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Lowes has the brand's pros trust to get the job done. You can now shop new Catalyst Fencing solutions and save big when you do 10% off when you buy in bulk. Plus save $180 on a DeWalt 12 inch dual bevel sliding compound miter saw. Now just $449. Our best lineup is here at Lowe's, valid through Five Six Wall Supplies. Last selection varies by location.
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Well, the way that I've come to express that in the context of technology is that I'm not an optimist, but I'm hopeful. And there are several things to be hopeful about. I mean, we are apes and we've come so much further than apes. I mean, one of the things that I think chimpanzees or gorillas would find completely impossible to understand is how we build these amazing power concentrations and then we use them for mostly for decent things like providing public services and now
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A
the Good Fight with Jasia Monk. My guest today needs a little introduction. Darn Atsemolu is the Institute professor at the Massachusetts Institute of Technology. He is the co author, among many influential and important books, of why Nations Fail with James Robinson, another recent podcast guest. And he is, of course, the 2024 winner of a Nobel Prize in Economics. This is the kind of conversation I love having on the podcast, a conversation in which I both try to introduce the width and breadth of an important thinker's work to the audience, but also push them on a bunch of those questions. So so we covered why historical approaches to economics reveal so many things that other approaches might miss. How it is that the particular way in which colonial institutions were set up in, say, the United States, as opposed to Colombia, drove their differential economic developments. Why the difference between inclusive institutions and extractive institutions can really explain some of the vast economic differences between different parts of the world. We talked about the narrow corridor that countries have to tread between an overly dominant state on the one side and an overly dominant society which doesn't allow the development of state capacity on the other. We discussed in some detail the economic prospects of China. How is it that the country made its institutions less extractive, allowing the phenomenal economic growth over last decades, and whether its institutions remain too extractive today to actually allow the country to catch up to the GDP per capita of the United States, or, for that matter, of Portugal? We talked about the preconditions for democracy, whether there was something special about the economic wonder years of the 50s and 60s and 70s which led to to greater content with democratic institutions than we had before that period or are likely to have at any time after it. Darren gave us a preview of a book he is writing on liberalism, arguing that we have to abandon an establishment liberalism that has alienated a lot of voters, returning to the more radical and in some ways the more proletarian roots of the ideology. And finally, in the part of a conversation reserved for those of you who choose to support our work, who make this podcast possible, we talked about the big elephant in the room, artificial intelligence. Why is Darren skeptical about artificial general intelligence, about the ability of our current artificial intelligence models to approximate something like general intelligence? And what does that tell us about how to actually gain the productivity increases that we're hoping for in AI and ensure that ordinary people have good jobs so we remain the kind of middle class economy that delivers inclusive growth and that is the precondition for liberalism, for democracy. If you want to get access to that part of a conversation to full episodes of every episode of a podcast to get rid of these annoying pre recorded ads from random companies and people talking into your ear every now and again, please become a paying subscriber. Go to yashamunk.substack.com thegood fight for 25% off, which means that this podcast ends up costing you, and my writing on substack ends up costing you, and the content persuasion ends up costing you about a dollar a week. Taranasamogdu welcome to the podcast.
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B
Thank you, Yasha. It's great to be with you.
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A
Congratulations on the Nobel Prize, which you won, I believe, last year, with James Robinson, among others. One of the things that's interesting about that is that your approach to economics is not one that was particularly mainstream or well trodden when you started out doing it, which is to use differences in historical development to explain the vast difference in how wealthy countries are today. For example, among other kinds of things you try to explain, how did you start off on that methodology, on that way of thinking about economics, at a time when I think that went a little bit against the grain of the mainstream of the profession?
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B
Well, there are really two answers to that. One is that I actually was drawn to economics, perhaps somewhat mistakenly, because I was interested in these historical questions and I thought economics would have the answers. It turned out that wasn't quite the case. But second, one of the things that has always fascinated me is how amazingly different human societies are both from each other today, but over time. So you can think of that as big evolutions that have taken human societies from hunter gatherers to big empires, from Big empire to city states, from city states to absolutist monarchs, from absolutism to some other mixed regimes, et cetera. And today something quite different. Well, for now, we'll see where we end up. So that sort of big transition is historical, so you cannot understand that by just looking at the latest inflation statistics. So history has got to be your sort of data set. And I, from the very beginning, was drawn partly to history because of that. And also these big events have really so much color and interest. I remember one of my professors at the London School of Economics, a wonderful industrial organization economist, John Sutton, once said, oh, econometricians throw out the outliers. But I think the outliers are the most interesting observations. So it's like history is like that. History has a lot of outliers in it, but they are the most interesting things. If you want to understand where we end up interesting.
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A
And just to explain to the audience, why is it that econometricians throw out the outlier? Because when a statistical analysis, you're worried that the correlation you find, of course, the fact you find is sort of overdetermined by this one random country where something else. Exactly.
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B
So that's not a crazy thing to do, especially when you take into account that many data sets have mistakes. So outliers might be actually just a reflection of those mistakes. But there is something to John Sutton's statement that those very unusual cases have a wealth of insights for us, that makes sense.
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A
And even, I mean, I was just traveling in East Asia. I mean, you know, Japan, I think, is a cultural outlier in all kinds of ways. I can see why in many aggregate statistics, when looking at 180 countries, when you're not really able to think very carefully about why a place is an outlier, you might want to exclude that. But if you want to understand something about the varieties of a possibility of human culture and society, saying, hey, Japan is a really interesting outlier, let's go and try to understand why Japan is so different from China and from Vietnam and from other neighboring countries, let alone from the United States and from Germany, actually would tell you a lot.
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B
100%, absolutely. Yeah.
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A
And so, you know, you set out to. To try and understand why is it that France today is so different from France in the 18th century, in France in the 3rd century, but also why is it that France is such a different place from Japan or, you know, from Nigeria or from somewhere in Latin America? Sort of. How did you. Of all of the different kinds of historical factors that might help to explain those things, how is it that you narrowed that down into, you know, quite a compelling central causal, historical.
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B
Well, you know, I think you have to start somewhere. And if you want to understand why France is so different from Nigeria, you probably want to start three, 4,000 years ago, perhaps 2,000 years ago. But James Robinson, Simon Johnson and I were motivated at first by a slightly narrower question, which is, why are there such huge differences in prosperity, say, for example, as measured by gross domestic product per capita and our income per capita today or at the time we're writing in the late 1990s? And that's an unmanageably big question as well. But one potential line of attack that seemed attractive to us is, well, if you want to understand the role of institutions there, looking at a big subsample where institutions were relatively recently reshaped through channels that we understand to some degree the colonial subsample, the countries that used to be European colonies is a very interesting starting point. It turns out that the degree of rich and poor gaps that exist in the whole sample are replicated in the former colonies sample. So that's a very representative in terms of understanding why there is so much poverty and why there is so much economic development. And then the fact that, you know, sometime around 1500, Europeans started having an oversized effect on the institutions of these colonies. They didn't impact their geography, but they completely retransformed their institutions in many places. You know, look at, for example, places like Australia or the United States, what became the United States, which were largely empty or, you know, very sparsely settled. In some places they took existing institutions and reshaped them, such as Latin America, or completely erased and rebuilt them, such as the Caribbean. So that sort of gives you at least a sample where you can have a chance of understanding some sort of quote, unquote, exogenous variation in this institution. And that's what we were after. And then once you read the history, it becomes very obvious that asking a question that was somehow still not so popular but investigated by several scholars, what's the effect of colonialism? Is not a very well posed question, because there isn't just one kind of colonialism. The colonialism in Australia and northeastern United States was very different from the colonialism of, say, the Mexico Valley. So we sort of said, well, there's a big variation here. There are these institutions often associated with Europeans settling there and building institutions, often not top down, but sometimes with conflict between colonial authorities and the people who went there as indentured servants or convicts, as in Australia, and places where they set up, you know, extractive institutions in order to just take the gold or the silver or put people to work. Those are very different kinds of things. So that's what we focused on, that variation. And we tried to find an exogenous source of variation. And there, there, there lies the origins of our first sort of foray into these topics.
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A
So in a way when we're thinking about this is that, you know, in the year 800, it would have been really difficult to come up with that kind of unified historical causal explanation because, you know, Nigeria and present day Nigeria, present day Chile, present day France were faced, were shaped by such different forces.
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B
Exactly. That would have been.
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A
Exactly.
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B
They evolved over time, you know, in the parlance of social science, endogenously. And which are the consequences, which are the causes is a bit harder to determine in that context.
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A
Right. And so then you have to sort of exploit this kind of historical bottleneck where a huge swath of the world is deeply influenced by this, you know, imposition of institutions from the outside. And so therefore you can look at, you know, how do these institutions subtly differ from each other? Now my understanding is subtly.
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B
Yes, exactly.
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A
Now my understanding is starting in a famous paper in 2001 and then obviously in the bestselling book why Nations Fail, you argue in particular that the key differences, that in some societies these institutions were inclusive and in others they were extractive. And this is not because some countries were just more enlightened or more well meaning or something like that. It had to do with sort of who the settlers were and how they were trying to exploit those resources. So tell us about and why that's so historically impactful.
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B
You know, some commentators, including Winston Churchill, by the way, in his history of the English Speaking people, says, oh yeah, you know, the British were much better colonizers than the French. We don't find any evidence for that.
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A
I have an old Indian friend who told me that in high school they unfortunately have an examination system that is not very conducive to free thinking, where they have to make 10 points in an essay on any topic. And those 10 points are pre given and you have to underline each point so the examiner can at a glance sort of know what the 10 points are. And the 10 points about colonialism involved nine points about how horrible colonialism was in India, reasonably enough. And then the tenth point was, and thank God we were colonized by the British rather than the lastly French.
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B
Yeah, that brings it to mind. Apocryphal saying attributed to Gandhi, which, you know, when he Was asked what you think of European civilization. He said it would be a good idea. So. So we don't find, you know, religion or identity of the colonial power to be that important, but conditions on the ground are very important and several of them seem to matter and we've explored them. But the one that we focus in that 2001 paper you mentioned, Yasha, is that if a big difference is whether Europeans can settle and therefore the lower strata of Europeans go there and can demand rights, et cetera, versus Europeans just send some administrators to exploit the local population. Well, one important determined though, then is whether Europeans can settle or not. Well, if you look at the history, that's not a trivial consideration. Europeans many times tried to colonize and settle in Africa, and it just led to essentially 100% of all of the people who went there dying of diseases because they did not have immunity to the diseases that were prevalent there, especially yellow fever and malaria, but also some gastrointestinal diseases, Whereas in Australia was actually healthier than tuberculosis infested European cities. So disease environment really varied across places, and that's the source of variation that we exploit. In the parlance of economics, we use that as an instrument, meaning we focus on the variation coming specifically from that disease environment, and we try to document that that's not the direct effect of diseases and it's not correlated with other things. And that was the big sort of methodological innovation of that paper that we then built on and developed in various different ways. Starting a business can seem like a daunting task unless you have a partner like Shopify. They have the tools you need to start and grow your business. From designing a website, to marketing, to selling and beyond, Shopify can help with everything you need. There's a reason millions of companies like Mattel Heinz and Allbirds continue to trust and use them. With Shopify on your side, turn your big business idea into sign up for your $1 per month trial@shopify.com specialoffer and
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A
so this is a very neat explanation because you're saying, look, you know, these colonial powers are trying to extract resources from these societies. In some places, they are, you know, going to send citizens from their own countries to go and dominate these societies and extra institutions. But because they are linked to the motherland in various ways, because they're, you know, seen as culturally and perhaps at the time, ethnically in some kind of way related, they can make much different kind of demands. And so you end up, in one case, with a relatively inclusive economic and political institutions of the United States not without struggle, certainly not without exploiting others in extreme ways. But, but that sets you up much more for economic development as opposed to
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B
places at the end of the day, you know, sometimes people, you know, think of an alternative story which may have a small grain of truth, but just very, very small, which is, oh, you know, Europeans settled and brought their own institutions. It's not actually that. I mean, at the end what happened is that when people in, you know, the Mexico Valley made demands for better treatment, they were treated harshly. When European indentured servants made similar demands, they were somewhat more protected. And that's where that cultural ethnic overlap came in. And also the conditions there were conducive to them running away because it was sparsely settled. So the balance of power was very different in the places where Europeans settled. And that's how institutions emerged. And it's not like they had the sort of templates for good institutions from Europe and just imported them. Actually, you know, in the 17th century, the institutions that European settlers, English settlers tried to build, sometimes successfully, sometimes unsuccessfully in northeastern United States were much better than what was there in the, in the uk.
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A
Now in a follow up book called the Narrow Corridor, which I don't want to touch on in too much detail because your co author James Robinson was on the podcast talking about that when the book came out. And people should go back and listen to that conversation if they haven't gotten enough of this line of work. From this conversation you make a slightly different argument, which is to say that there's this narrow corridor, as the title of a book suggests, between on the one hand, places where the state completely dominates and others where society completely dominates. And what you need is a kind of balance between those two things. Explain that idea and explain how that's related to the central idea in why Nations Fail. The same idea. To what extent is it a different idea?
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B
Well, before I do that, let me actually say one other thing which sort of shows the progression from the papers to why nations fail to the narrow corridor. In the academic papers we wrote, we were looking at a given sort of cross section as the outcome we're trying to explain. And the institutions were likewise. We were sort of interested in the modern institutional variation. So one could get the feeling, and we did not do much to dispel that feeling in the early paper, that there are these institutions that just. You put them, they stay. That's it. That wasn't our view ever. Our view is that institutions, especially what you refer to as, what we refer to as inclusive institutions, are a process you build them, they have to vary over time, they have to evolve over time. They are going to be constantly challenged. So we start sort of making that point in why nations Fail, where we talk a lot about the evolution of institutions, critical junctures, threats against institutions, et cetera. But still it is not to the level necessary for understanding the dynamic evolution of institutions. So in some sense, the narrow corridor is one more step in that direction. So that's the way in which it's building and extending the why nations fail agenda. It's really about that evolution, it's really about the process with which those institutions are built. And the other thing which is in some sense again building on but significantly departing or adding to why nations fail is that in why nations fail we also note state capacity matters. How centralized a state is, or whether there are many groups that can themselves pulverize state institutions easily is an important part of inclusive institutions, because you need third party enforcement, you need public good provision, et cetera. So that's what we sort of take on much more seriously in the narrow corridor. And that's what we see as one of the very important determinants of those dynamics. Because the critical role that civil society, popular mobilization play, for example, in democracy is something that emerges and evolves over time, especially in the struggle between states and elites that try to dominate society. And society tries to find new ways with collective action, with civil society, with culture of living with that those state institutions are sometimes resisting them. And that's the dynamic, and that's the dynamic that defines and happens in the narrow corridor when there is a balance between state and civil society. And we also of course point out the more usual case where that balance is absent. Instead one of them dominates. So when the state dominates, like in China, you have a much more despotic set of institutions where civil society is either non existent or very dependent. Or you can have situations in which state centralization doesn't happen at all. So it's all collective action, norms, traditions and local adjustments, but without any sort of third party enforcement or public good provision. So that's the sort of the overall picture that emerges from the narrow corridor.
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A
Thank you very much for this concise overview. I want to touch on one way in which I think your work is very optimistic, and then perhaps touch on one way in which it's potentially pessimistic. The optimistic piece is that you're saying that first of all, it's much better to have inclusive than extractive institutions, which I think goes against the instincts of a lot of people. I mean, certainly in the United States, for example, a lot of people, I think, want to argue that slavery really is at the root of American wealth. And it's interestingly, an argument often made by people who want to emphasize how horrible slavery was. And we somehow think that the serving that argument by saying it's really because slavery that all of American wealth was built where I think it would kind of be horrible to think for. We have this choice between having extractive institutions like slavery and fast economic growth, or having inclusive institutions where we treat people well but at the cost of less economic growth. And your argument implies that. No, actually, you know, slavery obviously made some people very rich, extracted resources from one group of people at terrible cost to give it to others. But overall, that is not why America went wealthy. And presumably that's an optimistic insight. Similarly, I think the core argument of a Narrow corridor is optimistic that we don't have to choose between having an active civil society and having a state that is able to accomplish important goals like public goods or some amount of welfare state. But actually, in a sense, those two things can be complementary when they are both strong and keeping each other in balance. So tell us a little bit about whether I'm right to read those two points as rather optimistic about what human institutions are capable of achieving.
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B
Well, I think you are broadly right, but there is a progression here. Why Nations Fail was written largely in 2009, 2010, some of it. So I think those were more optimistic times. So your optimistic take for why Nations Fail, as well as your pessimistic case is broadly right. I would just add the caveat that we always emphasize. Centralization of resource allocation can sometimes work. So it's not like centralization always fails. So you can have centralized allocation that can pour resources into established firms or force people to work for very low wages for certain periods of time, and that can give you a boost. Look at the Soviet industrialization or early stages of, or the mid stages of the Chinese development process over the last 40 years, or Prussian industrialization in the 19th century. They can work, but they have seeds of their own destruction within them because that centralization, especially when bolstered by extractive institutions, is going to lead to inefficiencies and it's going to block innovation. So that was sort of the argument of why Nations Fail. I think by the time we were writing the Narrow Corridor, largely in the mid-2010s, we were already somewhat more pessimistic. And that's why it's not the corridor, it's the narrow Corridor, you really need this fragile and constantly challenged battle between state and society, elites and regular people. And there are other attractors. So in some sense, we are also reacting to sort of end of history type of narratives that were already, I think, challenged by other people by the mid 2010s, but were much more dominant, say, in the early 2000s, that there is a natural progression. Let China get rich, trade with China, and ultimately China will look like the United States, will respect human rights, will be democratic, et cetera. Know that we were saying there are other attractors. You can end up with a very stable, in fact, very, very stable despotic leviathan, or you can end up with no state institutions whatsoever, and that's stable as well. So in that sense, there is greater pessimism in the narrow corridor. And by the time I took on the other important topic of technology and technology's direction, I think you start becoming even more pessimistic because technology's direction, of course, centrally interacts with institutions. And at least the way that I express it, Simon Johnson and I express it in power and progress, it is another big set of traps in which human society can fall and will find it very difficult to escape.
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A
And I very much look forward to returning to those questions in a later part of a conversation. You slightly teed me up for the potentially pessimistic aspect that I was going to ask you about, which is that I know when nations fail. And the Narakorda was particularly influential in many developing countries around the world, where people were thinking, well, what lessons can we take from this for how to succeed, for how to get closer to the economic performance of those countries that are doing the best? And in a way, the historical approach is more optimistic than some other ones. I mean, some people try to explain differences in development by things like geography, by things like climate, saying, unfortunately, if you're stuck in the wrong climate, there's really not very much you can do. You might imagine some people on the far right trying to explain it through biological reasons by claiming that some cultures or perhaps even, oh, many people.
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B
Absolutely many people, yes.
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A
And obviously saying, no, it's because of what happened in the 16th century or the 17th or the 18th century in terms of how these institutions were set up is a more appealing story than those alternatives. Of course. On the other hand, you might also read that as somewhat fatalistic to say, well, you know, you're not screwed because there's anything wrong with you. You're not screwed because there's anything wrong with your climate. You're just screwed because 500 years ago people set up the wrong institutions. But that can in some sense feel just as disempowering. So,
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B
but let me clarify that, that last part, and then I'll say a few more things about the first part of your comments. That is a very important point, and some people make that. But let me clarify. We never say that what happened 500 years ago is inescapable. It's just an influence. So in the parlance of the instrumental variable strategy, it's a predictor, but it's not a full determinant and it determines perhaps 30, 40% of the variation. There's a lot of agency there. I mean, not individual agency, but collective agency. And there are many countries like Botswana, which suffered the most exploitative, most negligent type of colonization and then end up with very different institutions. Obviously, then we get into the issue of the equivalent of the discussion of free will versus determinism in biology and individuality, and how much of that was because of other conditions that enabled them, et cetera. But there is certainly agency broadly construed
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A
now in terms of what does that agency look like if you're in a place that has an inheritance of very extractive institutions, what is required in order to successfully reform those institutions and make them more inclusive and therefore more conducive to economic and other forms of success?
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B
Well, I think many things. Certainly leadership plays, the quality of leaders does play some role. More importantly, in my opinion, is culture, meaning different cultures provide different menus for the things that you can do. And that menu, of course, doesn't need to translate into action. You know, by menu I mean there are many possibilities. But having those possibilities and then choosing the right ones. Organization of civil society plays a very important role. You know, Britain was not destined, absolutely not. And I've emphasized that in every book. Britain was not destined to be a democracy. Forces that made it authoritarian, top down, hierarchical, were extremely strong throughout the 16th century. Going back further, even more. But 16th, 17th, 18th, even 19th centuries, well, it was demand from bottom up. So this organization of civil society, that's part of the agency, and then ideas matter. If we did not have ideas related to, say, liberalism and liberal democracy, popular sovereignty, we would not have templates to provide alternatives to those that were being proposed by, say, absolutist rulers, like the divine right of kings in England. So the right ideas again, and then we have to get into who are do ideas come from, how do they spread, et cetera. That's what makes social science interesting.
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A
That's really Interesting. Let's take one obvious example that you mentioned briefly earlier.
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B
If I can say, Yasha, just in response to your earlier. So first question of optimism from history. Well, the way that I've come to express that in the context of technology is that I'm not an optimist, but I'm hopeful. And there are, you know, several things to be hopeful about. I mean, we are apes and we've come so much further than apes. I mean, you know, one of the things that I think chimpanzees or gorillas would find completely impossible to understand is how we build these amazing power concentrations and then we use them for, mostly for decent things like providing public services. Even in the United States, which has now morphed into so dysfunctional politics, most of the power of the state is still used relatively benevolently. That's just an amazing achievement. We've come from Egyptians, pharaohs and tyrants to some version of democracy. That's an amazing achievement. So people, Marxists and extreme leftists, never tire of criticizing market economies. And they have a point. But look at the 35 years or so from 1945 to the mid-1970s where you had very rapid growth, tremendous growth of wages and relative equality. So inequality declined, wages increased for low wage, low skilled manual workers. So we've achieved things that, you know, the greatest pessimism would say are impossible, but we haven't achieved them consistently. That's why I'm not an optimist. There isn't a natural set of forces that will always take us towards, you know, everybody's happy, everybody's prosperous, but we've made big leaps in showing that those are possible from time to time.
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A
I fully agree about that. Now, one of the places which you might say has accomplished remarkable things in the last 30 years is China. And you mentioned China briefly earlier. I mean, it is a country that went from being desperately poor as recently as the 1980s to being a middle income society with parts of a country and stretches of a country which are really very affluent. I recently spent two weeks in Shanghai and some of the surrounding areas. And it is just a remarkable miracle of humanity how the life of the average Chinese person has transformed for the better over the course of those decades. Now, in a sense, that is surprising because China's economic institutions, certainly political institutions, remain extractive rather than inclusive. And so I guess the obvious question is, do you think that China eventually is going to run into the same trap as something like the Soviet Union? The story you tell about the Soviet Union is that they are able through central control and investment and other things to make a real leap in development at a very high human cost. There's a few decades where many Western economists keep predicting that the Soviet Union is going to overtake the United states in its GDP per capita. And central planning in the 1950s in many Western countries is seen as the wave of the future. And then it turns out that the Soviet Union sort of got stuck at a certain economic level. Now, obviously we. China's economy is much more complicated than a central planning economy and involves many, many elements of the market. And perhaps you might argue that therefore its core economic institutions have become much less extractive, and perhaps that's why it could continue to grow. What is your prediction about where China is going to go? I mean, if the basic economic model of China remains roughly what it is now, is it potentially able to catch up to the GDP of the United States? Or as Martin Wolf recently argued in this podcast of a country like Portugal who. Or do you think that it will remain far behind those levels because of the extractive elements in its system that remain in place today?
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B
Well, I mean, that's a really critical question. We all have to struggle with it. I think there are several points to make. One is absolutely just reiterate what you said. It's a big achievement. We can quibble with a few aspects of it. The inequality which has absolutely skyrocketed. Wages haven't grown anywhere, anywhere at the same rate as GDP. They were stagnant for 20 years. But it's a tremendous achievement. Now, the first part of that achievement was exactly what you said at the end, which is China with great potential was hugely underperforming because it had some of the worst extractive institutions in Chinese agriculture, which is the reason why China has a billion and a half people. It's very productive. Agriculture was completely decimated by repression, extraction complete lack of property rights, complete distorted incentives. And the first phase of liberalization in the 1980s and 1990s really was agricultural. That's where the first big bout of growth came. And as my colleague Yang Huang has documented and argued, that's when you actually had wages and living standards in the countryside and some in the cities improve. So that's a very classic from extractive to inclusive. Now the second phase is much more complicated. That's what Jim and I would call extractive or despotic growth. It's much more centralized, top down, especially after Tiananmen Square. And that's still an achievement because many other countries have tried it, including the Soviet Union and they haven't done it as successfully. And China did it very successfully. It was able to attract foreign investment, foreign companies, their technology. It was able to get people to cities and jobs in a relatively controlled manner. It was able to boost savings and channel all of that money to state owned enterprises and then to large privatized companies. So that was, that was a success, but it was a distorted growth with a lot of inefficiencies. And then now we have the third phase which I think is even more complex, which is technology based. And I think my research in that and my overall take is, you know, there are two forces here that are pushing in opposite directions. One is that China has some advantages going back to, you know, the, before the Tang dynasty, but especially with the Tang dynasty, it has had this relatively meritocratic, sometimes very distorted, but relatively meritocratic way of selecting people to the top that has sort of persisted across. There are many different guises and now it is what generates the largest cadre of engineers and generally well trained engineers in China. So what we are living through is digital technologies, AI and other things like robotics and other advanced equipment where you need a lot of engineering talent. China has that plenty.
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A
And part of it, by the way, is a relatively meritocratic selection procedure for the top of society, despite obviously political connections and part membership playing a huge role. And part of that is just that it drives broad based education and skills acquisition throughout the society. I mean one thing, that's why I
- [40:05]
B
was trying to say that's like a continuation of that imperial education system which was at times inefficient because it emphasized the wrong skills, but it was always sort of select the best to serve the ruler. And so that's how the education system still functions. And it's more meritocratic perhaps than the imperial education system. Keju was at points, but going against that, that top down system also creates a lot of inefficiencies. You see that in the way capital is allocated, which is building up a lot of misallocation of funds and companies that are being saddled by inefficient investments that they cannot get rid of. Second, you see that even in the innovative sectors of the economy that you have career concerns, political influences and other things interfere with research. So some of the work I've done, for example, looks at the Chinese academic system and sort of traces the implications of these sorts of inefficiencies. So innovation is very difficult when you have those sorts of challenges. And there is a lot of instability in the system because everything is Top down, everything is the Chinese Communist Party's will. Think of what happened in Covid. You know, you stick with a bad policy and then overnight you change that policy. That sort of thing is also quite costly. So it's the battle of these two things. You see, for example, a company like Deep Seek, which compared to its US counterparts with a shoestring budget, came up with a AI model that rivals anthropic and OpenAI. Well, that's a big achievement. What is that achievement? Well, that achievement is engineering. They, they did really very skilled engineering advances. But then you look at where the technology at the frontier is. You know, many companies are still behind us and Europe, so it's these that battle is going to play out. Now, my prediction is that China will continue to grow, but whether it will reach Portugal level income per capita is an open question. I don't think it's going to reach US or German levels anytime soon. I think the inherent contradictions within the system are going to become more important before that happens, despite the fact that I think there's going to be some other Deep Seq versions of engineering marvels coming out from China.
- [42:46]
A
Yeah, I would love to speak in much greater detail about China. Again. I just spent some time there and came away with a deep sense both of the strengths of the country and the system and of its weaknesses.
- [42:58]
B
What would you add to what I said in terms of weaknesses?
- [43:02]
A
Well, so I think on the strength side, first of all, you know, 20 years ago there are still people who were saying, you know, China is not a free society and free societies just cannot innovate. And I think the existence of things like Deep Seq, as you've said, clearly indicates that that was wrong. You know, China is very innovative in artificial intelligence and electric cars, you know, complex manufacturing processes across virtually every product in the world. One of the interesting things I did while I was in China was to go to yiwu, which is not a great manufacturing center, but it is the place, the biggest wholesale market in the world, where among other things, something like 80% of the world's Christmas decoration change hands. But it's not just Christmas decorations, also very sophisticated goods, but are displayed in the electronics district of its huge district. Now, at the same time, I think that China has not been very good at creating good lives for its citizens. I mean, the part of the perception of China that is most off was in this brief moment when I guess TikTok was briefly banned or something like that, and people all end up on, which is a Chinese social media app that's accessible from the United States. And there's these exchanges where people were saying how great the lives are and Americans were buying it naively. And I think that is just clearly not true. You have an educated class that is incredibly squeezed by the high costs of rent and property in Beijing and Shanghai. You know, Chinese complain about that at least as much as graduates of good universities in America complain about the rent in New York City and San Francisco. You know, a work culture that is incredibly punishing. You know, working over, you know, six days a week, 12 hours a day is absolutely standard. And then a lot of the things that are seen as the strengths of China economically actually come from them still having a giant low wage sector. It's not that China's delivery apps somehow are some miracle of engineering that allow great comfort for people. It's that you can order something for a 50 cent fee because the person delivering it to you is living in a dormitory with the middle school friends on the outskirts of the city. You know, working the ass off 247 for very, very low pay. You know, and, and, and not to sound like Tom Friedman, I had a lot of conversations there with cab drivers who, you know, all had that kind of life. I mean they're all internal migrants or 80% of them at least in a place like Shanghai. You know, they're living in these, a mixture of dormitories with a middle school friends.
- [45:40]
B
No, no, I think those two points are very important. That's the low wage labor has been, you know, repressed labor has been one of the things that enabled Chinese industry to do so well with an export direction. And the fact that quality of life, I think once you have the middle class, they're going to want other things including more information, freedom of speech and that's being repressed. People internalize that, but it does reduce their quality of life. Security program on spreadsheets, new regulations piling
- [46:11]
A
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B
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A
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B
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- [46:33]
A
Go to vanta.com calm yeah, and so one of the interesting upshots of all of this is that I think at least it's broadly discussed within China and it's hard to tell for what extent. It's true there's a decline in ambition where you know, people in their 20s, 15 years ago all desperately wanted to go to the big centers of innovation and advance their careers. And now a lot of them have the ambition of going back to the third fourth tier cities that their parents might live in, go live with their parents or move into some apartment that they may have from real estate speculation they can't sell because the mortgage is now underwater. And have what we've got, common man's life, where you have a state sponsored job that works you a little bit less hard. And if you have that lack of ambition creeping in, that's going to develop economic development as well. I don't want to make this a China podcast. I really wanted to set as a preamble that I want to talk more about China. But there's a lot of other things we need to cover. One of the things is the opposite, which is to say that's a really good question. You have an interesting strand of work about when and how democracy emerges. So tell us a little bit about what the conditions are in which democracy tends to emerge and what that tells us about the future prospects of democracy. Whether, for example, if we think about democracies, I understand you do in part as the sort of balance of costs of repressing demands for democracy over the cost of acceding to democracy. Some of the technological changes we're now seeing might not make it easier to continue refusing demands for democracy, whether that's in China or in other places around the world.
- [48:18]
B
I think these are really critical questions for our present moment. And there are of course millions of factors because there are thousands of different versions of democracy. But I think one factor is overwhelmingly important, demand for democracy. So you don't get democracy by design from the top. Sometimes you get voting rights given. But durable democracy comes up much more likely when there is a bottom up demand for it. Going back to the Greek city states such as Athens, to the early phases of British democracy in the 19th century, when people, and that could be middle classes, sometimes working classes, sometimes women who are outside the system demand rights. I think that's a very good path of going to democracy. But the converse is true as well. I think liberal democracy will have a very difficult time and we are having a very difficult time when the population loses its demand and its support for democracy. It thinks democracy is not delivering correctly or incorrectly, its aspirations are dashed. I think that's going to make it very difficult for democracy to survive.
- [49:46]
A
Was the time in which people felt that the system is really fully delivering for them a strange historical economic anomaly? You mentioned earlier the Trente Glorieuse Wirthaus Wunder the decades, the 50s and 60s and 70s in which there was just a tremendous transformation in people's living standards, in people's life expectancy, in the levels of education. Even the experience of social mobility at that time didn't require an ordinal change, which is always painful because it doesn't just involve one person rising up, it by definition involves another person falling down. You could go from being a poor peasant family to a family of factory workers, to a family of university educated white collar workers without changing your relative position in the society. Now we may not get that moment back even if we get big economic growth. And it means that we can have even more things and you know, even better entertainment and perhaps can travel more, which is not going to go from, you know, living on a farm, worrying that if a harvest is bad we might not have enough to eat, you know, shitting in an outhouse and not having antibiotics, to the life of a middle class white collar worker in Western Europe and North America. You know, and if that's the case, is the kind of background satisfaction that people had with their democratic and economic institutions for some part of the last 60 or 70 years just never going to return. Are we just destined to go back to much more restive, much more unstable political systems that perhaps are more typical of human history more broadly?
- [51:41]
B
Well, look, I think the question of when did democracy fully deliver has a very simple answer. Never. That's not just because nothing ever is perfect in the world. It's also because democracy's promises and aspirations are very lofty. But more importantly, and again going back to our narrow corridor discussion, you should think of it as a process. If people are not making more demands and are not somewhat dissatisfied with their lot, democracy is not going to advance. So I think at every stage of democracy's history you will see people complaining about it, and rightly so. But by and large, and this is where the transculerius comes in the post war miracle decades in Germany, in France and the UK in the US I would say during that period the three core promises of democracy were largely satisfied. Shared prosperity. Economic growth happened, there was more prosperity and it was shared. Every group, every education segment, men, women, different races took their share, some of them more so, meaning that inequalities, pre existing inequalities closed down public goods, much better services, better health, better education, much, much better roads, better social insurance, especially in Europe, but to some degree in the United States as well with the war on poverty and voice. Foundational to democracy is that people feel that they have voice that's very imperfect. They always complain, and rightly so. It's a representative democracy after all. But by and large, people participated, for example in the United States in local politics and national political process. And if you look at it over the last 40 years, we have, it's not. And my work says democracy is better than authoritarianism. And the last 40 years democracy has better, done better, better than authoritarianism. But relative to its own aspirations, its own promises, it has failed. Inequality has skyrocketed. Many demographic groups have seen their positions deteriorate, let alone catch up or keep in concert with those at the very top. The quality of public goods has become pitiful in all dimensions. And there is a sense that we can debate whether how much of this is real and how much of it is manufactured. But there's a sense that political elites, bureaucrats, politicians, don't speak for the common person anymore. So all three of these have been big bones of contention. And the fact that people are turning their back on democracy shouldn't be surprising. And in fact, in statistical work, that's what my co authors and I find that when democracies are able to deliver on some of these promises and as well as other things like controlling corruption, their support grows and when they don't, their support declines.
- [54:50]
A
So I know that you're working on a book that is of special interest to me and the kind of things I think about, and that's on liberalism. And I think you've started to give us a little bit of a preview of the arguments in that book. If I'm interpreting the answer to the last question right, one of the ways you frame this is that you have real concerns about sort of establishment liberalism and that you want to return to more radical, more change, demanding version of liberalism. What are tell us a little bit about what you mean by that, establishment liberalism and how those of us who want to defend and advance philosophically liberal ideas can return to the more radical roots of that philosophical tradition to make change and preserve those values under very challenging circumstances today.
- [55:44]
B
Well, thanks for asking that, Yasham, but it's a multifaceted argument that I tried to make in the book. So let me give you what I think are the most important parts of it. First of all, we should define what liberalism is about because the word means many things. I mean by liberalism, sort of a left leaning version of liberalism, meaning a commitment to individual freedoms, equality before the law, a belief in progress, that progress is feasible. It's not like we're never going to improve relative to our Existing lot and a commitment to helping the disadvantaged, the discriminated against, the weakest members of society. So that's the left, meaning that's a really, I think, critical part of liberalism. And you know, you see that not in every thinker that gets the label liberal, but certainly in Mill, Jo Stuart Mill, for example. And of course social democratic liberalism is very much committed to that. I believe that the best justification for liberalism is that it is the best arrangement for us to produce collective knowledge which makes progress possible, but especially in service of other aims. So if you want to provide better healthcare, you need social knowledge about how to do that. Well, that is a problem of individual level and community level experimentation. And liberalism is the best way of producing that type of knowledge and sharing, disseminating that type of knowledge. That requires though a very different type of liberalism, like a liberalism of a top down version wouldn't work because you need this bottom up participation, you need community, which has become antithetical to liberalism lately, to establishment liberalism is a very important part both for community level experimentation and also for sharing of that knowledge. After all, the best way of sharing knowledge is through a trusted network of people who have enough shared characteristics that that trust and belief in the possibilities of doing things together become central. Now if you think about it this way, you see that there is another element of this equation that perhaps goes a little bit against prevailing views which are sometimes pitting liberalism and democracy as conflicting ideals, illiberal democracy or tyranny of the majority type of ideas. But if you think about it this way, self government, individuals taking part in both the governing process, but more importantly in local governance and communities, being part of making different choices is a very important part of liberalism's agenda. So it doesn't mean that there is a seamless unity of liberal democracy, but you cannot have liberalism without self government of some sort. So that's sort of the normative justification for liberalism. And then I argue in the book that somehow because of both political economy reasons and because of the freshness of the ideas of liberalism, we practiced some of these. First, liberalism in opposition was very successful in making these ideas aspirations. And then that's how people started demanding rights and women started demanding the vote and better treatment and laws that protected them in marriages and et cetera. So those were liberal ideas, but also just like again going back to the decades, both in the early 20th century and then mid 20th century, where self government became a reality for the labor movement, local communities organized and became more cohesive, but also the markets became more better sort of Situated within the communities was a very important step in this sort of shared prosperity, better delivery of services. But then I argue that the post industrial period created big problems for liberalism. First because the digital technologies and automation broke some of the severed some of the links between productivity growth, market production, et cetera, and shared prosperity. But also, equally importantly, it elevated the college educated and made them more coherent as a political force, which then adopted its own liberal version. That's establishment liberalism that it tried to impose on the rest of society unsuccessfully. So therefore, going back to the roots is a more, you know, what I call a working class liberalism, where you have to sort of bring communities and different backgrounds together and give them more self government rights again within the constraints of respecting certain basic freedoms and also make jobs and shared prosperity really a central tenet of liberalism.
- [60:58]
A
So I agree with many parts of this analysis. I agree that liberalism has been captured by the tastes and predilections of a certain kind of affluent, college educated social milieu which both has tried to impose its values on the rest of society in the name of liberalism. And that is actually antithetical to what liberalism should do, but is often ruled in its own material interests in ways that it's cloaked behind a bunch of fancy rhetoric. I agree obviously with the fact that many rules and regulations inspired in some senses by liberalism and in some senses by a broader progressive ideology, have made it much harder to build and deliver on public services and so on, and that all of that is at the core frustration with our political system that then leads to the election of dangerous demagogues like Donald Trump. I also agree with you, and I made a similar point in my last book, the Identity Trap, that liberalism is by its nature a radical and progressive creed, that it started out as an ideology looking at a world that was deeply illiberal, saying realizing these values in the world would make the world a better place. And now I think we're in this sort of weird halfway house where some of our values have been realized and we're rightly trying to defend that status quo, trying to defend, for example, the rule of law and the separation powers in the United States at the moment when we're under attack, but have sometimes become too complacent about also pushing forward and saying what is actually a vision of a future that would be more liberal than what we have now. So I think on all of those things we're very broadly agreed. I'm despairing a little bit about the ability of liberals to put that in practice. When I look at broadly philosophically liberal political parties and movements. I think that they are stuck in a way of doing things in the language, in a set of assumptions about the world and a broader worldview, much of which has been Disproven the last 25 years, much of which has alienated people and they're not capable of letting go of it enough to actually sound like they're making a fresh political proposition. And I very much like your emphasis, for example, on having a more working class liberalism, but I still struggle to see a little bit what that would mean concretely. Now you are a distinguished economist, not a campaign strategist. But tell us a little bit how we should talk about this. What would that mean for governing projects? What would that mean for how politicians should talk? How can we explain the sophisticated set of ideas but actually turn it into something that will make this compelling to the kind of ordinary voters that are tempted because of their frustrations to defect to very much illiberal candidates and parties?
- [63:45]
B
Look, I think when you started your statement, I said, I thought I was going to say, well, it's fantastic, we agree on 90%. Well, we actually after your. But the remaining 10% I agree with as well. I don't know, I don't know how the campaign strategy of this should go, but what I say at the very beginning of the book, if it stays there until the final version, is that the pendulum has swung now. Energies with post liberal anti liberal ideas. We don't even realize it, but that's where the energy lies at the moment. And it takes an idea to beat an idea. So I think the first step is for liberalism to articulate a set of ideas that are more aspirational and then the campaign strategy should follow and I'm hoping to contribute to that. And I think a liberalism that sort of turns its back on social engineering, sort of top down imposition of values and adopts community, heterogeneity of communities, diversity of communities, both from the conservative end to very different end as a virtue, not something to be erased, and makes good jobs for people of all skill levels, a key sort of tenet. And finally, sort of as part of what I've just said is choose, you know, top down technocracy for a greater commitment to self government. I think it's going to make a real difference if we can do that.
- [65:31]
A
Thank you so much for listening to this episode of a podcast with the great Darren Atsimolu. In the rest of this conversation we talk about an unimportant little irrelevant topic called artificial intelligence. Are we likely to get artificial general intelligence? Is the labor market going to look completely different 10 years from now, or might it actually end up looking rather more similar to what we have today? And most importantly, what kind of changes in policy, what kind of changes in ideology do we need to make sure that AI actually improves a lot of humanity rather than ends up undermining the livelihoods of people and the preconditions for free democratic political systems? To listen to that part of the conversation, please support our podcast. Please go to yashamunk.substack.com and if you go to yashamonk.substack.com thegoodfight you're getting 25% off as a special deal so that you can get informed about what Darren thinks about artificial intelligence. Thank you so much for listening to the Good Fight. Lots of listeners have been spreading the word about this show. If you two have been enjoying the podcast, please be like Rate the show on itunes, tell your friends all about it, share it on Facebook or Twitter. And finally, please miss suggestions for great guests or comments about the show to goodfightpodmail.com that's goodfightpodmail.com
- [67:06]
B
this recording carries a Creative Commons 4.0 International License. Thanks to Silent Partner for their song Chess Pieces.
- [67:23]
A
Ryan Reynolds here from Mint Mobile with a message for everyone Paying Big Wireless way too much.
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B
Please, for the love of everything good
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A
in this world, stop with Mint. You can get premium wireless for just $15 a month. Of course, if you enjoy overpaying. No judgments.
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B
But that's weird.
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A
Okay, one judgment anyway, give it a
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B
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