens a move away from thinking about industrial policy, away from subsidized to the provision of customized public inputs. And those might take everything from workforce and management training to providing coordination to specific business tech services and so forth, forth. And there's evidence from Bartik's work in the US that these customized public inputs are much more effective in generating jobs than simply subsidies. And then finally, you know, sort of this point that I just, I just already signaled that, you know, we need a national effort, I think that is precisely trying to develop technologies that are directly labor friendly. So for the United States, I think that there's the already established model of ARPA which has taken over darpa. DARPA was about defense related technologies. Then we've had ARPA for green technologies and we've had ARPA for biomedical science, life sciences. Why not have an ARPA for workers? That is an agency that is developing technologies that are particularly focused on increasing the range and sophistication of the tasks that less than college educated workers can do. So there's some examples of this from these services, whether it's long term care, retail or education, how software, AI, other digital kinds of tools can actually enable this and can talk about some other examples in the Q and A. Okay. There's sort of a developing country version of these, but of course they differ, differ in that there's much greater degree of informality in developing countries. So dealing directly with that challenge has to be part of it. There's a whole, there's a chapter in the book that deals with this. And then, you know, finally kind of as you know, a summary of what this way of thinking about industrial policy or productive development policy, how it differs from traditional modes. Okay, so let me just end, you know, going back to that sort of big picture of how we're trying to achieve these things. And the final point I want to make is something that I said at the outset, which is that if you, if you think about these problems in the way that I've laid them out as challenges of developing local and national productive development strategies to develop new sectors and new activities, kind of an updated version of industrial policies, models of which already exist, then the lack of global cooperation, the weakness of global governance really becomes much less of an impediment to achieving our goals than we traditionally think of. That's the good news. That's another reason to be optimistic about. Doesn't mean that it wouldn't be good if we had more global cooperation with more global governance. There are areas in particular the need to provide technological and financial assistance for the green transition to the low income countries where the lowest income countries where green industrial policies are much less likely to be feasible. That will still require a lot of global cooperation. But it's not. It doesn't. The problem simply doesn't loom as large as it would under our sort of traditional remedies. Okay. And I take that to be good news as well. So I hope I've said enough to intrigue you, but not so much that you think you will not want to read the book. So with that, let me just leave it at that. Thank you.
- [53:00]
D
Hi, I'm interrupting this event to tell you about another awesome LSE podcast that we think you'd enjoy. Lseiq asks social scientists and other experts to answer one intelligent question like why do people believe in conspiracy theories? Or can we afford the super rich? Come check us out. Just search for lseiq wherever you get your podcasts. Now back to the event.
- [53:29]
B
Thank you, Danny, that was fantastic. We, we have some time for Q and A and as usual I take advantage of the MIC to ask the first question, if you don't mind. And I want to bring in Danny the political economist into the picture because of course you are a major contributor to that field as well. And I want to particularly ask you about something towards the end of your talk, which is that one crucial request requirement to turn productivity growth in services into a source of good jobs is to make sure that the workers receive a reasonable share of the gains of productivity as opposed to going.
- [54:13]
C
To the.
- [54:14]
B
Ownership of the intellectual property rights.
- [54:16]
C
And.
- [54:19]
B
The political economy question is in a situation where we have services that are increasingly monopolized or concentrated into some very giant national level groups. You know, you mentioned Amazon. Of course there are many other examples where there is an enormous tendency towards concentration of ownership and so more, more and more monopsonistic labor markets, how do you solve the political economy problem of getting the government to, to tweak the direction of R and D towards technological changes favorably workers, especially in a world where it becomes increasingly a daily occurrence that a few extremely rich people, really plutocrats, have enormous weight on political decisions, elections, lobbying, political campaigns, Facebook, whatever. You know, there is this normal pressure from this group of oligopolists on the political process.
- [55:24]
C
Yeah, no, I'm glad you brought this up and I think it's an important issue. And so just recently I wrote a very short piece that tried to summarize what the new post neoliberal consensus is. And I express that new consensus under three headings. Two of which I've covered here. One is the importance of returning dignity to communities and workers that have been essentially denied it because of underlying economic technological changes, that sort of good jobs agenda. Third, second, the importance of government approaches to making this make true because markets on its own will not achieve it. But the third element, which I did not mention you bringing is the general understanding that the concentration of economic power has become excessive in our economies. Now I didn't talk about this here because I think it's important to distinguish the problems of how you create productive inclusion from the issues of either redistribution or reducing the power of very concentrated and very rich individuals or corporations. But I do think it's definitely part of, has to be part of the agenda. How does that happen? It happens through competition policy. It happens through by starting to think about some, at least some platforms as being public utilities. It happens also by understanding that even though within countries there might be very strong monopolies across countries there's surprising amount of variation. There are Amazon like companies, you know, that are not Amazon and a whole bunch of other countries and those models can also provide. But it will require the government to, as it did in sort of in defense related industries to provide a kind of also direct leadership in terms of investing in new technologies to show that there are these alternatives. You know, as you know, Darona, Jimmy has this notion of so, so technologies which is that what these, a lot of, a lot of the new innovations that these companies are coming for is, it's not that they're hugely productive, but they enable them to, to, to get most of the rents of the new innovation at risk, relatively modest improvements in overall technology. If we could demonstrate that there are alternatives where in fact you're getting much bigger bang for the bug, that would also change the nature of. But the point is that private actors don't necessarily have the incentive to invest in those. So there's a variety of things whether it is to achieve these ends or to reduce the power of private economic interest. So I think that's an important element. Now the political economy questions how does this happen? You know, it does happen. I mean, look at how much change we've had, you know, first from in Biden's policies and then from Biden to Trump. I mean, these changes would not have been predicted by our, you know, you know, by our standard political economy models because in those models you have a very well established sense of vested interest. Everybody, every powerful group understands where their interests are. And that creates kind of a stable equilibrium that short of a big Crisis or war or, you know, big, you know, climate disaster or something. Those are not dislodged and you don't get the policy, policies to change very quickly. Yet we have had successively very big changes in policy that to me suggests that, you know, on top of these special interest models of political, political economy, which economists are fond of, we need what political scientists call, would call sort of constructivist models of political economy as well, where what's in our interest? What's interest, specific lobbies or groups are partly constructed by the narratives that are supplied either by political leaders, by analysts, by media. So my sense of what's in my interest is partly corporate constructed. It's not given by very objective circumstances. The mapping is not unique in that way. And I think sort of, you know, businesses sense of what is in their interest can change very rapidly in the same way that business has moved from being, you know, Silicon Valley has moved from supporting, you know, the Democrats to supporting Trump. Now to me it makes absolutely zero sense as to why Silicon Valley Valley would support an administration that is so intent on wrecking with a, you know, with a bulldozer every foundation that made something like Silicon Valley possible. Right. You know, immigration of talent, you know, rule of law, investment in public education and the national, national scientific and technological system. There wouldn't be a Silicon Valley, you know, out of that. And yet, you know, you see that, you know, interests are being constructed in very different ways in ways that we may not understand. So that suggests, you know, at the negative side things may go really wrong, but at the positive side it also provides a positive upside.
- [60:40]
B
Yeah, great, thanks. Okay, so we can go to questions for the audience. Danny, we're going to take three at a time if that's okay.
- [60:47]
C
Sure.
- [60:47]
B
Because many people wanted to ask you a question. No question here.
- [60:53]
E
Thank you. My name is Antonia. Thank you for the great talks. Professor Danny Roderick. So I want to ask about your point about that addressing climate change and yeah, I think if we talk about the. Addressing climate change. Climate change, yeah. If we see your idea about the intellectual property and make it as a carrot to kind of distribute the knowledge to the low and middle income countries and make it make the renewable energy and also green projects much cheaper. I think it needs like a very deep global cooperation. So what do you think about this kind of act in the future? Like how like a green technology in the high income countries can be distribute to the low and middle income countries through this kind of a. Make the technology as a common goods so we have the speed to reduce the Carbon emission. Thank you so much.
- [62:05]
B
Thank you. I will say one thing. There are many, many people who want us questions so can I ask audience members to keep their answers very short if possible there in the corner?
- [62:14]
C
Yeah.
- [62:15]
F
Bernard Casey wants at this place also OECD economist and various things. Everybody's interested in productivity where I come from. I just come out of meetings about this all day. In your triangle that I can see here, we want to see growth through productivity increases in labour absorbing sectors. Now, presumably, as I understand productivity, there's going to be less labour that needs to be absorbed. So I'm not quite sure how increasing productivity is actually going to necessarily generate the opportunity to absorb more labour down there at the time. Same, same time rebuilding the middle class seems to be the way you describe it. I don't disagree with what you're pointing at but actually some of the proposals that you make seem to actually be more about perhaps reducing productivity. So could you talk a little bit more about what is understood by productivity in those two points on the picture in front of me? Thank you.
- [63:19]
B
Thank you. And let's go upstairs for or in the back?
- [63:23]
C
Yeah, yeah.
- [63:24]
B
Microphone again, please.
- [63:26]
A
Thank you.
- [63:27]
B
Make sure it's a question and keep it short.
- [63:31]
A
My question is on the global cooperation side and the point that you mentioned that once job loss happens, then things like authority and governments take over. So my question is about once that happens, once that government is in power, typically they are not optimizing for prosperity of the people and this creates a cycle of more job loss. And the typical international intervention of for example, imposing sanctions makes them actually more authoritarian and the people suffer more. So is there any strategy of international intervention that can kind of help once it has passed that point?
- [64:24]
C
Okay, I'm just going to thank you for those great questions. I'm just going to have to telegraph my answers working backwards. I think there's very little that international community can or should do to address issues, issues of authoritarianism in individual countries. I would sort of limit the role of other countries to one of doing no harm. I mean you don't sell, you know, weapons to a repressive regime which they're going to use on their own people. But I think the ability of other countries to effectively, you know, you know, successfully affect regime change and get more democracy in countries, I think is, is really very, very limited. Unfortunately that's something that has to be done from within. So I don't put a lot of faith in international institutions or individual countries to achieve positive economic, positive political change in individual countries that has to come from within. On the question about productivity, I mean productivity always has these two, you know, contradictory effects. On the one, the direct effect is to reduce, you know, the number of people that has been required to produce a particular task. But on the other side it also enlarges the ranges of tasks that individuals can do, can also increases the incomes of people and therefore expands the market and that is the vehicle through which employment actually increases. So there's no guarantee, so that would be the hope that these are the sectors that are basically the employment creating sectors. They will still remain large, but if you increase the quality and the quantity that given amount of labor can produce, you're increasing the overall market size and you're increasing the overall demand for these services at the same time. So over overall the employment need not decline. That historically has been true. The question about the intellectual property rights, that's the issue I briefly discuss in the book. That's one of the areas where I do think international cooperation would be desirable. But it is in the sense of making intellectual property available to low income countries for these green technologies. So some of the, these technologies can be produced in the low income countries as well without facing the problems of licensing and patents. That unfortunately is unlikely to happen. I've been encouraged that even without that there is a significant transformation happening because you know, the, you know, Chinese exports of these, you know, renewables is so cheap it's, you know, it's very hard to make the argument, argument that the Chinese exporters are earning rents on their exports to Ethiopia or to Morocco or other countries that are. So that's a gift for other countries and still leaves room for investment in other sort of local mechanism, whether it's refurbishing, whether it's adaptation or mitigation in urban space and so forth. It still leaves room for low income countries to use the green transition as an, as an investment mechanism for their overall growth without necessarily producing solar cells or you know, or wind turbines on their own that might face that problem. So we're not in the first best, but there is still enough of the second best that's still happening back there.
- [68:03]
B
Yes, person with the blue. No, no, no, you have an LSE jumper so that you get to ask a question.
- [68:12]
D
Hi, it's Rebecca. I'm studying a executive master's in public policy here at LSE at the moment, hence the jumper. I am fascinated to hear what you think about AI and how that over kind of maps across all of these areas in a, in a kind of good way, but also so perhaps A negative way, given its impact on climate change. It's possibly positive, good or kind of positive on jobs, but negative on jobs. Just what's your thoughts on how AI maps across this and getting prosperity in this space?
- [68:44]
B
Thank you, gentlemen in the second row here.
- [68:46]
G
Thanks so much, Danny. Sam Thorpe here at LSE and also at the Productivity Institute. I work with Hugh Spencer, who you've done some stuff with. I'm curious to hear if in some of your earlier work on development, you've been critical at times of financial globalization. And it feels like we're at a moment right now where there are sort of real questions being asked about international financial integration, not least in the US in one of the places it's historically benefited from that integration. And I guess I'm curious to hear how you think the possibility of changes to the global flow of capital might affect each of these problems and in particular, whether you think there might be desirable or undesirable side effects of changes in that structure.
- [69:31]
C
Thank you. My name is Anton. The question is, on the climate change policy, why do you think the carrots of subsidies work better than taxing the carbon emissions? And would this carrots over sticks policy be applicable to most other areas of government regulation? Thank you. Okay. You know, AI, let me just say two things. One is AI is different from automation, where the, the clear and predictable impact on workers was that it's going to be basically, you know, reduce within firm demand for, for labor, holding market size constant. AI can go in either direction. In fact, you know, some of the best evidence we have on what type of workers less skilled, more skilled AI helps, suggests that it helps the less skilled more than it helps the more skilled. And that's not unreasonable because effectively AI is trained on the experience of the more skilled workers. And that becomes a shortcut for the less skilled workers to become more productive more quickly. So this is some evidence from call centers and, you know, customer service on that. But again, the other point on AI is I go back to what Francisco and I were discussing, that this is going to be very important where we just don't let, you know, the large AI companies direct everything. I mean, AI solves for the problems that are in the maximand of the, you know, that the company has. And that's not going to be the same as what public policy wants. So I think we'll have to have a very. I would go so far as to say that it's important to establish, put the hand of public authorities on this, even to the point where it's actually Slowing down the rate of development of AI and I think so I'd be very much in favor of that. Financial globalization. I'm still remain very much a skeptic about financial globalization. I do think that at least in terms of, you know, private financial flows, you know, countries periodically get into trouble because they rely what seems at the time like, you know, sort of, you know, easy credit and then, you know, so now we're running this also with, you know, with Chinese loans as well. On the other hand, it's quite clear that, you know, public financial flows have to be a part of the climate transition for the lowest income countries too. So I think, you know, public financial flows are alongside with sort of availability of, you know, intellectual property, access to intellectual property are. Those are the two domains where I think we still need significant, significant global public cooperation and then, and that we don't. But my views on financial globalization have not, have not really changed as I remain skeptical. What was the carrots and sticks? Yes. Well, I mean, you know, you know, which would you rather have, you know, the stick or the carrot? I mean, it seems like very, very straightforward that, you know, if you tell people that you're going to tax them, I mean, it seems like, you know, you may promise compensation, you may promise redistributing the benefit, you may promise all kinds of things, but, you know, the tax is very visible. The prompt compensation is just, you know, very abstract, whereas the subsidy, you're basically. And my sort of the theory, for example, with IRA was that the US Tried taxing carbon and it always failed. And yet, you know, under Biden, you know, all of a sudden, you know, sort of there was these hundreds of billion dollars of subsidies that firms were very happy to take. And I didn't, you know, there was nobody, nobody was objecting to them, to them either, except for a few economists. And I think part of the political dynamic is that if you create sort of enough winners through the subsidies that over time you can also create a kind of weaken the lobby of the fossil interests and crowd in direct restrictions on fossil fuels as well. So China started very much with, you know, these subsidies, wasn't even talking about curbing carbon emissions, but lately has been talking much more about, you know, so it came later because, you know, if you look at the balance in the United States now, Trump has removed all the IRA subsidies, but a lot of states, including Republican states, are still investing very heavily in, in, in, in renewables because the price of renewables are not so low that even without subsidies, it sort of, it Makes sense. So it creates a kind of, you know, changes the underlying dynamic that maybe after Trump, you know, you have a, you know, the playing field and the underlying strength of, you know, political interest changes over time. That might be possible to do carbon pricing as well if people promise to.
- [74:36]
B
Ask very short questions. We'll have last round back there.
- [74:42]
C
No, no, Michael, just focusing on shared prosperity. What would your mindset be about a tiny levy on every share trading, bond trading or anything in our big trading cities? Surely that would meet the shortfall that man Danny needs in New York or we need here in London. And it's investment in a middle class too, and it's non inflationary.
- [75:09]
B
Thank you. Here.
- [75:12]
A
Thank you. I just wondered if you could comment on status decline and how that relates to equality. I think my fear anyway is that status decline or worries about status decline amongst the kind of industrial classes is actually a kind of preference towards moving backwards, reducing kind of the privilege or reclaiming privilege against, you know, minoritized groups, women, etc.
- [75:35]
H
Here, front row, you've spoken about carrots and sticks in the realm of climate change and in particular it'd be really good to hear a little bit more about what government intervention might look like in this area. I know that FCA has been looking at sustainability, what it can do, and the current ESG rules have not been the greatest success, let's say, in promoting healthy investment in this area. Do you have any more specified recommendations as to how government, either here in the UK or more widely, could invest and encourage better investment in sustainable finance?
- [76:11]
C
So the, the status loss question, I, I, I do think that it is true that in, in practice, you know, the, the, the reaction takes the form of, you know, wanting to return to a kind of a past where it seemed like everything was better and more simple and your children would be better off than you were. And that was the expected thing. But I think, you know, that's not, not necessarily, Again, it goes back to the question about constructivism and narratives. And part of the job of political leadership, I think, is to be able to provide the narratives where you're looking forward to a future and not just a past. And that's where political leadership has been lacking. But you simply cannot, I mean, you don't want to go to the other extreme and simply dismiss people because, because the way that they're expressing their sense of loss of dignity and sense of loss of social recognition is taking one particular form. But the fact is real, it is felt and it is the role of policy to address those, because it has consequences beyond not just for the individual, but for society at the same time. So I think I view it as a kind of a challenge to redirect that sense of loss of control and dignity on, you know, sort of. So, you know, if you look at China, I mean the range of instruments that China has used, from venture capital to regulatory changes to direct directed credit, I mean, there's, you know, it's a catalog of, you know, inventory of different, different types of instruments. The point is that you don't want to think about industrial policy, whether it's in the green area or something else, as a preordained list of policies. But you want to think about them as a way of addressing opportunities and constraints and utilizing the capacity of the government to provide a portfolio of different ways of addressing these. So you ask the question, what is needed to make investments and what is it that firms lack? Sometimes the solution will be credit. Sometimes, you know, solution will be particular time investment training. Sometimes it will be, you know, business extension services. So the process of, in all of these successful programs of productive transformation, you know, it's a process of learning about what type of instruments, what type of interventions are more likely to be effective and being ready to provide kind of a range of a portfolio of different types of public inputs and not necessarily taking an ex ante view that we're going to do it through a public investment bank or we're going to do it through directed credit, or we're going to do it through extra sort of particular R and D fund and so forth. These, these things already exist. But how you coordinate them, how you make them available in a particular sector, how you engage in a dialogue with the relevant stakeholders and the firms, you know, that's really where the secret sauce is. And it's a very different frame of mind, this collaborative iterative frame combined to the. From as distinct from the regulatory, top down, arm's length kind of an approach. Again, I'm missing one question.
- [79:32]
B
Transaction tax.
- [79:33]
C
Transaction tax, yes. The financial transit. I'm all for it. Levy. Okay, I'm all for it as long as. And because it will raise revenue and we can use revenue. But I want to make sure that we understand that that's not necessarily the solution to productive inclusion. It's a way of making more resources available for necessary public expenditures. But that's different. Tax trans schemes are different from changing the underlying structure of the economy in a way that's going to create more productive opportunities for people. And that's not exactly the same thing. I would say there is a distinction.
- [80:12]
B
Danny, thank you very much again. It was a great pleasure to have you.
- [80:23]
A
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