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- [00:00]
A
I'm much more worried about the loss, about the waste of effort on ideas. So we have geniuses, just truly stunning geniuses, devoting themselves to charity work as opposed to thinking about development strategy.
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And now the good fight with Jasia Monk. Why are some countries poor and others rich? What can we do to help poorer countries become more affluent? And why is it that development economics has taken a wrong turn in the last 20 years, becoming obsessed with questions about whether this small intervention or that small intervention might be more effective, while missing the big picture about the actual internal changes that have put countries like China or South Korea or Vietnam on the path to much greater affluence? Well, this conversation is all about the fate of billions of people in the world, and as you will see, it is full of interesting and provocative ideas. Land Pritchett is one of the most influential development economist and also a kind of bat noir of the profession. He has taught for many years at the Harvard Kennedy School, at the Blavatny School in Oxford, at the School of Public Policy at the London School of Economics, and he's also the co founder and research director at Labor Mobility Partnerships. We talked today about what the basic requirements for economic growth are. We talked about why GDP per capita is actually an incredibly good predictor of people's well being, and why criticisms of that metric are often short sighted, why political factors like a competent state bureaucracy and the rule of law are so important to the development process. And why the obsession with RCTs with randomly controlled trials that has taken over development economics is, according to Land, are very much mistaken, ontologically mistaken, as he insists. And finally, in the part of the conversation reserved for paying subscribers, we talk about two important questions. We talk about migration and whether rotational migration, whether having guest workers who come to countries for a specified number of years can both help the development process and help the labor needs of rich countries. As you'll see, that is one of the parts of the conversation where we have the most interesting and the deepest disagreements. And finally, we talk about the impact of the reduction in development aid, the dismantling of USAID in the United States, but also reduction in the development aid budgets of many other countries. To listen to that part of the conversation, to support the work we do here to make it possible for us to bring you two episodes of the podcast every week which you get ad free. If you are paying subscriber, please go to writing.yashamonk.com listen. That's writing.yashamonk.Com listen and if you're already a paying subscriber and you're getting this message, make sure to go to that URL and click on Setup Podcasts to access the premium feed of this podcast. If you're having trouble doing that, you are free to email supportubstate.com and they'll talk you through the process. Thank you so much for listening. Lan Pritchett welcome to the podcast.
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A
Glad to be here.
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So when I talk to people who care a lot about economic development, they love to talk about inclusive development, about sustainable development. You know, they tend to focus on how much more affluent countries should devote to donating to less affluent countries. Perhaps if they're more empirically minded on figuring out what the best intervention is, whether foreign aid should be spent on this kind of thing, on that kind of thing. Not to simplify, but you think that whole approach is basically wrong, right? Why is that?
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A
Because I think what I think of when I think of development is what we call getting to Denmark. There was a historical process whereby many countries, and not just western countries but other countries, had a fourfold transformation. They had a transformation from a low productivity to a high productivity economy and mostly broad based. So that's the economic growth and inclusive economic growth, if you want to add the adjective. But they also went through a transformation of acquiring capability, state capability, the ability of the public sector to do things that needed to be done, regulate, provide certain services. They also went through a transformation of basically from citizen to subject to a polity that was based on responsiveness to the needs and wishes of the citizen rather than vice versa. And they also went through this harder to describe transition of equality under the rule of law, whereas kith and Klan and other identities became reduced in importance and everybody was treated equally, that was the development process. And when you thought in the post decolonization era, after World War II, as countries became independent from their colonial overlords, what the objective of development meant. That's what it meant. It meant this big fourfold transformation. And by and large foreign aid can be modestly helpful in that, but it's not very central to it. And the more you think about donors and what donations should be and interventions, the more you lose the plot. So I have papers in which I show basically, if you get to what I call national development, this fourfold process that's a machinery for producing good things. So if we're worried about whether people have clean water and people have decent housing and people have all of these material things that by and large are really good for people to have, if you get to national development, you get to that and vice versa. If you don't get to national development, you don't get to that. And so I think there's a big, big question of whether what we talk about as foreign aid is aid to that process of national development, or whether it is aid to mitigating the worst consequences of, for human well being, of that lack of national development. And the latter is not a strategy for the former. So mitigating the consequences of the lack of national development isn't in and of itself a strategy for national development. So I think by and large a lot of the development agencies lost the plot completely and became essentially charity organizations that were focused on mitigating the worst consequences of the fact that many countries had not acquired national development. And I'm not against that. There's nothing wrong with that. It's a good thing. You know, mitigating terrible things that happen to human beings because they live in a country that's underdeveloped is a good thing, but it's not the development thing. It's not development. And too much attention to the latter detracts attention from, from the core issue
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and is a concern here sort of just that this money is being spent on things that don't actually help to solve a problem in the long term. That the most effective use of that money would be to invest in things that actually help solve this for underlying problems and therefore make the country a lot more affluent. And then there's not as much poverty, as much human desperation that you need to buffer with these donations. Or is it sort of more profound than that, that those donor dollars in some ways then make it harder for that process to take place, that in some ways it might kind of backfire? Is the concern mostly about kind of efforts wasted or efforts that might in some complicated way then impede the country that is supposedly being helped from solving its long term problems?
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A
I think first, I think the big problem is more about ideas than it is about the concrete use of money. I have what I call the bird on the elephant theory of development. You know, the big, you know, oftentimes development agencies are spending all this money, they're doing things, they're financing projects and some of them are economic projects like roads and bridges and power plants. And some of them are, you know, charity like projects of funding health interventions and stuff. But that is in some sense secondary to the fact that this creates a global discourse that about development and about how countries can do development. And I'm much more worried about the loss, about the Waste of effort on ideas. So we have geniuses, just truly stunning geniuses devoting themselves to charity work as opposed to thinking about development strategy. And I think that's a big loss because in the end, ideas are super, super important to the fate of nations. And the ideas that get transmitted via a global discourse of research and practice, via two government officials, to people in power, to people who influence, it's a huge, huge deal. Obviously, the most consequential thing that's happened in the last 50 years is the leadership of China changing its mind about what to do in China and how to make China a better place to live. And that was a change of ideas fundamentally. So I think we're, you know, by losing the plot on national development in favor of mitigation, we also draw the discourse and the research and, you know, the ideas out of big questions about how do we get states to be more capable? What's the right sequencing of state capability and democracy, how we do, how does democracy interact with the creation of economic growth and impeded or not? So I think that's the big loss. Is that real? The number of people in the world that can really produce new, original and correct ideas is very few. And drawing those onto small issues is a huge loss. I don't think aid is that often counterproductive. You know, some of my friends, Billy Stirley and Angus Deaton kind of think sometimes aid can foster mentalities and practices that impede development. I think the elephant is mostly neutral. But if the bird who sits on top of the elephants and sees what's going on and warns the herd of impending dangers and can provide, you know, a vision, if that gets messed up, then the whole elephant is kind of meh.
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B
So let's take a step back, right? I mean, one of the intuitive things about what you're saying is that the United States and the United Kingdom and France didn't become rich because, you know, some much richer countries said, we're going to give you a bunch of development aid. These were, you know, mostly internal processes, obviously, you know, with an international component and trade with each other and so on. So it stands to reason that if we want to think about how countries like India or countries like Kenya might become rich in the future, it probably would be by following some of the same kind of processes. Now, what a certain kind of progressive critic would respond to that is to say that there is an economic structure in the world and that these countries are in some ways interdependent, that if you're one of the most developed countries in the world, you can specialize in high return services, for example, and if you are much poorer than those countries, then you can't follow the same development path and they did historically because you sort of occupy a different niche in the economy. So the other difference, of course, is just the stage of development. But a lot of the countries that grew rich in the 19th and then the early 20th century did so through industry and manufacturing. But nowadays most wealth is not created in factories. It's created in the knowledge sector, in the service industries. So perhaps the same kind of path to development just isn't open anymore. I know that when I was in India, a lot of people were worried about whether or not the sort of traditional path to development is still available in the 21st century. What do you think about that? I mean, can you basically follow, broadly speaking, the same playbook that made the rich countries of the world rich in the past, or do you think that either because of a change in sort of the nature of the world economy or because of, you know, different relative standing within the world economy with the poorest countries in the world have, you know, we actually need to look for a different path?
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A
So I think your question brought up two kind of very different strands that we shouldn't, I think, conflict, right? One is the path being organic and being driven by a country dynamic. So if you take, say, Deidre McCloskey's work and say the key to all of this was creating an environment in which you can give it a go, right? That is distinct from the question of specifically economically, what are countries going to do, right? So the question of is the path that Denmark took open to Kenya has two very different things, right? One, there's the deeper question of can Kenya develop organic dynamic within its polity and society and economy such that the actors find a path for Kenya to become prosperous? That's the true endogenous process. Then second, the second question is when Kenya organizes itself to find that path, will it look like specifically the economic path that Denmark followed? And the answer to the latter is certainly no, right? Can you and know in a good way and a more challenging way? The first way the answer is no is, you know, I'm going to use my hands to draw graphs because I'm an economist. You know, what happened, you know, one of. I wrote a paper a long time ago called Divergence, big time. And what that paper basically emphasized is the, the rich countries in 1870 were not that advanced relative to the most lagging countries because there's a floor, there's only so poor you can be. So what's happened in the world is the rich countries have done this through extant financial growth. They've created, you know, the basic hockey stick graph.
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So for those of you listening on the podcast, rather than watching the video, it's just a takeoff, right? It's a very fast acceleration. I'm going to try and verbalize your hands.
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A
Yeah, sorry. Okay. Sorry. Yeah, so I don't need my hands, but it's just, look, you know, so the rich countries collectively just grew at 2% a year. And they did that for 120 years. And the power of compound exponential growth means, you know, they're multiple fold richer than they were in 1870 because of this power of compound 2% growth. But in the process, they invented a bunch of things, they discovered a bunch of things both in science and in practice, you know, and all kinds of things that weren't available in the world in 1870 are available in 1970, are available in 2026. Which means the countries that enter this process later have the potential of growing incredibly faster than any rich country grew.
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They can build on all the technologies and all of the inventions that already are there.
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A
Exactly. So none of the currently rich countries, none of the currently. Well, none of the countries that were rich, say in 1970 or 1980, were rich because they grew fast. They were rich because they grew steadily. But that created the possibility that countries could accelerate their growth and grow. So the fast growing countries in the world are growing incredibly faster than they did historically. So China, Korea, Vietnam, you know, growing at 6% per capita wasn't an option for Denmark. Right. It just had to stay on 2%. So that's the good news. The good news is countries that in whatever way figure out, manage this endogenous process that creates an organic drive for prosperity can discover ways to grow incredibly faster than was available to the old countries that had to make their own way. So that's the good news. And we have seen incredibly good news. I mean, we don't want to lose the plot that, you know, the last. The years since World War II have been the best years for improvement of the material condition of humankind by a
- [18:29]
B
factor multiple in the history of a species.
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A
In the history of the species. I work some on education. The average person in the developing world had like two years of education in 1950 and has eight now. Which means from whoever your mythic forebearers, Adam and Eve to 1950, you'd accumulated two years of education. And then in just 60 years, you added six. So you added three times more education in 60 years than all of human history combined. And that's true of health, that's true of a whole bunch of things. Just fantastic progress.
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B
Take us. I mean, I think a lot of my listeners will know these figures, but just take us through a couple of those points. Life expectancy, child mortality, literacy.
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A
Yeah, like in child mortality. And I'm kind of remembering numbers off the top of my head, but, you know, there was all kinds of countries in the world 50 years ago that had 200. You know, basically one in five children was dying before the age of five. And now worldwide, that's down to like 30, I think. So again, from all of human history, you know, many people in the world in 1950 were living at material conditions not that much different than ancient Greece or ancient Egypt. And still today, the poorest countries in the world, you know, are living at. You know, if you compare Egypt, when, you know, Egypt in 81, when Joseph and Mary went to visit to some of the poorest African countries today, they're at the same level of gdp, right? So for a very long period of human history, there was very little progress. And then it has just accelerated to master dramatically. So from all of human history, we got to two, you know, still one in five children dying in 1960 or so. And now that's just fallen enormously. And if you look at the people with access to electric power, people with access to water and sanitation, people, you know, it's just been an amazingly good run of the, whatever global order, you know, because these questions always start from as if the global order is preventing progress. And that's just surreal from a point of view of, you look at the world in the last 60 years, there's just been amazing progress in many places on lots of things. This isn't just measuring gdp.
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B
One of the illustrations of that from my own life is that when I was an undergraduate in England in the early 2000s, there was big debates about the World Trade Organization. And the shape of the debate, I remember this vividly, was always, is this going to screw over China and India? Is the World Trade Organization just a smart way for the rich countries of the world to keep the poor countries from developing and to make sure that they. And today, when you look at the critiques of World Trade Organization, Latin China, and it's exactly the opposite, right? It's did America screw itself over or screw its working class over by letting China in? Which led to a huge increase in wealth in China and rapid deindustrialization in parts of the US Supposedly right now you can take seriously the idea that there are some mistakes made in how that was done and what impact that had on the working class in Michigan and Pennsylvania and other places. But if you have to choose from a standpoint of humanity between those two scenarios, we've end up with a much better scenario. We've lifted hundreds of millions of people out of poverty to genuine middle class status in China. And perhaps we could have done that a little bit better with less disruptive consequences for the already pretty affluent people in the United States. And perhaps that's a red herring, but it's striking to what extent the kind of premise of the progressive case against things like the WTO in 2000 has just completely flipped on its head in terms of how we talk about it today.
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A
No, I mean, one of my favorite colleagues and friends at the Kennedy School was Danny Roderick. And if you look at Danny Roderick's intellectually trajectory, his most recent book is about shared prosperity, which is hugely concerned about the prosperity of the middle class in America and how the global system hasn't been good for it versus his concerns about the WTO and whether the trade structure of the WTO was really truly open to facilitating the growth of poor countries. And turns out we had the opposite problem that we thought we were going to have. And we can come back to this, but the dollar a day extreme poverty isn't my favorite metric of development progress for a variety of reasons, but absolute poverty in the world's just amazingly declined. So like I say, every discussion of the world and how it's going needs to start from the factual basis. You know, Hans Rosling wrote some book like Facts, right?
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Factfulness, I think.
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Yeah, yeah. You know, the fact is, on nearly every measure of human, well, material well being, and I say material because spiritual, I don't know, but material well being just fantastically better and in many dimensions, by the way, better than we would have expected even from the economic growth that we got. So sometimes people say, oh, you economists, you focus just on economics and we really should have focused on these other things. Well, if you look at the expansion of schooling, for instance, schooling expanded not by less than we would have expected from the economic growth we got, but way more. So, you know, there's no evidence that, you know, that schooling, and again, the difference between schooling and education is another research area of mine we can get into if you want, but like just getting kids into school was one of the most phenomenally historically transformational things and it happened more than we would have expected. That given the growth, not less. It wasn't. This was struggling against this obsessive focus on growth. All of development was focused on expanding schooling. So you can't say oh yeah, yeah, yeah, well you guys focused on growth and not these other things. That's just not true.
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B
So we're going down branches of a conversation now, but I think that's the hallmark of a good conversation. So let me push you on that. And it's a question that I was going to pose you. In any case, there's a lot of people who are very skeptical of GDP as a metric, right? They think we can be incredibly rich and yet people are miserable. Society can be very rich on the aggregate, but it's just because a few people are incredibly rich and everybody else is incredibly poor. There's these standard examples that people trot out to me in conversation all the time. If I'm stuck in a traffic jam burning gas, I'm not getting anywhere that's increasing gdp. And so GDP is a really bad metric. You believe that GDP is in fact a very good metric of human well being and that it correlates very strongly with things that we care about more directly. When listeners of mine next encounter somebody who say GDP is a terrible metric, we shouldn't care about it, what should they respond?
- [26:15]
A
I want to make clear I don't think GDP is a good metric of human well being. GDP is a very good metric of the net production of, of a society and that production creates the material basis to create human well being. So I believe GDP per capita is just factually super highly correlated with nearly everything we care about in terms of material well being. But here's the response you should make, which is the relationship between GDP and most things we care about. Material well being is concave, meaning those things get better as GDP gets better, starting from poor levels to middle levels. But by the time you reach roughly GDP per capita of say $40,000, you have met most of the basics of material well being and hence the relationship flattens out. It doesn't go away necessarily, but it does flatten out. So what I think is the real danger in the world discourse is that people unhappy sitting in traffic in Luxembourg, which I use as an example because the only time I went to Luxembourg I got caught in traffic. People unhappy stuck in traffic are right that their overall well being is not that highly corridor with GDP because their GDP is so frigging high in the first place. But we shouldn't extrapolate that back. So the relationship isn't that India doesn't need fantastically, I mean, to put this
- [27:55]
B
point a little bit more polemically, right. It's very easy. And I grew up in that kind of milieu. I didn't grow up particularly affluent, but I grew up in a kind of, you know, milieu of artists and musicians in Germany, living in pleasant towns, et cetera. And it's very easy for them to say, oh, you know, the important thing in life isn't to drive a big car and go on a fancy holiday. You know, there's things that are much more important than material well being. And of course, if the flow of your society is that you have a decent apartment with heating and running water and you eat three meals a day and so on, then that's probably true. But if you're sitting in a mud hut in a developing country, that's most assuredly untrue.
- [28:37]
A
Yes, I mean, one of the fundamental kind of insights of economics is declining marginal utility. The more you have of something, the less important it is to you. And you know, if you say the west is suffering a paucity of purpose and people kind of are unhappy because they haven't really, you know, they don't have some driving purpose, okay, but that's because you've already satisfied the purpose of having the material things like a hot shower and a heated home and, you know, an ability to go 300 miles in a few hours if you feel like it. Whereas most of humankind for most of history and even today is nowhere near that. So my main concern is I'm happy for German artists to have angst about what their purpose in life is and whether they're really happy and whether more material goods would make them happy and it probably won't be that important to them. But don't project that back onto Africa or project that back on that. Therefore, India doesn't need growth, or Bangladesh doesn't need growth, or we don't really need to worry about whether those countries grow. So, so, so I think the next response to, you know, is GDP a bad metric of really improving the human condition is well, you know, where are you on this spectrum of existing progress? And don't, you know, since you're likely having this conversation with people who are materially, fantastically relative to any period in human history and relative to most of humanity they should be really sensitive to, yes, that's true for you, but it's not true for 6 billion other people on the planet. And don't project your life and concerns onto theirs because you have diminishing marginal Utility, because you have so much.
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B
So let's go to those poorer people in the world. You're pointing out that GDP per capita is very strongly correlated with these other things that we care about, like presumably child mortality and life expectancy and education and all these other kinds of things. What does that tell us about what we should aim for? Does that suggest that we should just aim to increase GDP per capita and we assume that the other things are likely to follow? Or could the association go the other way around? What we need to do is to have all of those specialized interventions in order to improve a local hospital and improve a local school. And that's what's going to then correlate with increases of gdp. Which way around do we read the correlation?
- [31:18]
A
I think again, this depends on where you are in the spectrum. So I've done a paper where I try and disentangle this question, because one of the things that GDP does, by the way, is it creates a broader tax base. So people often get engaged in this very weird discussion as if, as if we're focused on GDP growth, we're ignoring the need for government services. But you can't have government services unless governments have revenues. And governments revenues are mostly tax buoyant, meaning they grow more than proportionately with growth.
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B
So GDP growth actually is what enables you to have all those government services.
- [32:04]
A
Exactly. I mean, I, I mean at one point I did the calculation, like Ethiopia's government spending per head is like $300 per person per year. Like what can you do with three, you know, what can you do with $300 per person per year? And you know, if, but Ethiopia's GDP per capita is so small that if the government started taking bigger proportions of that, they're eating into expenditures on food. Like 60% of a poor household's budget is on food. Right? So you can't just say Ethiopia government should fund all these specific interventions, like how are they supposed to do it? Right? So again, when I argue in favor of GDP per capita, it's not some GDP per capita exclusively funds private goods. It also is the basis for funding public goods and public service provisions. So getting that mix right is complicated. But there's not like economists are out there saying there shouldn't be any government and everything will take care of itself if we just have high GDP per capita. It's that high GDP per capita reflects a high productivity economy. And a high productivity economy creates the material basis for both private and public expenditures. And getting that mix right. So A B, it's also right. National development is about the process of creating both the material possibilities and the mechanisms for doing that. So again, my fourfold definition of development. So I am not a growth. I am a growth. You could call me a growth fanatic, but I'm not a growth only person either. Meaning you also need a decent government. You know, I mean, in all of the empirical work you can look at Equatorial Guinea. Equatorial guinea is like a few kleptocrats dominating a bunch of oil. And the rest of the economy is completely disarticulated from that. Can you get to high GDP per capita and still have low levels of living? Yeah, sure, right. If you have all of that being captured by relatively few people. So the way I like to describe
- [34:29]
B
it, and you probably need a natural resource, right? It would be very hard to imagine a case where you have this sort of 0.1% of people have an incredibly productive company that doesn't rely on natural resources and that doesn't rely on broader education and so on. Right. So it probably takes a slightly special case like this kleptocratic control over oil resources.
- [34:53]
A
So the way I like to describe the goal of the way we should think about how countries can make progress is what I call inclusion into productivity. Meaning the amazing thing, the reason human beings are this amazing species is we have learned how to cooperate to create value. And a large part of the development process of is getting more and more sophisticated ways in which people can cooperate over time and space to create value. So if you think, you know, when I look at a great big corporation with tens of thousands of employees, this is a mechanism of cooperation to create value. And it's a cooperation across people with all kinds of different skills and contributions. So but the process of development is getting more and more people out of being engaged in activities in which they engage in a plot of land and attempt to eke out of living in low cooperation on just them and a plot of land into more and more sophisticated value chains. So it's inclusion into productivity. And that means I'm actually worried about the productivity of the individuals, but they're going to be more productive not by being more separated from a sophisticated modern economy, but be more embedded into it. So that dynamic which leads to indicators of inclusive growth is how I think about the fundamental dynamic on the growth side. Growth should be a process of growth. More and more of the population engaged in higher and higher productivity and that more and more people are included into these mechanisms.
- [36:50]
B
So just to go back, at some point I sort of posed these two different challenges, right? Like One is whether poor countries can still grow at the same speed that others did. And your answer is yes. In fact, they, a lot of them are growing more quickly. Right. And there is a kind of strange thing in the premise of that argument which somehow implies that we haven't seen examples of poor countries developing very quickly. And that's, I think partially because people who think about this sort of drop successful countries out of their sample, right? They don't remember that China in 1980 was an incredibly poor country. And so today we're no longer thinking about China as being part of a sample because they've grown out of that sample. That in itself is evidence of the fact that that is possible. And if China was able to do that, then there shouldn't be an in principle reason why Kenya or India couldn't achieve the same feat. So the other question is, you know, what does that look like in the 21st century? Let's start with a kind of beginning bit of this, which is my understanding is you're going to say it's about these four development factors, right? Why are those so hard to implement in places where they're not in place? I might say ideas are really important. As you said earlier, if only the right people adopted the right ideas, they should be able to put those four things into place. But clearly it's more complicated than that. It's not just that the rulers of these countries have never had the right ideas. There must be obstacles beyond that.
- [38:21]
A
So I think one of the obstacles is that this process of growth, of inclusive productivity is a transformational process. And a transformational process requires winners and, you know, relative winners and relative losers. And in many places the economic, political and bureaucratic structures congeal. They congeal because there's a certain way in which a country produces value. That way of producing value produces often certain ways in which the government extract value or part of the extraction of value. And that can lock into an equilibrium that resists change rather than encourages change. And I think that it is clear that there are low level equilibrium traps. There are ways in which countries get stuck. So we already kind of alluded to one of those resource economies. If you're relatively well endowed with certain point source resources, and by a point source resource, I mean not like land that's diffused and requires geographically spatial distribution of people, but oil or diamonds, right? You can see where the people who mine the diamonds and the people who control the country get embedded in a relationship in which as long as that elite bargain can survive off the extraction of value for Diamonds. It's not looking for anything else. It's not looking to solve the problem we're talking about. The problem we're talking about is how in a modern dynamic economy, does my country come to be embedded in more and more sophisticated value chains? Look, if I'm locked in on diamonds and my elite can generate an elite bargain that can sustain itself politically over time with just diamonds, it's not looking to do anything else. And that becomes an obstacle. And so oftentimes, you know, economies and countries get stuck in an elite bargain that is more worried about the threats from new industries creating new power structures, then they are worried about stagnation around the parts of the productive structure that they're in. And so you can easily get stuck in the dynamic between economy, polity, and bureaucracy in which an elite bargain undermines the rule of law, undermines the expansion of new opportunities in the interest of playing defense around where they are, they give up on the possibility of doing more. And finding countries that can handle this dynamic of change is very hard. That's why I think we see so few transformational successes, even though the global order makes them possible.
- [41:36]
B
Is there some way to change that or to contribute to that? If economists at the moment are focused far too much on if we give people, invisible village, this kind of intervention, or people in that village that kind of intervention, what's going to lead to a little bit more growth? And do you think that's fundamentally the wrong question to ask? Do we have better answers to how can we help a country like Nigeria with a very fractious political system, with an elite bargain that is very bad for the country to get out of that trap?
- [42:09]
A
Again, many of your questions are, you know, have too sophisticated halves to them. Right. If I could dwell on the first half, the premise that people are wasting their time, I want to emphasize that they're not just focused on the wrong question, they're focused on ontologically the wrong question. And, you know, the word ontology is not one that I like to use, but it means at its fundamental roots, the problem with the world is not poor people. The problem is people are in poor places. And if you're studying the dynamics of how to make people less poor, you have to be ontologically studying the characteristics of the system, not the people. And so, you know, these and the methods that are being deployed by economists to studying how to make people better off are focused as if the unit of the person was the unit at which we should be studying this. And that's ontologically Wrong.
- [43:15]
B
So let's stay with this half of a question before moving on to the other half. Take a step back and explain to us what the dominant paradigm in development economics has been for the last 20 years and how that dominant paradigm is particularly vulnerable to the critique you're making. I take it you're mostly talking here about what are called RCTs. What's an RCT? How did it become so dominant? Why do you think that's the wrong way to ask this question?
- [43:41]
A
So if you characterize what development actors is doing is carrying out interventions, then you could get obsessed with understanding whether the particular intervention you're undertaking has a truly causal effect. And so we can't just evaluate a project on before and after. We need to really separate out the causal impact. And for separating out the causal impact, doing a randomized controlled trial is the best way to do that. The problem is, if I'm trying to do a randomized controlled trial, I need some group of individuals to get the treatment and some individuals to be the control group, which means I'm already ontologically assuming that the important causal effects are individuated, as opposed to a country wide phenomena or a market wide phenomena.
- [44:40]
B
So let me try and put this in plain terms to see whether I understand correctly. So the idea is I'm going to study Village A and Village B and I'm going to give Village A deworming medicine and I'm going to give Village B nothing. Or perhaps I give Village B some other kind of treatment. Right. And if what you're trying to figure out is, you know, I'm running a charity and I have $100 million to spend, what should I spend it on? That's a very reasonable question to ask. The problem you're saying is, you know, what actually explains why both Village A and Village B are very poor versus, you know, Village A in England and Village B in England being relatively affluent, is these country level characteristics in particular, whether they've managed to figure out the rule of law and all these other things that we were talking about. And so, so you're sort of defining the interesting stuff out of a question. If you're just comparing village A and Village B within this country that are meant to be as similar as possible, and then seeing is this or that kind of treatment going to marginally improve the lives of people in each of these villages.
- [45:44]
A
Yeah, and let me just take what I take as a paradigm example, that when you encounter this paradigm example, you should realize something's gone badly wrong here. So There was a paper in Nature Magazine, the most highly reputable scientific journal in the world, about carrying out an experiment in Niger where there was a cash transfer given to some people and not to other people in Niger. And they went, and with that cash transfer they bundled a psychosocial intervention and then looked at whether this psychosocial intervention also independently and causally caused individuals in Niger's income to go up. And so this was Nature magazine's characterization of what development economics did with 11 prominent development economists as co authors. And when you see that, you should immediately think this is madness.
- [46:46]
B
And why is it madness?
- [46:48]
A
This is madness because people in Niger are poor because they're in Niger. And Niger on every indicator of national development is a hopeless basket case. And if you're not fixing Niger, thinking that you're doing good in the world by taking tiny tweaks like what are you doing as a psycho? You're acting as if by engaging in a study of psychosocial individuals, of individuals in Niger, you're assuming that a large part of the low levels of standard of living and individuals, there must be characteristics of people in Niger. And that's just wrong. That's just really orders of magnitude stupid. Wrong. People in Niger are poor because they're in Niger. And if you allow, for instance, a person in Niger to move to France, their income will converge to people in France almost instantaneously because France is a high productivity place and Niger is a low productivity place. So again, you've defined out all of the interesting questions that really matter for human well being. If Niger as a country had national development at the level of France, all of the problems. National development is a machinery for endogenously nominating and solving problems. And if you don't have that, attempting to solve these problems at the individuated level is just wildly. It's ontologically wrong. You're not taking into account that the outcomes that individuals have are determined not by their own characteristics, but by the characteristics of the system, political, organizational, economic, social, that they live in.
- [48:39]
B
Yeah, and the other thing that strikes me about the study is what's the kind of theory of action that's lurking in the background there? Right. I have no doubt that people who encounter psychosocial problems are less productive. I guess I'm moderately optimistic that the right kind of psychosocial intervention might reduce psychosocial problems and therefore make people more productive. But how on earth are you going to get psychosocial intervention at scale in one of the most poorest countries in the world? It's not going to happen because an army of therapists is thrown in from Brooklyn, New York to go treat all of those people. So how do you reduce the amount of psychosocial problems that people they have and how do you perhaps increase the access that people who do have serious psychosocial problems have to therapy and other things? By making the country a lot more affluent. Because if a country is a lot more affluent, well, perhaps your child doesn't buy when it's three years old and you have fewer psychosocial problems, you're less depressed about the fact that your kid just died. Right. You got to have the money to be able to afford a therapist or perhaps the government will have the money to be able to have a mental health service. Right. So you're kind of asking the wrong end of a question, A to Z.
- [49:53]
A
And by the way, then you get obsessed with cost effectiveness, which means we're going to reduce the numerator as well as the denominator. So in this study, like per capita income went from $1.80 a day to $1.85 a day. Whereas if you look at Vietnam, Vietnam in 1990 had per capita income of about $1.80 a day per person with similar reports into where Niger is and has gone up to like $7.50 a day. That's development. And none of that in Vietnam was people in Vietnam becoming causally psychosocially more, more capable first and then the rest followed.
- [50:42]
B
Right. It's not that USAID over Ford foundation sent an army of psychologists to Vietnam.
- [50:46]
A
Exactly. It was because now it could be the development actor. And discourse helped Vietnam change its mind about its development strategy such that it said, we can embody Vietnamese labor into global value chains in a way that's going to radically change the productive possibilities and the inclusion of productivity of Vietnamese. And they did it successfully. And boom, you know, extreme poverty disappeared in Vietnam right in front of our eyes through a process that involved almost no direct anti poverty interventions. So that's the first, the first question is, let's just focus on this isn't just wrong, this is ontologically wrong. And ontologically wrong means you can't fix it by mucking about and doing slightly better experiments on this or that. It's just looking at the wrong, you know, it's looking at the wrong, you know, it's looking at the wrong set of ways in which prosperity actually happens, which is inclusion of individuals into productivity, which is a cooperative endeavor which involves artifacts and institutions whereby large numbers of people can cooperate to create Value, which is markets and governments and bureaucracies and large organizations, not whether I'm a robust, a more go get them person. Okay, first, that was the first part.
- [52:14]
B
Yeah. So I think the second part then is. All right, so if RCTs are the wrong thing to look at, if that's not, how are we going to make change? If we shouldn't be obsessed with, is it this intervention or that intervention at the level of a village or the town, but rather we should be asking, how do we help countries choose successful development paths like Vietnam did, put in place the institutions that they need to actually be able to develop. So what is sort of how can development economists or other social scientists help with that? I mean, is the problem with that fundamentally that the people in Nigeria just don't get, or is it that as you were saying earlier, the people who are in charge have their own interests and they want to preserve the privileges they have? They're worried that in the process of development they might be displaced from power, so they'd rather continue to be in a relatively poor country where they're the kleptocratic elite, rather than in a much more affluent country where they've been displaced. And is development economics or more broadly, the field of social science actually going to be able to help in that process, or is that a hopeless endeavor?
- [53:27]
A
So I don't think it's a hopeless endeavor because after all it's happened, you know, the weird thing is the saying it's a hopeless endeavor has to ignore that Korea happened and Taiwan happened and Vietnam happened and China happened and Indonesia happened and India happened.
- [53:42]
B
Did it happen because those places, for whatever reasons, had, you know, more favorable circumstances where they were more able to challenge their leads, or we just got lucky that they put a few of the right reforms in place? Or did it happen in some way because social scientists helped guide them?
- [54:00]
A
Well, for one thing, yes, social scientists helped guide them because social scientists created the data like GDP per capita to show, hey, some countries have had really rapid growth by doing this and other countries have not had rapid growth by doing this. So, yes, the accumulation of. I mean, Deng Xiaoping didn't just decide on moving towards a path of unleashing incentives for people to be able to engage in, you know, private enterprises may be too strong a word for what happened in China in 1978, but being able, you know, giving people economic motivations in a vacuum, in an intellectual vacuum, he looked around the world and he brought in experts who had studied economics and economies and their relative performance and was convinced that there was an alternative path from where China was to where China wanted to be. So the idea that ideas are irrelevant and that social science hasn't had an impact on this again, is surreal. And you know the case of India, which I know relatively well, I was been going off and on to India since 1992 and have lived there for 40 years in different cities. So the case of India. There was a debate in India in 1991 about how to respond to an incipient macroeconomic crisis that drew on decades of social science about the relative importance of market versus government led development, of relative importance of import substitution versus export orientation that drew on a body of empirical science that had been generated. And that debate led the country to do different things. Like, you can't just act as if India decided to do what India did in the reform period in an intellectual vacuum. I mean, again, it's just, it's surreal that you would say, oh well, social science just can't in principle affect the way governments act because it has demonstrably affected the way government acts in specific instances. Maybe it's not been as successful as one would hope, or maybe it's not always been successful. And let's admit that oftentimes social science is pushing against direct material and political interests. Okay, but let me answer your question. The answer is full trinity growth diagnostics. That's the answer. The answer is if development economics, we're focusing its time, effort and genius capabilities on the development of what I call full trinity growth diagnostics, I think we would be in a radically better place to help countries with their organic country level development strategies.
- [56:50]
B
Define Trinity.
- [56:51]
A
What do I mean by full trinity? What I mean by full trinity is for something to be successful, it has to be technically correct. It has to in fact have a correct causal model of if actors undertake this action, this working through, perhaps a complex adaptive system will be the outcome. It's not direct cause and effect because markets are complicated and are complex adaptive systems. But if I do this, will this be the result? That's a technical question. Right. The second element of the Trinity is if I'm asking a government to undertake actions in order to promote that outcome, does the government have organizations capable of doing that? So if I say I'm going to do industrial policy to promote high tech industry, do I have government organizations that are capable of identifying and promoting high tech industry? Right. And the third element of the trinity is it has to be politically supportable. I have to be able to assemble and sustain a political coalition to support the the implementation of these actions. Right. So one, the first step of that is a growth diagnostic, which is a process that me and colleagues at the Kennedy School developed over time of just asking in this place, what are the binding constraints to our having rapidly having, you know, more rapid growth than we're experiencing currently? And the binding constraints is important because oftentimes when we say what's good for growth, we produce a very long list. If you say getting to Denmark, you say, well, Denmark is this and Denmark has that and Denmark has the other. But it can't be that. You have to do everything that Denmark now does. Now you have to do the right thing. And identifying the right thing involves an analytical process of saying, how do I prioritize among the many things I could do that would be good? Which would be like, biggest bang on our prospects for having an episode of rapid, sustained and inclusive growth. And we have mechanisms of trying to adjudicate among the contesting claims for what's the binding constraint, what would be the most important thing to do? But then we have to supplement that with saying of the set of things that should be priorities and have a big bang on economic growth, which of those can we actually do? Because saying if you had Korea's current capabilities, you could do this thing, but you don't have them, you have nigeres, it's not very helpful. We have to say of the things that would are binding constraints and would lead to higher probability of growth, which of them can we do? And then you have to actually have a realistic, positive description model of the politics. Which of these can the existing elite bargain be persuaded to engage in? And I think none of those is anything like as the intellectual challenge of reconciling general relativity or quantum mechanics. Right.
- [60:15]
B
But it's an art rather than a science, I imagine. I mean, I'm trying to understand what that might look like concretely. Right. Let's say that there is a, in certain ways genuinely reforming, probably in other ways a little bit corrupt new government in some country. And they're trying to figure out, you know, we can, we've just been put in power, perhaps elected, perhaps in some other way we can make some changes. We can't make a million changes at the same time because it's hard to drive change across sectors. There's also a limited amount of money we can invest because it's a very poor country. No, should we invest in education or in the judiciary? Right. Like, should our first big push be to try and reform the judiciary so that who wins in some kind of Dispute is more driven by the facts and that creates stable expectations than by bribes or by family relations? Or do we start with a big push on making sure that there's more schools, that teachers are actually competent, they show up to school and all of those kinds of things? I imagine that's the kind of choice you might realistically face. How should you go about making that decision?
- [61:22]
A
Well, I think there are analytical tools for accessing this, and to some extent, and now we're into the mechanics of what a growth diagnostic would do. And partly what a growth diagnostics does is it asks, if it were the case that this proposed action were the binding constraint to growth, what should we observe about the economy? And there's four or five things that we like to say. One is that if we think X is a binding constraint, like corruption is a binding constraint, then when we see relaxations or improvements in corruption, we should see more growth. So if I'm saying I'm being constrained by this rubber band attached to my arm, I have my arm in a sling, and the movement of my arm is constrained by this sling, then if I remove the sling, I should be able to move it a lot more. And if I can't, maybe it was the injury to his shoulder and there's a different cause. So the first is changes should cause changes, Right. The second is, and we often observe changes like some regions are better or others, or we've had periods of time. Right. The other is that we should see enterprises actively adapting around the constraint. So with bribery as a constraint, we should see a lot of potentially profitable enterprises actually engaged in bribery and the more successful ones being more successful at it. So second is we should see what we call bypassing. If I'm saying finance is a constraint, I should see firms being really innovative, you know, if otherwise I could be productive and profitable, but I can't get finance. We should see firms actively engaged in creative ways of finance. Right? The third is what we call, and we've developed quirky names for many of these, it's camels and hippos, meaning different industries in an economy are more or less intensive in a particular proposed constraint. So if we say, you know, water is a constraint, then we should observe camels, because camels are animals that are well adapted to a lack of water, and we shouldn't observe hippos. So if we go and we look at the economy and say, relatively these industries are thriving and these other industries aren't thriving, the ones that are thriving should be ones that are economizing on the binding constraint. So this is, you know, these are plausible, sophisticated ways of analyzing the current situation of a country to try and eke out answers that say, you know, educating, you know, putting more kids through school just really isn't a constraint because we don't see changes on changes. We don't see firms like really dramatically engaging in training because they seem desperately short on skills. We don't see, you know, labor intensive, non skill intensive industries thriving versus others, not because they're economizing on the lack of skills, which means we need other explanations for the current thing. And this technique has been deployed. It actually produces, it doesn't produce clean RCT looking results, nor should one expect it to, but it does produce interesting results because to me the key test of a growth diagnostic is does it come to different answers for different countries? Because if you come to the same answer for every country, you have an ideology, right? And so if every country you go to, you say, oh, if you just reformed your trade system, you would grow faster. You're an ideal log, right? And maybe you're some right sometimes, but you're not always going to be right because they're going to be societies in which it's a constraint but not a really important thing. And when we do these growth diagnostics in different countries, we come to demonstrably different answers. The data and the evidence line up around different things. So I think it's a promising technique. I think it's been underdeveloped because of the resources in the world devoted to deworming and whether or not deworming works versus devoted to creating a community of practice globally that does technical growth diagnostics. I think it's been radically under invested in and I think more support to a global community of practice that was focused on honing the art and science of growth diagnostics would be a tremendous way. The world could kind of support the organic process of countries because then you would be able to engage in countries and actors in a countries in a radically different way than coming to them and saying you lack these 50 things. All of them would be good if you did it when you know they're going to be able to do two, maybe three.
- [66:27]
B
Thank you so much for listening to today's episode of a good fight. In the rest of this conversation, Nat and I talk about migration. Is it realistic to introduce a system of rotational migration where people come from poor countries to rich countries for a limited number of years and then definitely go back? Or is this going to lead to the kind of political illusion that got the country I grew up in, Germany, into trouble during the so called guest worker program of the 50s and 60s. And finally, how should we think about the dismantling of the USAID and the reduction in development aid from countries like Britain and Germany? Is this going to make the fate of poor people in developing countries significantly worse or not? To listen to answers to those questions, to hear our disagreement, go to writing.yashamon.com and become a paying subscriber. I would be very grateful for your support for the podcast that's writing.yashamonk.com.
- [67:36]
A
Sa.