Ideas Untrapped

Welcome to Ideas Untrapped podcast. In this episode, I talk with economist Robin Hanson. This episode is about an everyday exploration of some of Robin's biggest ideas. We discussed the hidden motives behind our everyday behaviours and how they shape institutions like education, healthcare, and government. We explore his ideas on signalling, innovation incentives, and alternative governance models like futarchy. Robin also discussed his latest idea of Culture Drift: how humanity's superpower of cultural evolution can tend towards a maladaptive direction. Robin thinks this explains worrying trends like persistent low fertility at a time of material abundance, and he also explains why we are reluctant to confront this problem despite our common practice of cultural entrepreneurship. Robin Hanson is a professor of economics at George Mason University. He has written two fantastic books, Age of Em and The Elephant in the Brain (co-authored with Kevin Simler).You can find all of the ideas discussed in Robin's books (linked above) and on his popular and immensely brilliant blog Overcoming Bias.TRANSCRIPTTobi: Welcome Robin, to the show. It's an honour to talk to you, and I look forward to our conversation. Robin: Let's get started. Tobi: Okay. So I'd like to start with your book, with Kevin Simler, The Elephant in the Brain. You argue that much of our supposedly noble behaviour from charity to healthcare to politics is actually driven by hidden self-serving motives like signalling and status seeking. If so much of human activity is essentially about showing off or gaining social points, what does that imply for how we should design or reform institutions? Robin: Well, the key idea of the book is that in many areas of life, our motives aren't what we like to say. And this fact is well known to psychologists, but not so well known to the people who do policy in each of these areas, like say education or medicine or politics. The people who do policy in those areas tend to take people at their word for their motives and they analyse those areas in terms of stated motives, and our claim is that you are misunderstanding these areas if you take people at their word and you'll get a better sense of what's going on there and therefore what you can do if you would consider that people might not be honest about their motives. Tobi: Yeah, I mean, for example, schools, hospitals, and other public or perhaps even private institutions that we interact with openly acknowledge or accommodate our signalling drives rather than pretend that we're always pursuing high-minded ideals. What are the hard parts to reconcile about these facts of the human nature? Robin: Uh, well, for example, people in the United States are most surprised by our medicine chapter, where we say that in fact on average people who get more medicine aren't any healthier and therefore they're spending way too much on medicine for the purpose of getting healthier. That's very surprising to people and it, of course, suggests that we don't need to spend as much as we do. Instead of subsidising it, maybe we should even tax it. But it also helps understand why we are doing as much as we're doing because we're using it as a way to show we care about each other rather than a way to get healthier. And so if you want to spend less on medicine, you'll have to ask, how can we find other ways to show that we care about each other instead of overspending on medicine? Tobi: On a personal level, has recognising these uncomfortable hidden motives changed how you live your own life or conduct research? Do you ever catch yourself in acts of self-deception or signalling and you then consciously adjust your behaviour? Robin: I think many people are tempted to try to look inside themselves to figure out what their hidden motives might be, and I don't think that's going to work very well. So my approach is just to look at how people on average are, and ask what motives best explain typical human behaviour and then just assume I'm like everybody else. So, I have come to terms with accepting that my behaviour is driven by motives that are probably not too different from the motives that drive most people, most of the time. So if other people are going to the doctor to show they care. I probably do too. If other people are going to school to show off how conscientious and intelligent they are, then that may be what I'm doing as well. And I'm just going to accept that I'm just not going to be that different from other people. Tobi: Over the past, I would say six years or so, particularly with the rise of what is generally termed as woke, the phrase virtue signalling became quite popular. And this is something that you have been writing about before it gained that currency. You've noted that humans, when times are good, devote more energy to visibly displaying values either through charity, moral causes, patriotic posturing, as a way to boost our social standing. How do your theories of hidden motives and signalling help explain the way people behave online? And how does that affect the rise of political polarisation in the US perhaps? Robin: So the term virtue signalling is usually used to describe behaviour that the speaker doesn't think is very virtuous. Um, so when we signal in general, typically our signals are effective and that we are actually showing the thing we claim to have. So if by going to school you show that you are smart and conscientious and conformist, then typically if you go to more school than other people, you are in fact more conscientious and conformist and intelligent than other people. You are successfully showing that. So the analog, if you took it literally for virtue signalling, would be that you are showing that you are virtuous. And that should be good. Maybe it's not so great that you are so eager to show it, but it is a good thing about you that you'd be showing. So the phrase virtue signalling is instead a criticism of people who are trying to appear virtuous without actually being very virtuous. That's, I think, the implication of the claim. And so that certainly could be happening and we should certainly wonder whether people who are claiming to be virtuous actually are virtuous. So certainly a lot of what's happened on the internet in the last ten years is what they call cancel culture and so that's where a particular person is accused of being bad or doing bad and then a mob, you know, jumps all over them and maybe gets them fired, gets them, uh, you know, thrown out of an organisation, gets people to quit their YouTube channel, et cetera, because they have been accused of being bad. Then the question is, well, if in fact they are bad, and if in fact these sort of responses are the appropriate response to someone who is bad in the way they are claimed to be bad, this wouldn't be such a terrible thing. Uh, the claim is that in fact they are accusing people of things they aren't guilty of or vastly exaggerating their guilt. And then it's bad if people are going way overboard to cause them harm without good cause. So certainly one of the things that's going on in the world is the difference between gossip and law. So, uh, law didn't really exist until, say, 10,000 or so years ago. Before that, for maybe a million years, we had gossip. And the way we managed people doing bad things and dealing with that was by gossiping about it. And we mostly lived in pretty small groups who knew each other pretty well, so it wasn't that hard for people to gossip and figure out what's really going on and then react by whatever way they chose to do when they talked about it together. But in much larger societies that we've created in the last 10,000 years, gossip doesn't work so well. Because there's this incentive to a rush to judgment. When somebody comes to you with a complaint about somebody else, your main incentive is to agree with this person in front of you who you know better than the other person being complained about. And so in gossip, people tend to believe whatever they're told and they don't get the whole story. They don't ask for the other side of the dispute. And law was invented substantially to overcome this problem with gossip wherein there's a central place that you take an accusation to and that central place's job is to hear all the evidence before they make a decision. And then that overcomes the rush to judgment. But when we have things people disapprove of that aren't illegal, then we revert back to gossip and then we have the problems of gossip wherein people are too quickly agreeing with an accusation before they've looked at the full, um, evidence from the other side. That's something that's going on lately with new social media when there are many accusations that many sympathize with that are things that aren't and not, in fact, illegal. But these are all relatively minor variations on the basic thesis of our book, which is that people are trying to look good and they do many things in order to look good, but when they do, they are actually good. On average, they are showing things that are actually good in order to look good. Tobi: An idea that also become quite popular first in scholarly circles, but I mean, I see it almost everywhere now, maybe that's not a statistical fact, but it's the idea that evolutionarily, humans are not truth-seeking, we are coalition-seeking and our reasoning is basically to get people on our side. Looking at social media and how people use it, would you say that it's fundamentally amplified our worst signalling instincts by rewarding outrage and performative statements? And do you think it can somehow be a harnessed to improve honesty and information sharing? Robin: So the thing I can be the most sure about is just looking overall at human behaviour across the world, across history, and roughly describing the middle of the distribution of that human behaviour and what's going on there. That's what the point of o

Welcome to Ideas Untrapped podcast. In this episode, I speak with economist Sugandha Srivastav about the hidden political economy of electricity in developing countries. Using examples from her study of Pakistan's electricity market, we explored how opaque power purchase agreements, regulatory capture, and poor procurement practices drive high costs and unreliable supply in many developing countries that are in desperate need of energy. Sugandha also shares bold insights on how competitive markets and renewable energy, especially solar, can transform the power sector and deliver affordable electricity for all. Dr Sugandha Srivastav is a Lecturer in Environmental Economics and a Senior Research Associate at the University of Oxford - and a Fellow at Energy for Growth Hub.TranscriptTobi: Welcome to Ideas Untrapped. It's nice to have you on the show. I've been looking forward to this, so thank you so much for doing this with me. Sugandha: Yeah, thanks for having me, Tobi. Tobi: Yeah. So, why I wanted us to have this conversation was I read your paper on power. By power, I mean electricity, and the corruption, and basically surrounding power purchasing agreements in Pakistan last year. So briefly, can you just summarise what that paper was about, what you found, and what were the general lessons that we can draw from that? Sugandha: Yeah, sure, so basically about two years ago, we started looking into contracts in the power sector. And as all of your listeners know, electricity is so important to all of our lives. It's very important for businesses. It is hard to overstate how critical electricity is to our lives, so we were just really curious about how is electricity being procured by the government? What are the contracts that underpin this electricity? And, um, can we learn something about how much we are paying for electricity? So we wanted to dig into these power purchase agreements, which is what the contracts are called, but we very quickly realised that they're not disclosed most of the time. So even though this is government money, which is going towards paying for something as basic as electricity. The public has very, very little information on what these contracts are and one of the few places in the world where we could find information about power purchase agreements was Pakistan because they actually released a law which said that tariff agreements have to be disclosed. So what we then did was we spent, many, many months actually downloading all of these agreements and contracts and, in the end, I think it was over 6000 PDFs with very detailed contract information and we put together a database. And that's when we started discovering a lot of very interesting things. It became very obvious to us that some of these contracts seemed extremely generous and that raised some questions on why electricity is being procured with these particularly generous terms and conditions. And whether that means that the electricity sector is enabling transfers from the public to a certain groups of vested interests. So the long and short of it is that we think that these contracts are really important to study, and what we found from our investigative work is that a lot of these contracts are extremely lopsided and, you know, there isn't any competitive procurement, and we know when there isn't competitive procurement, you have no idea whether you're getting value for money, whether you're getting the best product. They're just being solicited bilaterally through these very, very opaque contracts. Tobi: So, I mean, in that situation, and reading through your paper. After going through all the details and all, did you find out whether that was specific to Pakistan or is there a pattern across poor countries who have no power generally. Sugandha: It's definitely a pattern. So one of the striking things is that across so many parts of the world electricity is not procured competitively and by competitively I just mean the normal process of firms submitting bids and choosing the least cost bid. You know, that seems like an obvious way to do this, but that isn't what's happening. To give examples of countries where there are these very opaque power purchase agreements, um, Indonesia has them. Ghana has them. I think Nigeria, by the way, also has them. Mozambique has had them. And till date, we have just had very limited evidence. So what typically happens is that some journalist goes out there and finds a very specific scandal related to this power purchase agreement. And they report that. So, for example, in Pakistan, journalists have said that the cost of coal being used by these power plants is much more than the market rate. Sometimes it's 50% higher than the market rate. And that's a very strange thing to observe. You know, why aren't power plants using cheaper coal? It turns out that power plants get reimbursed for the cost of coal. So if they say it's more expensive, they get a bigger reimbursement and that is the incentive behind lying. We've also seen that happen in India. So, to answer your question, this type of rent-seeking behaviour in the power sector is not unique to one country. We have seen it across the developing world. And one of the reasons it's there is that there isn't competitive procurement and a symptom is that the price of electricity becomes higher. And it also becomes more unreliable. And in general, you have this situation where public money is not being used efficiently. Unfortunately, yeah, it is a common story. Tobi: Yeah. to use Nigeria example, not that I want you to respond to that specifically. Um, so in Nigeria, all sides of the bargain in the electricity market is complaining. Uh, the government complained about the fiscal burden of the subsidies. Consumers, citizens complaining because the electricity supply is not stable and the power companies do complain that they are not charging market rates, they are not making money, they are heavily indebted. What is it about the structure of the electricity market that creates this kind of dysfunction? So, for example, some will argue that power purchase agreements are so structured because electricity is capital incentive and hence you need these lopsided contracts as an incentive for people who are willing to invest that kind of money. So what is it about the structure of that market broadly?Sugandha: Yeah, so you do need risk reduction to incentivise entry in developing countries. I mean, that is a feature of developing countries. The question is how much risk reduction do you need? So you want enough so that people invest in your electricity sector, but if you give too much, then you'll create a debt crisis. And so there's a sweet spot in the middle where you allow entry into your electricity sector, but you're not going to create a debt crisis which creates havoc for your government. This is where we think that some of these power contracts have gone too far on the other side. They're creating way too much burden on the government, and to put some numbers here, you know, often like the return on equity that is offered in these contracts, at least in Pakistan, we've seen can be up to 30%. But when you account for the corruption and cheating, so for example, as I mentioned before, power producers can get reimbursed for input costs. So sometimes they lie about their input costs and say that they're higher than in reality because they get reimbursed. So once you factor that in, we've seen some power plants making a return on equity of 83%. Which is much, much higher than the contracted value of 30%. So in that case, what we're documenting is actually explicit cheating. Now to go back to your question of why this causes dysfunction in the entire power sector? If you think about it, essentially each step of the system is breaking and you know, so the power producers are making super normal profits in some cases. Then the utility, which is in between the power producer and the customers, they often can't charge higher tariffs because they're politically constrained. So they are buying this expensive electricity, but at the same time they can't pass on the higher cost. So they're making a loss. Then because they're making a loss, what they do is that they cut off power. So, because they make a loss per unit, they don't want their total losses to go above a certain threshold. So then their option is to simply switch off the power. That's something called economic load shedding. So to your listeners, you can have load shedding for many reasons. Sometimes it's because of technical losses. Sometimes it's because you don't have electricity supply. But other times it can be just because your utility turns it off. Because they're not making a profit or in fact they're probably making a loss per unit of power, so they just turn it off. And that's a very under-appreciated reason why electricity is unreliable because it has nothing to do with supply. It has to do with the economics of it. And then you go to the government side because now that the utility is making a loss, eventually this utility has to be bailed out and the government does the bailing out. So then the government fiscally is in a bad position. This is how the entire system starts basically breaking down and the solution is simple. I mean, we need to have a meritocratic electricity system. So if an electricity generator can provide good quality, low cost electricity, they should be able to enter the market, sell and outcompete the old generation. It's as simple as that. And if that's risky, then you can provide risk hedging mechanisms that don't fundamentally distort the market the way they are doing now. Because right now it's a broken market, which is happening over and over again across the world. Tobi: Yeah, so suppose I'm a developing country that is democratic. And I happen to inherit these contracts, uh, as problematic as they are. We also know that they are also notoriously long

Hello, everyone, and this is Ideas Untrapped podcast. In this episode, I explored the challenges of acceptance of free market ideas in Africa with my guest, Tinashe Murapata. We talked about how the struggles of free market ideas can be traced back to historical misinterpretations that link capitalism with colonial oppression. We also discussed the weaknesses of Africa’s electoral politics in prioritizing economic issues and emphasised the need for cultural change to embed economic freedom in public discourse. The conversation concludes with a vision for localized, community-driven solutions to reduce state dependency and encourage market-driven development. Tinashe Murapata is the Chief Executive Officer of Leon Africa, an investment holding company in Zimbabwe. he is also a former executive at Barclays Bank and host of a popular Youtube show called Friday Drinks about economics and policy.Episode SummaryIntroductionTobi:Welcome to Ideas Untrapped. It's fantastic to speak to you. I love what you do so much—I’m a huge follower of your YouTube channel. It's nice to speak to a fellow ideas merchant on the continent. So, welcome to the show.Tinashe:Thank you very much. I really appreciate this.The Paradox of Free Markets in AfricaTobi:A couple of weeks ago, I was speaking to an Indian economist on the show, and he said something fascinating. He observed that in America, when he speaks to his colleagues about free markets, they claim the U.S. doesn’t have free markets. Instead, he tells them, “Come to Africa—where you can be in traffic for five minutes, and there are vendors all around trying to sell you one thing or another. That’s the real free market.”I found that interesting. But later that day, ironically—or unironically—I saw a news report that Nigeria’s communication agency was petitioning Elon Musk’s Starlink for increasing prices without government approval. And I laughed—so much for free markets!This got me thinking. Price control and general illiberalism in economic policy are deeply embedded across Africa. You’re from Zimbabwe, I’m from Nigeria, and we see this pattern across the continent.So, my first broad question is: What do you think is holding back the acceptance—or even tolerance—of free market ideas, particularly among the elites and economic policymakers?Historical Misconceptions and African Economic ThoughtTinashe:That’s a very good question, Tobi. And thank you again for having me.The answer, I believe, predates us. It’s rooted in Africa’s transition from colonialism to independence. There were two ideological sides at play—the West and the East. Colonialism was associated with the West, which championed capitalism. Meanwhile, the East, which supported African independence, was viewed as the antithesis of capitalism, embracing socialism and communism.This led to the flawed perception that capitalism was the ideology of the colonizer, while socialism was the ideology of liberation. However, this is historically inaccurate. Both socialism and capitalism originated in the West. Karl Marx himself was European, and socialism predates him—it was fervently supported by Europeans.Unfortunately, the narrative that communism and socialism “freed” Africa while capitalism “oppressed” it became ingrained in our political and intellectual culture. That misconception remains a significant obstacle today.To move forward, we need to disentangle ourselves from these historical misinterpretations and critically evaluate which economic system actually leads to human flourishing. And without a doubt, capitalism—particularly from the 18th and 19th centuries—played a key role in advancing global civilisation.The Role of Economics in African ElectionsTobi:My next two questions are related.Sometimes, it feels like the economic well-being of Africans isn’t a central issue in electoral politics. Electoral competition on the continent is still more about politics in the traditional sense—identity, ethnicity, and power struggles—rather than economic policies that affect people's lives.For example, look at the recent U.S. elections. Donald Trump won, and all post-mortem analyses suggest it was largely due to voters' perceptions of inflation. People didn’t feel the economic boom in their pockets, so they voted for change.Now, in Nigeria, we are suffering from high inflation—especially food inflation, which has reached over 40%. People complain about it, yet when it comes to elections, they don’t express the same anger at the polls. Economic issues do not seem to drive political competition the way they do elsewhere.So, is this part of the problem? And does the way Africa’s economic challenges are portrayed in international media—where we are always framed as victims—affect how we think about holding our leaders accountable?Understanding Africa’s Young DemocraciesTinashe:I see your point, but I think we need to be kinder to African nations.We are young democracies. Zimbabwe has been independent for just 44 years; Nigeria, around 60 years. In the life of nations, that is still infancy. Meanwhile, colonialism lasted much longer. In South Africa, it was close to 400 years.Our democratic institutions and political culture are still evolving. Many of our governance systems were built within a history of disenfranchisement, where political competition wasn’t based on broad economic accountability. That legacy lingers.This is not to excuse bad policies. Inflation is effectively a tax on the poor, and we should demand better governance. But we must recognize that political maturity takes time. Sometimes, societies learn through bad policies.There are two ways to build a great society:* The Meritocratic Approach – You start with the best people in leadership, ensuring competence from the outset.* The Competitive Ideas Approach – You allow different ideas to compete over time, and eventually, society discards what doesn’t work.Africa has largely followed the latter path. Socialist and paternalistic ideas are seductive, so people are often drawn to them. But over time, as failures become evident, they start to reconsider.This means free-market ideas may take longer to gain traction. But our job is to keep advocating and ensuring these ideas are in the public square. Even if we don’t see the change in our lifetime, it will happen eventually.The Free Market and the Battle of IdeasTobi:I view politics as a battle of ideas. Even identity-based politics is ultimately a form of idea competition. Political actors present their vision, and electorates choose.Yet, in Africa, the marketplace of ideas seems weak when it comes to free markets. Civil society is filled with advocates for democracy and governance reforms, but very few champion economic freedom. Even in academia, free-market thought is largely absent.Why is this? Is it just a matter of being “too young,” as you said, or has our education and civic discourse gone astray?Changing the Culture, Not Just the PoliticsTinashe:This is a crucial issue. Politics is downstream from culture. Politicians do not create ideas—they simply pick up what is already popular in society.If free-market ideas are not resonating in the culture, politicians will not advocate them. So, our focus should not be on convincing politicians. Instead, we must embed these ideas in the culture—in conversations, in media, and in everyday interactions.Historically, ideas spread not through institutions but through cultural discourse. That’s why platforms like Ideas Untrapped are important. We need to ensure these ideas are part of the public conversation. Over time, as they gain traction, politicians will naturally follow.Final Thought: A Vision for Localised SolutionsTobi:One final question—it's a tradition on the podcast.What is the one idea you’d love to see spread everywhere?Tinashe:Local provision of essential goods and services—such as water, streetlights, and electricity—organised at the community level rather than by the state.If communities own their schools, manage their waste collection, and control basic infrastructure, they become self-reliant. This reduces dependence on government and proves that the state is not always necessary for progress. If this idea spreads, more people will recognise the power of markets and decentralised decision-making.. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit www.ideasuntrapped.com

Welcome to another episode of Ideas Untrapped podcast. My guest on this episode is Raymond Fisman, who is the Slater Family Professor in Behavioural Economics at Boston University. He is one of the foremost researchers on corruption and institutional behaviour in the last three decades, and I have been looking forward to talking to him. The main theme of our conversation was the re-election of Donald Trump as the new U.S president and his swift embrace of corporate oligarchs as his new inner circle and power proxies. We also discussed why corporate America is rushing to fall in line and "kiss the ring". This was an enlightening conversation for me, and I do hope you find it useful as well. I also hope to have Raymond back on the podcast for a more global exploration of the topics he covered.TranscriptTobi: Hi, everybody. This is Ideas Untrapped Podcast. My guest today is Professor Raymond Fisman. He's the Slater Family Professor in Behavioral Economics at Boston University. He's a brilliant, brilliant economist that I've been looking forward to talking to for a while. It's a pleasure to have you, Raymond.Raymond Fisman: It's a pleasure to be here. I'll tell my children that someone said I was brilliant. They'll find that very funny.Tobi: I think the interesting place I would say to start is what was your reaction to the inauguration two days ago? [This conversation was recorded on January 22, 2025 two days after Donald Trump was inauguarated for a second time as the President of the United States of America] I mean, in some kind of mildly amusing horror, like, I would say I was at the open blatant embrace of the core of American government of oligarchy and downstream of that, corruption. What were your thoughts?Raymond Fisman: Yeah, I think it's a little hard to know where to begin because there is so much to say and literally relevant news and so far as self-dealing is concerned, as well as obsequiousness of business elites in the U.S. is coming so quickly that if we had this conversation six hours from now, there'd probably be yet more to say about it.On the one hand, I would say that it was horror, not mildly amused, except that it does almost transcend satire, what's going on, like, you can't make it up sort of thing. But something that I want to be very careful to emphasise throughout is that I really don't want to pin this on a particular party or make this about partisanship, as opposed to we have an individual who has been elected to the highest office in the land, that I think is doing a lot that runs counter to good government. And those are the issues I want to emphasise.And I do think that we've seen a lot of troubling signs. I did not watch the inauguration. I'm following the advice of my friend, Marianne, who said that to stay sane, she just reads the news in a physical newspaper. Otherwise, it just comes at you too often and too fast.But some of the things that have emerged in recent days that are really quite troubling are signals that the U.S. is moving towards a much more, if you like, personalistic approach to policymaking. And there's always been a role for connections in the way the U.S. is governed. But it does feel like it's just going to a different scale.The most recent and high profile example is that of TikTok, where Trump had been in favour of a ban of the app, he met with the CEO and before that, a billionaire Republican mega donor, and he flipped his position on it. Now he is going to be TikTok's saviour. So that's on the one side. On the other side, you see TikTok entirely aware that they need to engage in flattery. So, you know, they personally thanked Trump for his intervention Monday morning after it was brought back from a very brief ban and now has a 90 day extension. But again, Trump has sworn to save it.So it's this kind of very personalised, very public favour trading is clearly sending a message to business that they need to fall in line in order to remain profitable in Trump's America. And you can easily, or I shouldn't say easily, you can imagine sliding into a system in which we have something closer to what's termed competitive authoritarianism, where you do hold elections, but the media, as well as the levers of government, are so commanded by the party in power that oppositions are playing from such a disadvantage. We've seen this emerge to some degree in India. We've seen it emerge in Hungary. We've seen it with X. We've seen it with other sites. We've seen it, to some extent, with Facebook very recently. You can see it potentially emerging in the U.S.So I do see a lot of troubling signs, and it is certainly a collective project to push back against these trends.Tobi: One thing that I was surprised, you might not be, given that do work in this area is how quickly people fell in line once Trump won or it looked like he was going to be the next president and you know you had this scrambling for people to get face time in Mar-a-lago to book hotels and to basically make deals and then it does make me wonder that, yeah, like you said, the U.S. is shifting to a more personalistic type of governance. But do you think that the quickness or the way that this shift is rapidly happening before our eyes has something to do with perhaps grievances in whatever form with good governance generally or impersonal bureaucracies? You know, because there's so much gripe about the elites or the deep states and how they have failed. And this is how the people are getting the power back. But of course, we know that's not what it really is. But what exactly about the status quo stopped working to give us this shift we are seeing to a new equilibrium?Raymond Fisman: I'm sure there are many things and one always runs the risk of naming the thing that you think is most important, or even worse, the first thing that comes to mind, and presenting kind of a monocausal case. So I'll say that I'm going to name the thing that I think is most important. It's the first thing that comes to my mind. I'm sure there are many factors that are pushing in this direction, including what you described, people being perhaps dismayed - that it's going to be related to what I say, including what you say about the seeming gridlock of the U.S. government.But what troubles me most and what I think is perhaps enabling the most is increased polarisation, which is more extreme in America than elsewhere, but is also a global phenomenon. It shows up very clearly in the data. The extent to which people identify as left versus right has been steadily widening over the past few decades. And somehow it tinges everything, including people's views of good governance, with a partisan lens. So somehow all that has come to matter is, is he my guy or is he not my guy? As opposed to, is this an honest, competent guy or a dishonest, incompetent one? So somehow people's views, people's attention is entirely drawn to partisan questions, rather than good versus bad government questions.The fact that businesses fell in line so quickly, it is kind of hard to fault them, given the opening example of TikTok. That seems to have already reaped tremendous dividends for the company. If I take at face value, the stock price of Tesla as some summary measure of how valuable it is to have the president's sympathies. It went up by around 30% in the week following the election. There are lots of companies that appreciated in value for reasons that can easily be tied to policies. For-profit prison companies went up by a lot. That's because of anticipated immigration policies. Other carmakers, and especially electric carmakers, did not do so well. So what's special about Tesla, that's not like a big secret. It's that its biggest shareholder, Elon Musk, was a tremendous financial and personal backer of Trump. So if you say, well, being well-connected to this government is worth 30%, that's a pretty good incentive to fall in line.I will note as an aside, or maybe not as an aside, something that's very directly related. So my PhD thesis was on the value of political connections in Suharto's Indonesia in the mid-1990s. And my thesis looked at what happened to the value of well-connected companies when there were threats to Suharto's health. And if you take the results of my PhD thesis at face value, connections in America now are worth something comparable to what they were worth back in mid-90s Indonesia, which at the time was viewed as one of the most corrupt countries in the world.Tobi: I mean, a recent example in Nigeria is a particular oil company that was in trouble for a while, running to about five years, was on the edge of bankruptcy and could not even publish its annual reports. And after the the last election, we've had a new government now for 18 months. After the last election, due to the perceived closeness - I mean, it's an open secret - of this same company to the new president, it's recovered tremendously. Its financial fortunes have recovered tremendously to the point that during the Christmas party last December, this same nearly bankrupt company hosted the three biggest musical artists in Nigeria to its annual Christmas party.So I read the Indonesia paper a long time ago, and one thing I want to draw your attention to, maybe with a bit more of an international lens, is the role of ideas here. I know you talked about partisanship, and I hope we'll get to unpack that a little later. So there is a general acceptance now, especially in the subfield of what we call development economics or international development scholarship generally, that some form of corruption is not so bad, right?Since you… I don't know how much you followed that field, but a lot has happened since your paper. You know, there's this subfield of political science meshed with economics that talks about political settlements. Scholars like Mushtaq Khan have said that, well, some corruption can be beneficial to growth and not all corruptions are bad. You can see the

Happy New Year to our listeners. This is the first episode of the year, and I had a conversation with Oliver Harman about global value chains (GVCs), foreign direct investment (FDI), and regional governance in economic development. Oliver and I discussed how GVCs have evolved, the crucial role of multinational enterprises in knowledge transfer, and why regional governments—rather than national ones—are often better positioned to shape policies that maximize benefits from global trade. The conversation highlights the importance of GVC-sensitive policies, investment promotion agencies, and upgrading strategies to help economies move up the value chain and develop their economy. Oliver Harman is an economist. He specialises in spatial economics and economic geography. He is a Senior Policy Economist for the International Growth Centre at the London School of Economics and Political Science. He is also a Research Associate at the Blavatnik School of Government, University of Oxford. His book with Ricardo Crescenzi, which was the subject of this podcast, can be found here. TranscriptIntroductionTobi:Welcome, Oliver, to Ideas Untrapped Podcast. It's wonderful to have you here. I have to say that your work, along with Riccardo Crescenzi, is one of the most refreshing things I've read in the last couple of years on global value chains. It's a wonderful book. I'll put up links to how people can access it in the show notes, and I think everyone should read it.I want to start with the basics. The phrase global value chain is frequently used in economic discourse, particularly in discussions about geopolitics. But what exactly are global value chains? How would you describe them?What are Global Value Chains?Oliver:Thank you for having me, Tobi, and for your kind words on the book—it is much appreciated. I can provide you with an open-access overview of the book for your listeners who may not be ready to purchase the e-book but want a taste of its content.To answer your question, global value chains (GVCs) have gained prominence academically since the 2000s. Before then, there was little academic literature on them, and even less in policy discussions. This book emerged from that gap.A useful way to conceptualize GVCs is through an evolution of economic thought. Traditionally, economists described trade in terms of final goods—like the classic example of England producing cloth and France producing wine, and then trading them. GVCs, however, break down final goods into intermediate parts.Take the bicycle as an example. Many think of it as a single product, but a Canadian photographer once disassembled one and found 571 intermediate components, all researched, designed, produced, packaged, and marketed in different regions across the world. The same applies to more complex products like smartphones, where an iPhone or Samsung device contains thousands of parts sourced globally.GVCs have completely reshaped how we think about trade—moving beyond final goods to the intricate networks of intermediate goods and services that contribute to production.Evolution of Global Value ChainsTobi:How have global value chains evolved over time? What key events have shaped their trajectory over the past 20 to 30 years?Oliver:That’s a great question. GVCs have gone through different stages of transformation.* 1990s-2000s Boom: Trade became more fragmented, and participation in GVCs surged. Nearly every industry saw increased participation, with 40-50% of trade occurring through GVCs.* Post-2008 Financial Crisis: GVC expansion plateaued. The crisis led to economic restructuring, stabilizing GVC participation at previous levels.* Recent Trends (COVID-19 and Beyond): The pandemic disrupted global supply chains, causing temporary shocks. While GVCs held steady, they are now evolving in response to technological advancements and geopolitical changes.This makes it more critical for economies to find the right GVC for their development, rather than just benefiting from an overall expansion of trade.Multinational Enterprises and Governance in GVCsTobi:Your book highlights three key aspects of GVCs:* Multinational Enterprises (MNEs)* Foreign Direct Investment (FDI)* Regional GovernanceAs a Nigerian, I’m particularly interested in MNEs. We've seen many multinationals exit the country in the past six or seven years. Some policymakers argue that local investors can replace them, so it's not a big deal. But can you elaborate on the governance role that MNEs play in GVCs?Oliver:Absolutely. Multinationals are the governing arm of GVCs. They control and structure value chains by determining how production and trade flow across different regions.For regional policymakers, engaging with MNEs is crucial. They are at the frontier of technology and knowledge, and when properly integrated, they can transfer expertise to local firms. This is particularly important for emerging economies—it allows them to leapfrog to higher-value production.However, MNEs can also be extractive if not managed properly. So, it’s important for governments to structure policies that maximize benefits while minimizing exploitative practices.Governance Policies for Maximizing Benefits from GVCsTobi:How can governments and policymakers structure governance around MNEs to ensure they enhance local economic growth?Oliver:We argue for Global Value Chain-Sensitive Policies, which explicitly consider how policies interact with GVCs. Some examples:* Investment Promotion Agencies (IPAs):* These agencies attract the right investors suited for the local economy.* Evidence shows that subnational IPAs (e.g., at the state level) are often more effective than national ones.* Skills Development Aligned with GVCs:* Training programs should be customized based on industry needs.* Example: The Penang Skills Development Centre in Indonesia worked with MNEs to align workforce skills with global industry demands, leading to economic transformation.Foreign Direct Investment (FDI) and Upgrading in GVCsTobi:Some countries like Vietnam, Poland, and Malaysia have effectively used FDI to upgrade their economies. What are the general lessons from their success?Oliver:The key takeaway is that quality of FDI matters more than quantity.* Traditional Thinking: Measure FDI by the sheer amount of money coming in.* More Effective Thinking: Assess what type of FDI is being attracted.For example:* $100 million in basic assembly work adds less value than* $10 million in high-tech R&D investment, which has long-term benefits.Upgrading within GVCs involves moving from low-value tasks (e.g., assembling phones) to higher-value tasks (e.g., designing microchips). This is the essence of economic transformation.Regional Governments and GVC PolicyTobi:You emphasize regional (subnational) governments as key players in GVC policy. Why focus on regional rather than national governments?Oliver:There are two reasons:* Granularity of Data:* National policies aggregate data, ignoring local variations.* For instance, a port city has different needs from an inland capital city.* Local Expertise:* The people of Lagos understand their economic strengths better than the national government in Abuja.Empowering subnational governments allows for more tailored, effective policies.Challenges in GVC Data CollectionTobi:How can regional governments access reliable data to guide policy?Oliver:Data is crucial but often lacking in emerging markets. Solutions include:* GVC Mapping Exercises: Identify key industries and their global connections.* Global Datasets:* Inter-Country Input-Output Tables* OECD’s Trade in Value Added (TiVA) database* Firm-to-firm transaction dataFinal Question: One Idea Worth SpreadingTobi:What is one idea you’d like to see widely adopted?Oliver:The value of global trade and specialization.Many policymakers today are pushing for economic nationalism—wanting everything made domestically. But different regions have comparative advantages, and trade creates mutual benefits.We must resist mercantilist policies and embrace efficient global cooperation.Closing RemarksTobi:That’s a fantastic idea. Hopefully, we move past the current mercantilist mindset. Thank you, Oliver, for being on Ideas Untrapped.Oliver:Thank you, Tobi. I appreciate the opportunity to discuss these ideas with you and your listeners This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit www.ideasuntrapped.com

In this episode of Ideas Untrapped we discussed the challenges and complexities of education, economic growth, and public health systems in developing countries with two brilliant guests James Habyarimana and Jishnu Das. We started off with an example on the rapid expansion of tertiary education in India and its unmet promise of better jobs, which led to discussions on similar dynamics in African contexts. The conversation explored the balance between market-driven growth and government intervention, emphasizing the need for robust processes and inclusive dialogues to address inequality, improve infrastructure, and shape a collective vision for the future. James Habyarimana is the Provost Distinguished Associate Professor at the McCourt School of Public Policy. His research is focused on identifying low-cost strategies to address barriers to better health and education outcomes in developing countries. Jishnu Das is a distinguished professor of public policy at the McCourt School of Public Policy and the Walsh School of Foreign Service at Georgetown University. Jishnu’s work focuses on health and education in low and middle-income countries.TranscriptTobi: Welcome to both of you. This is actually the first time on the podcast that i'll be hosting two guests at the same time and i feel so lucky that it's both of you, so welcome to Ideas Untrapped it's fantastic talking to you.Jishnu: Great to be here, Tobi. Glad we're doing this.James: I feel privileged to be sharing this time with both of you. Tobi: Okay, thank you. You can take turn to answer as you choose. What inspired me to do this episode primarily was a very powerful article by Jishnu talking about(00:00:33):college education and how young people may have been shortchanged by the promises(00:00:40):and what the evidence suggests.(00:00:43):So briefly,(00:00:44):if you can just summarise for us,(00:00:48):Jishnu,(00:00:49):what inspired you to write that piece and what were the major findings?(00:00:54):Jishnu: Yeah, sure, Tobi.(00:00:55):And I'll ask James to talk about the African context.(00:00:58):I mean, I know India fairly well.(00:01:00):And one of the things that's so surprising and, you know, when people in the U.S.(00:01:05):or people elsewhere hear it,(00:01:07):they don't realise just how fast college education and college enrolment has(00:01:12):increased in the country.(00:01:14):Right.(00:01:15):So one of the statistics that I got wrong because I couldn't believe it is between 2003 and 2016,(00:01:22):India was building a new college every eight hours, right?(00:01:27):And you think about a number like that and you say, what happened here, right?(00:01:31):It's completely out of the experience that any of us has ever seen.(00:01:36):There's a real, real thirst for education among young people.(00:01:41):And it's not just a certain group.(00:01:44):We are seeing it in all kinds of socioeconomic status, girls, boys, men, women.(00:01:51):And it's interesting,(00:01:52):like in a country like Pakistan,(00:01:54):which is traditionally thought to be very patriarchal than it is,(00:01:58):there are more women in college now than men.(00:02:01):So there's this huge upsurge,(00:02:03):maybe a huge demand for college education that's being met by all kinds of places.(00:02:08):And, you know, education is a bit like looking at the stars.(00:02:11):You're going to see what happened in the past in terms of, OK, all these guys came into college.(00:02:16):What's going to happen to their lives after that?(00:02:18):And that part is not clear.(00:02:21):So India has grown a lot.(00:02:23):It's a huge success story on some fronts, kind of.(00:02:27):But really, more than 90 percent of the jobs are still informal.(00:02:31):And we keep thinking BPO, you know, business process outsourcing.(00:02:34):They're taking a lot of outsourcing jobs.(00:02:36):You know,(00:02:37):there's so little of that in actual numbers that it supports less than a percent of(00:02:42):the population.(00:02:43):So the question,(00:02:44):the big question that comes is,(00:02:46):OK,(00:02:46):all these guys who are going into college,(00:02:49):they're going in with the expectation that their lives are going to be a lot better.(00:02:53):And are we going to be able to meet that expectation?(00:02:56):And the phrase that people use is, you know, we have the so-called demographic dividend.(00:03:01):where we have lots of young people and fewer older people.(00:03:05):And the right way to think about it is how do we make sure that that demographic(00:03:11):fraction which we call a low dependency ratio is a dividend and doesn't turn into a(00:03:16):nightmare when you suddenly have these tons of people who are like,(00:03:20):look,(00:03:20):you sold us a dream.(00:03:21):You told us that if we make it through the schools,(00:03:24):which are not great,(00:03:25):and we go to college and we finish our college,(00:03:28):We'll get a decent job.(00:03:29):Where is that job?(00:03:32):That's why I called my blog a coming of rage story, because our college education has come of age.(00:03:38):And the big question now is whether it's going to come of rage as well.(00:03:42):And that's kind of, you know, where I left it.(00:03:45):But I don't know.(00:03:46):I mean,(00:03:46):James,(00:03:46):do you find kind of similar patterns in Uganda or in Tanzania where you work or(00:03:52):other countries?(00:03:53):James: Right.(00:03:53):I guess I want to start by saying, yes, I mean, Africa is in some ways pretty, pretty diverse place.(00:03:57):And so I'm going to focus a lot of my comments on the places that I'm familiar with,(00:04:01):which would be East and Southern Africa.(00:04:03):Tobi: Yeah.(00:04:04):James: But I fully expect,(00:04:05):as I was saying to Tobi,(00:04:06):I've done some work both in Lagos and in northern Nigeria on education.(00:04:09):So even though this is a little bit a while ago,(00:04:11):so I don't quite understand the long run trends and,(00:04:14):say,(00:04:14):demand for college.(00:04:16):But, you know, Africa is a very young continent.(00:04:18):In many parts of Africa, the share of the population is under 30, you know, is close to two thirds.(00:04:23):And so, yes, there is the same dynamics in terms of expectations of a better life.(00:04:29):And of course, I think this is the challenge for politicians.(00:04:31):So(00:04:31):So earlier when Tobi was saying maybe,(00:04:33):you know,(00:04:34):infrastructure projects get more attention than,(00:04:36):say,(00:04:37):education,(00:04:37):I actually think in the places where I work that,(00:04:39):in fact,(00:04:40):education gets much more attention because politicians are concerned about this rage,(00:04:45):right?(00:04:45):They're concerned about this gap between people's aspirations and essentially kind(00:04:50):of the opportunities that are available when they finish school.(00:04:53):I think that is a huge problem.(00:04:54):Even in places,(00:04:55):actually,(00:04:55):the northeastern Nigeria,(00:04:57):where I started to do some work on kind of apprenticeship programs,(00:05:00):there's a lot of attention being paid to addressing essentially kind of this gap.(00:05:04):Because I think ultimately,(00:05:06):and I think most political scientists have suggested that essentially kind of the(00:05:09):share of males between the age of 15 to 29 who are not engaged in school or active work,(00:05:15):in some ways can be a major source of instability.(00:05:17):And so I do see the same concerns.(00:05:21):There's certainly been an explosion in(00:05:22):in terms of tertiary institutions outside of government.(00:05:25):And so there are many more private institutions in East Africa than exist,(00:05:29):say,(00:05:29):you know,(00:05:30):20 or 30 years ago.(00:05:31):I don't think people are building universities or colleges at the same rate as they are in India.(00:05:36):But there's certainly kind of an attempt to respond to the exploding demand(00:05:40):And I think ultimately the question for whether there's a demographic dividend or not,(00:05:45):I mean,(00:05:45):I've certainly made the case in other fora where I've said,(00:05:48):look,(00:05:48):we need to essentially kind of take advantage of this opportunity and we need to(00:05:52):give these young people the skills to be effective in the world.(00:05:56):But I think ultimately there is kind of a bigger question about sort of can these(00:06:00):places produce the jobs and find the markets to really deploy these people?(00:06:05):Yeah,(00:06:05):so I hope we won't start the conversation by essentially kind of talking about rage(00:06:09):as opposed to the high hopes.(00:06:11):But yeah,(00:06:11):I think many places where I work are facing the similar sort of challenge of,(00:06:16):you know,(00:06:16):how do we convert this opportunity into prosperity as opposed to civil conflict?(00:06:22):Tobi: So I think for me, the rage...(00:06:25):question is sort of unavoidable.(00:06:29):Perhaps the evidence might tell us differently, but at least on some level of perception.(00:06:35):Certainly, it's a story that resonates with me.(00:06:39):I mean,(00:06:40):I live in Lagos,(00:06:41):Nigeria,(00:06:42):and I can certainly tell from my observation that you see an army of young men from,(00:06:50):say,(00:06:51):18 to 25 with(00:06:53):absolutely nothing to do, you know, just walking the streets, standing on the corner.(00:06:59):So what I want to tease out with my next question is the intersection of skills and jobs, you know.(00:07:08):So on the one hand, there's been this great expansion.(00:07:12):I think it's certainly true, also of Nigeria, the expansion in tertiary education is crazy.(00:07:19):Like private schools must be(00:07:23):Now,(00:07:23):I don't have the data immediately,(00:07:25):but I think private universities must now outnumber public universities in Nigeria.(00:07:30):You can certainly see the same trend in secondary schools.(0

In this episode of Ideas Untrapped, I sit down with economist Oliver Kim to explore the complexities of African economic growth and the challenges surrounding industrialisation. We discuss why Africa has struggled to replicate the manufacturing successes of East Asia, touching on issues such as labour costs, political economy, and the global market environment. Oliver also shares his thoughts on the importance of state capacity and regional integration and how to rethink GDP statistics in development research. Oliver Kim is an economic historian and a research fellow at Open Philanthropy. He also writes excellent blog Global Developments.TranscriptTobi:Welcome, Oliver, to the show. I've been a fan for a while, and it's fantastic talking to you. So thank you so much for coming on Ideas Untrapped.My first question to you involves something you wrote a couple of months ago where you talked about African prices, which is always a puzzle that I've been interested in. So, to restate it as simply as possible, we know that manufacturing in Africa has not grown as much, at least relative to other sub-regions in the world. And there are some theories or findings that suggest that it’s because labour cost is too high. And there's a bit of back and forth in the debates about how unique that is to Africa as a continent. So can you shed more light [on that]? Because you see a lot of comparisons, maybe Ethiopia and Bangladesh…the unit labour cost and how high it is. So, is that really the constraints? What are the nuances based on what you discussed in that blogpost?Oliver:Yeah. Just to quickly summarise. Africa has kind of missed out on the manufacturing revolution that, for instance, propelled East Asia…so when you think of the East Asian tigers, China, to rapid rates of growth and poverty alleviation. And, i think in some countries, actually, the share of manufacturing value-added or the share of manufacturing employment is the same or lower than where it was in the 1970s immediately after independence. So, from a developmental standpoint, this is a bit of a puzzle and from a poverty alleviation standpoint, it's a tragedy because this is the only sort of way that we know how to lift large numbers of people out of poverty in a rapid sort of fashion. That’s how China did it; that's how earlier, Korea, Taiwan, and Japan did it.From a prices standpoint, the problem that economists have identified is that labour costs are too high relative to the level of productivity. That's an important qualified statement to make. So most developing countries are poor [and] as a feature of a developing country, one thing that's true is that incomes are relatively low, wages are relatively low, and so labour is relatively cheap. It's also true that if you're a foreign firm deciding where to site a factory, you don't just care about the labour cost. You also care about the productivity of the workforce. And so it works out that what you care about is like the amount of productivity divided by the cost of hiring additional worker.And on that metric, which is typically measured in something that's called a unit labour cost (the amount that it costs to produce one unit of output), a lot of sub-Saharan African countries turn out looking relatively poor, especially compared to their peers [at] similar sort of income levels. So there's sort of two dimensions of this problem. One is the productivity side, and then the other is the cost side. On average, it appears basically that African countries have wages that are actually relatively high for their level of development. And so this becomes a further mystery, like why is this the case? One hypothesis that's been put forward in a couple of papers by the folks at the Center for Global Development is that it's because prices are too high. So this is like one step up the causal chain. If prices are high and the goods and services that are to buy cost too much, then you have to pay people a higher wage basically to afford that. Of course, the sort of factors behind this, I think, are incredibly complex. I think one major, sort of, historical and fundamental feature that I would point to is that historically labour in Africa, sub-Saharan Africa has been relatively scarce. So this is the contrast I guess, with East Asia and potentially South Asia, where population density is incredibly high and labour is constantly in surplus. So historically, you know, China, East Asia is like one of the most densely populated regions of the world. The opposite is kind of true in Africa. Now the population has grown a lot, but historically you just had actually a lot more land than people. And if you look at the deep history of African sort of polities, a lot of them were trying to economise more on people than on land. So like in East Asia and Western Europe, you know, you had states with very clearly defined boundaries and political control was defined by control over land.In Africa, there are states, but there are also instances basically where political control was defined more by control over people. And so there was more fluidity in terms of like territorial boundaries. And so control basically of labour, potentially through slavery also, was a way of a political state to assert power. That's a bit of a digression, but historically speaking, you had relatively low population density. I think that's part of the factor into capitalism. why labour was relatively scarce and maybe why wages are low. So in the present day, maybe that's starting to change a little bit. But looking at the sort of deep fundamental factors, it appears that maybe wages are potentially, quote unquote, “too high to enable a sort of African manufacturing revolution.”Tobi:Yeah, maybe I read that wrong. But one of the things you discussed in that particular essay was the Assam non-linear model or something like that. It was a U-shaped relationship between GDP and price levels, which, again, maybe I'm wrong about this, the conclusion that sort of came out of that, that this might not necessarily be a problem that is unique to Africa. So can you shed more light on that?Oliver:Yeah. So let me talk about what I talked about in the blog post. So economists have this relationship. It's a purely like empirical one. So if you go out in the world and you observe things, it's called the Balassa-Samuelson relationship, where basically it appears that as countries get richer, prices of things like haircuts and services seem to go up almost more than proportionally, right?So like, you know, if I go to Switzerland, which is a very rich country, a haircut costs like $30 or something, something ridiculous. Actually, it's probably more than that. It's like $50 or something, 50 Swiss francs versus, you know, if I go to a Kenyosi in Kenya or whatever to go to a barber, that same haircut, which effectively is not that differentiated in terms of quality. Like a haircut is a haircut. Like if I ask for a buzz cut, it's the same thing. It's the same product, but that product in Kenya probably costs a dollar or possibly less. And so this sort of weird differential where richer places seem to have higher prices is known as the Balassa-Samuelson effect. And if you think about like the sort of underlying theoretical mechanism here, basically richer countries have higher productivity. Higher productivity shows up in like higher productivity in let's say like the manufacturing sector or higher tech kind of sectors.For like service sectors, which everybody needs, right? So everybody needs like barbers, everybody needs janitors, teachers, things that basically don't increase that much in productivity. Even these sectors need to face higher wages in these rich countries in order for them to be able to compete with the manufacturing sector where productivity has gone up a lot, right?So like people can switch jobs, people can move between different sectors of the economy. And so the price basically of these service sector goods where productivity actually hasn't gone up that much have to sort of keep pace.And that's how you end up with this phenomenon where - the same haircut, essentially the same quality, costs the same amount across two places with very different incomes. Now, the way that economists typically have thought about this is that there's a linear relationship. So if you drew like a scatterplot of countries by their income levels and their price levels, you'd just get something like a line. That's like the theorised kind of relationship, a linear Balassa-Samuelson relationship. By that logic, if you put African countries on that scatterplot, it looks like basically that their prices are too high.So they're lying above this line on the scatterplot between GDP and price levels. What I was arguing in this piece is there's some research, in particular a paper from the Journal of International Economics by Hassan, I forget his first name, I think from like 2017 or so, basically arguing that maybe this Balassa-Samuelson relationship is not actually linear. Maybe it's actually nonlinear, right? There's no actually like really strong reason that this thing has to be linear. It's just like it's the easiest model to write down. And this is like a common flaw amongst economists is that you go with the first thing that's like easiest mathematically to do. And then you forget that it's just a simplification and you start to treat it like a feature of reality. But so he writes out a more complicated model where, you know, as is true in the real world, there's not just like a service sector and a non-service sector, as I laid out just a minute ago. There's agriculture, there's manufacturing, there's services. Countries basically shift between these three things as they vary in their stages of development, right?Agriculture for a lot of developing countries is actually mostly non-traded. Think of subsistence farmers, people who grow maize or soybeans for their own consumption. And so

In the episode, Tobi talks to Dmitry Grozoubinski about the politics and complexities of global trade, emphasizing the tension between free trade and protectionism. Dmitry explains how trade policy decisions involve difficult choices that impact both producers and consumers, using Nigeria's food inflation as an example. They explore the balance between national interests and global commitments, highlighting how protectionist policies are often rooted in political concerns rather than economic efficiency. The conversation also touches on the challenges of multilateral trade agreements like the WTO and AfCFTA.Dmitry served as an Australian diplomat and trade negotiator at the World Trade Organisation and beyond. He has negotiated complex agreements in Geneva, at WTO and UN Ministerial Conferences in Kenya, and as part of the MH17 task force in Kyiv, Ukraine.Before joining the Department of Foreign Affairs and Trade, he was a lecturer and tutor at the Monash Graduate School of Business and with the Australian trade consultancy TradeWorthy. He is the lead trainer of ExplainTrade and a Visiting Professor at the University of Strathclyde’s School of Law.TranscriptTobi: The complexity of trade agreements, the bargaining, the negotiation, and everything that surrounds the politics of trade generally does not get covered so much. It's always about the economics of it. And that's what I love about what you do, your project, your book, and everything. So my first question to you is that I know you wrote this basically from the perspective of global trade, and with everything that has been happening, I would say, basically, since the Trump presidency, which, like, brought trade into the headlines, particularly with the US-China “trade war”, quote unquote. And, of course, COVID is what we see with supply chains, decoupling, and so forth. But, I would also say to you that in development, the sub-field of economics that we call development, which is what we try to cover here on the show, trade is also a huge deal.I'll give you a bit of a background. In Nigeria, currently, one of the biggest policy issues is the government trying to decide whether or not to allow the importation of food, basically rice, wheat, and all this other basic stuff. Primarily because food inflation is way above 40%. There's basically a cost of living crisis that has been going on for a few years. People are hungry, people are starving, people are angry because their incomes can no longer even feed them, you know? And so it generates this intense debate because on the other side of that, you have the producer class - the farmers and various lobby groups and political interests who say that, “oh, you really can't import, you're going to turn the country to a dumping ground, we're going to de-industrialise and so many other things.”So one practical question I'll start with you is, if I were a politician, for example, and you know, with the title of your book, let's say that I am an honest politician. Let's assume that I'm an honest politician and I'm asking you that, Dmitry, how do I make this decision? What practical advice would you give me when considering trade policies generally? How do I make trade policy?Dmitry: I think that's a really good question, and I think it kind of goes to the heart of what trade policy is. Anytime you're doing trade policy, you're making choices, and they're often hard choices. You just laid it out perfectly there. You have farmers and other producers of food in Nigeria that are benefiting from very high prices. And you have consumers that are effectively suffering because a substantial part of their weekly budget is going to food, and more than was going before. You mentioned inflation at 40%. That is hugely unsustainable. So as a politician, when you are talking about the choice of bringing in more food, the first thing to do is you have to be honest. And you have to say that, yes, if you allow more food into Nigeria, you will hurt the interests of producers.One reason I wrote the book is that politicians will often try to gloss over this and pretend it's some kind of win-win. They'll talk about competition. They'll talk about greater efficiencies. And that's all true to an extent. But in the short term, if currently you're locking out foreign rice, which is considerably cheaper than Nigerian rice, and you allow that rice in, you are going to hurt Nigerian rice producers. There's absolutely no way around it. So the first thing is to be honest about that choice you're making. The second point is to be honest about what you're trying to do versus what you're not trying to do.So one of the ways that this particular debate often gets twisted into an uncomfortable alley is people will start talking about the notion of food security. So they'll say it's important that Nigeria be able to feed itself. And if we allow foreign food in, that will degrade our ability to be self-sufficient on food, right? To my mind, that's a way of basically misleading the public. It's very, very, very, very few countries are food secure in the sense that if trade were cut off tomorrow, they would produce enough food domestically to feed everyone in the country. Countries like the United Kingdom import something like 65% of their food. Why? Because it's far more efficient that way. And global trade supplies what people need. The amount of work it would take to convert the United Kingdom, for example, into being able to feed itself would mean you have to stop doing everything else in the country and prices would go through the roof. So it's important to be realistic about that.It's also, I think, really important to say we live in an era of climate change. And one of the real problems we are going to face moving forward is that extreme weather events are going to become more common. So you are going to have parts of let's focus just on Africa, you are going to have in coming years parts of Africa that are in drought or flood, while parts of Africa are having a phenomenal crop. And those parts will shift around over and over. Our ability to feed people consistently moving forward is going to rely on us being able to move food from the places that are having a really good year to places that are having a really bad year. And I think any politician who is trying to say that if we just keep the walls around like the tariff walls, the barriers to importing food high enough, Nigeria will be able to feed itself forever every year without sky-high inflation, I think maybe is skipping over just the reality of where we live.Tobi: So, as you know, in places like Washington and the like, which gives advice to poorer countries on how to make policy and what will make them rich, you know that for about three decades, the orthodoxy has more or less been free trade. You know, you need to be more open. You need to allow more trade. You need to allow more goods into your country. Protectionism doesn't work. Which economically seems to be true, but right now, you have some of the richest countries in the world who have been advocates of open trade regimes, actually more or less going back to the mercantilist protectionist policies of the past. Which I think you sort of touched upon, especially the history of this in the second chapter of your book. So can you just give me a brief rundown on some of the shifts that we've gone through historically? And, like, what moves the needle on the dominant thoughts on trade policy?Dmitry: Sure. So when economists talk about free trade being the optimal path forward, what they're actually saying is, if you don't have tariffs, if you don't have trade barriers, we can maximise the efficient use of resources. So the free market will sort of allow and everyone will produce things in the most efficient way. And so overall, as a planet, we will be maximising our labor and our resources. And that's the benefit of that. They also suggest that having competition in your market pushes your own producers to work harder and having free trade can attract more capital. So inflows of capital from abroad that can make investments in your country. With the confidence that if they build a factory in Nigeria, if you've got free trade, if you've locked that in with treaties, they know that that factory will always be able to get the inputs it needs from abroad and always be able to sell whatever it produces to buyers outside of Nigeria. So that makes Nigeria a more attractive investment destination, for example.So that's kind of the logic for a long time. And you mentioned Washington, Brussels, you know, the big economies generally tended to push that line and tended to believe it. Now, I would say straight away, it's important to note that they didn't universally believe it. So, for example, Europe is like, yeah, free trade's great unless you want to sell us certain agricultural commodities. So if you want to sell beef to Europe, suddenly free trade is not so great. And they protect their beef farmers or their lamb farmers or even their wheat and sugar producers. Ditto, America loves free trade when it comes to certain things. But if you try to sell America a light truck, you're paying a 25% tariff at the border. It's virtually impossible to sell certain kinds of services into the U.S. If you want to get a visa into the U.S., you sometimes have to do a job, you sometimes have to wait two years for an interview at a U.S. embassy. So even the rich countries that were preaching free trade were preaching free trade asterisk.So what they were basically saying is, we believe that this is the optimal way to arrange the global economy, except on the things that we care about, the things that we're really sensitive on, where we think what's important isn't efficiency, but keeping the French farmer employed or protecting the US insurance market. What we're seeing now is that that asterisk is growing. So the US, Europe, China, all of these major players are

Tiago Santos joins Tobi on this episode of the podcast to discuss Parliamentarianism. Tiago believes that if African countries had adopted parliamentary systems during their democratization wave, they would have likely seen better development outcomes, citing the success of Botswana and the economic growth seen in parliamentary countries. He also highlights four main flaws in presidential systems according to political scientist Juan Linz: lack of clarity in authority, rigidity, winner-takes-all nature, and personalism. These issues often lead to ineffective governance, coups, and excessive polarization, which hinder development and political stability. Tiago further argues that better governance structures, like those provided by parliamentary systems, are crucial for economic development. He emphasizes that parliamentary systems lead to greater political stability and more inclusive decision-making, essential for fostering long-term growth and escaping the "Malthusian Trap."Tiago Ribeiro dos Santos has been a Brazilian career diplomat since 2007. He has a law degree from Pontifícia Universidade Católica in Rio de Janeiro, a professional degree from Instituto Rio Branco (Brazil’s national diplomatic academy), and a master’s degree from the University of Chicago Harris School of Public Policy. He is the author of the excellent book Why Not Parliamentarianism.None of the opinions in the interview reflect the views of any institution he has been associated with - and you can find the full transcript of the conversation below.TranscriptTobi;You're, I would say, a strong advocate of parliamentarianism. I wouldn't call myself a strong advocate, but I'm fairly biased towards your point of view and became even more convinced when I read your book. Particularly in Africa, a couple of countries went through long periods of military dictatorship. And around 20, 25 years ago, there came another wave of widespread democratisation on the continent. What happened was, maybe due to the influence of American foreign policy or some other global forces, a lot of these countries opted for the American-style presidential system. And in my own observation, maybe I'm wrong empirically, a lot of these countries, my country, Nigeria included, struggled with the workings of this presidential system, such that there had been constant agitation for a kind of return to the parliamentary system that Nigeria had immediately after independence. My question to you then is that, are you willing to say or assert that perhaps if a bunch of these countries around 20, 25 years ago had opted for parliamentary system, would they have done better development-wise?Tiago; I don't think anybody can say for sure, but I'm convinced that they would probably, very likely, had done better. With respect to Africa, I think, yes, there is a strong influence from the American model because it's obviously a very successful country. So it's very easy to model after them. But I think that there is something else also in the choice of presidentialism by African countries. I've read a paper by James Robinson and Ragnar Torvik that argues that there is a tendency for endogenous presidentialism, which is that exactly because in presidentialism the leader has more chances to exert their powers without much resistance. So back in the 60s, a bunch of countries in Africa, I think most of them, had a parliamentary constitution, not only Nigeria, but many other countries had a parliamentary constitution and basically all of them switched to presidentialism at some point. If you look at Botswana, the economic performance that they had since the 1960s is very impressive. I wish Brazil had the rate of growth that Botswana has been experiencing consistently. So looking at the countries in Africa that have adopted parliamentary constitution, I think that it would be the case, yes, that had these countries adopted a parliamentary constitution back when they democratised again, they would probably have done better. Tobi;I mean, Nigeria is so loud. that the word restructuring, which is a shorthand for reconstituting the political system, is so common in political parlance and, you know, we kept shouting restructuring, restructuring, and it never really comes to pass.But given the ubiquity and the allure of presidentialism, at what point, particularly historically, did you become convinced enough to write this book about the superiority of parliamentary systems? Tiago;It wasn't something that particularly interested me during the first 40 years of my life, before writing the book. So I wrote a book on the economic effects of the Brazilian Constitution. So the idea was to make this research and check every article of the Constitution, what economic effects we could expect to have in Brazil with my then boss, Otaviano Canuto, in the Brazilian constituency in the Board of Directors of the World Bank. And one of the things that I started researching on was exactly the difference between presidentialism and parliamentarianism. And I started to find some striking results. This was too big to go into the article, so we don't mention it in the article that we published. We mentioned other aspects of the Brazilian constitution, but then I couldn't stop researching this. And I was always also checking myself, trying to push my good economist friends. I was trying to also get comments from many people that have thought about this problem very well and to check that I wasn't thinking something that was completely out of base. And I was increasingly convinced because of the feedback that I got, the continuation of my research, it was then when I combined all the elements that I think are in favour of parliamentarianism that if we just look at countries that are parliamentary or countries that are presidential, you see that parliamentary countries perform better in just about any indicator. If you look at the history, if you look at the informal theory, if you look at formal theory from economics, if you look at the evidence that people try to do with studies that are not just correlational, but that introduced good statistical controls for things, If you look at complementary evidence from companies - so companies can adopt a parliamentary model, which is having a board of directors and this board of directors can control the CEO. And no company elects a CEO by the shareholders directly. And this CEO will have a checks and balances relationship with the board of directors. This figure doesn't exist. And I think the market is in a very good position to choose the best arrangement. And finally, the council management system in the U.S. that I learned when I was doing this research is a system that is very similar to parliamentarianism. And cities that adopt the council management system perform much better than cities that adopt a strong mayor system, which is similar to the presidential system. Tobi;So what are the key flaws that you mention in the book? Perhaps there's more now since you wrote the book. What are the key flaws in presidentialism that you think a parliamentary system addresses effectively? Tiago;We were discussing before you started recording. I don't try to be original in my book. I try only to convey the knowledge that's already there. And in this, the most influential thinker is by far Juan Linz, a political scientist. And I think that he has the best frame for this. And he talks about four main flaws in presidentialism that parliamentarians doesn't suffer from. So these flaws are in presidential countries, you don't have a clarity of where the authority lies. So what happens in the end is if you like the policy that Congress is trying to push, then you will stand on the side of Congress and if you like the policy that the president is trying to push, then you will stand on the side of the president. And there will be lots of undermining of initiatives by both the Congress and the president. They won't agree on many things and it will be difficult to have a coherent proposal. Daniel Diermeier has an article on this, on how parliamentary systems are more cohesive. So the second thing I think is a big problem, also from Juan Linz, is the rigidity. So if a country is presidential and the president is working badly, there's nothing we can do. We just have to wait for the mandate to end. And if this is bad enough, if some sectors of society perceive this to be bad enough, you have often coups that derive from a perception that there's no way that the president can stay in place. And then a majority of the powerful actors in a society will install a coup. So that's why the prominence to coups in presidentialism is so much greater than in parliamentarianism. Then you have a winner-take-all situation. So if you win the presidency, you have so much power that you will be able to implement so many things and you have almost complete control over so much of government. Whereas if you are the losing side of a presidential election, then you are out of government completely. So there's too much at stake. And this incentivises the kind of polarisation that we see in many presidential countries, a type of politics that is very visceral, that is very combative. That's not the kind of politics that we would hope for. And lastly, it's personalism. The presidential system focuses way too much on the figure of one person instead of different institutions in society, different sectors and different voices. And it's often the case that in many presidential countries, people don't love the candidate that they see. They would never support that candidate if not for the reason that they hate the other candidate that will have so much power. And then they try to minimize the flaws that they would never accept in a normal situation on the candidate they support. And this leads to a race to the bottom sometimes. So the personalism is a disastrous characteristic of presidentialism, too. So I think the Lin

In this episode, Tobi talks to David Pilling, Africa editor for the Financial Times. They discussed his book "The Growth Delusion", exploring the significance and limitations of economic growth, particularly in poor countries. David challenges the conventional reliance on GDP to measure economic success, proposing a more nuanced approach that considers wealth distribution, environmental impacts, and overall well-being. He argues for a balanced view that recognises the necessity of growth for development while advocating for policies that prioritise human and environmental health. The conversation also touches on broader development issues in Africa, including the misuse of resources and the political challenges hindering effective governance and equitable progress.The transcript of the conversation is below, and many thanks to David for coming on the podcast.Tobi;This is Ideas Untrapped podcast, of course, and my guest today doesn't need much of an introduction, anybody who reads the Financial Times knows David Pilling. He is currently the Africa editor of the Financial Times newspaper, he used to be the former Asia editor of the newspaper, and he has written many fantastic columns and essays covering a wide range of subjects. And recently he's been writing a lot about Africa, especially stories on development and other related matters. It's a pleasure to welcome David Pilling today. Welcome, David.David;Thank you so much. It's a pleasure to be here.Tobi;I want to talk about your book for a bit and one question that keeps popping into my mind as I kept reading, that was a couple of months back last year, the general tone of the book, which is called The Growth Illusion was, you know, one of skepticism, right?Also, the impression that jumps at me from reading your economics-focused stories about Africa is that growth is important. So has your work in Africa forced you a bit to reconsider some of the positions you take in the book?David;Yes and no. I mean, the book never said growth isn't important. It is called The Growth Delusion. It's true. And that is a, you know, deliberately, I suppose, provocative title to some extent modelled after The God Delusion by Richard Dawkins. So it was a kind of an echo of that. So, yes, you're right. It was a sceptical title and journalists ought to be sceptical. And what I was doing was I was prodding at the concept of growth, what it is that we measure, how we measure an economy's success.What I was not saying is that growth is not important. And I think growth is particularly important for poor countries. You know, we can put richer countries aside for one second, but in a poor country where there are not enough resources for people to have what Amartya Sen, the Nobel winning economist, calls sort of what we now know as agency, really. You know, choices over their lives, where they live, what work they do. And those choices can be denied by very simple things. Lack of food, lack of a roof over your head, lack of work, lack of safety and security. Unless those things are satisfied, then I believe that people aren't able to live their full potential. And for that, you need an economy that's firing at a certain level. In other words, you need to go from an economy that isn't firing to one that is. Then, of course, many other things need to happen, including the wealth that is therefore generated to be, you know, relatively equitably shared, for people have to have access to economic opportunities. But my book was never saying, you know, growth is bad. We need degrowth, which I know is a trend of thought out there. But my book, despite the title, was really looking at other things, which I'm happy to go into if you'd like more of a discussion. But just to make it clear, I was absolutely not saying that if you have an economy where people lack what I would consider the absolute sort of basic minimum to live a fulfilled life, you know, those economies absolutely need to grow and they need to grow fast as the experience of Asia shows with the rapid growth in places like China, which has transformed hundreds of millions of people's lives and opportunities. Just occurs to me that what just happened, you know, the power going out is in a sense a tiny example of what I'm talking about. You know, there you are making a podcast that you want to be a world class podcast and it's interrupted. I mean, in the end, it's not such a big deal and we are able to carry on. But it's just a little window into, you know, if Nigeria had a decent power system. then you and millions, in fact, tens of millions of other people would have much easier lives, would have much higher productivity, would be able to worry about other stuff. I mean worry in a good way. And, you know, we could call a better power station growth or a better power system, if you want. The money, the resources, the expertise, the systems to produce a good power system for all Nigerians so that all Nigerians can just rely on it and forget about the lights ever going out will make an enormous difference to people's lives. We can call that growth. And so I'm not against growth. I'm for growth.Tobi;Especially for the benefit of listeners who haven't read the book that perhaps I didn't frame that first question very well. The book not in any way suggested that growth is bad. And, of course, I urge everyone to read. It's a fantastic book. So what I'm trying to get at is there seems to be a big debate, even in the subfield of development in economics, about the appropriate measure for growth. The measure that best captures what makes a difference in people's lives, what people value, and you do a little bit of that also in the book, particularly in your discussion around GDP. So please just walk me through the history of the GDP, your critique of it, where it falls short, and what are the things, what are the other dimensions of well-being that it doesn't capture, and why is the field or policy reluctant to expand what we mean by growth?David;Yes. Okay. That's this very big subject when I wrote 250 pages on it. But let me try to encapsulate a few things. So GDP was invented, if I remember right, invented is probably the right word, in the 1930s, 40s by a guy called Simon Kuznets. And the aim, in a sense, was trying to encapsulate what was happening to an economy. And as hard as it is to believe before the invention of GDP, which really sort of measures all the products and services that an economy produces in a given period, before that invention, a single number to encapsulate what an economy is doing, there was no such number. So you could say, well, things feel good, people have work, the stock market is going up, there seems to be a lot of delivery of coal or whatever.But there was no single number that said, you know, GDP is this and it grew by this. So the first thing to acknowledge, I think, is that this is a very clever number and it's an important number. And if you only have one number, it maybe is even the best one. Although somebody said in Mozambique, a finance minister, that he used to watch the May Day Parade and he judged the quality of people's shoes. And if people were wearing decent shoes, then he thought things were getting better. And if they weren't, he thought things were getting worse. But clearly, that's a very crude measure. So GDP, I'm saying, is not a bad measure, but it misses an awful lot and it distorts an awful lot. Let me give you a few examples. So the first thing to know about what we call growth, what we call GDP, is that it's a measure of what you might call flow. It measures what an economy produces, let's say, every year. It doesn't tell you anything about the wealth, which is the assets of that economy. So let's take Nigeria as you're in Nigeria. If you take oil, which is an asset, and you take it out of the ground, you can turn that into GDP, into a flow of wealth. But eventually that oil is going to run out. So if you keep just taking out oil, selling it, spending it, take it out, sell it, spend it, eventually you've got no oil and you've got no money. And you could argue that maybe that's in part what Nigeria has been doing. The best thing to do with wealth like natural capital as it's called, is you turn that into other forms of capital. So you turn it into productive capital, which means infrastructure. So you'd build with those billions of dollars that have come out of the ground in Nigeria, a world class health system, world class transport, world class airports, world class universities, and you'd build human capital. Some of the same things with healthy, well-educated people who can then go on when your oil has run out and do many other things. Now, it doesn't take a genius to work out that Nigeria hasn't done particularly well in that. Of course, there are brilliantly educated Nigerians and there are some lucky Nigerians in the elites that have access to good healthcare and good education, but often outside the system, sometimes indeed outside Nigeria. But what I would argue that Nigeria and many other countries have failed to do is to move that wealth into different sorts of wealth that will produce GDP again going forward. Because otherwise what your GDP has measured is a kind of a one shot. We took oil, we sold it, it's gone. So that's the first important thing about GDP is it's a flow, it's not the wealth.Let me give you another example, and this moves into the environment. If you have a forest from the perspective of GDP, the absolute best thing you can do with that forest is chop it down as quickly possible and turn it into something else like a table. Turn your wood into a table or burn it or do something to produce energy or goods that you can sell and forget the forest. The forest is worth zero as far as GDP is concerned. But of course, the forest has its own value and once the forest is gone, it's gone. And our measures of economic progress take no account at all of the environme

In this podcast episode, Tobi interviews Rasheed Griffith - who is the CEO of The Caribbean Progress Institute, and host of The Rasheed Griffith Show explores the adaptability and policy implementation in smaller countries compared to larger ones, noting that smaller nations can change more swiftly due to simpler institutional structures. Rasheed contrasts this with larger countries like China and India, where changes, although rapid, are often driven by cultural homogeneity and authoritarian governance, which may not be desirable in Western democracies. The discussion also touches on the impact of leadership and institutional capacity on economic development, emphasizing that the quality of governance often outweighs the mere structure of political systems in influencing a country's developmental trajectory.You can listen to episodes of Rasheed's brilliant podcast (The Rasheed Griffith Show) here. You can also subscribe to the Carribean Progress Institute newsletter here, where you can read many interesting and important writings.TranscriptTobi; Welcome to the show, Rasheed.It's great to talk to you.I want to start with something that you mentioned in our first conversation, which has stayed with me. I haven't been able to stop thinking about it since, which is that small countries are somewhat more amenable to change than big countries. You know, when we talk about ideas and policies and economic development,I just want you to expand on that a bit. I know I'm paraphrasing, but I want you to expand on that a bit.Why do you suppose that is?Rasheed;Small countries have less people to influence politically, economically, socially. So ideas can spread faster and ideas can spread deeper in small countries. So for example, if you have a country like Nigeria, you have over 200 million people, you have vast, vast institutions that are captured or incentivized in very radically complex ways.Compare that to a country like Saint Lucia that has 180,000 people. Very small institutions, very small number of schools, very small number of just social actors.For the difficulty of idea spread and idea capture, it's a lot less in a very small place, and yet these are still essentially independent sovereign UN vote countries that have as much rights in that league as Nigeria.You know, Walmart...Walmart in the US has more employees than all of Saint Lucia has population. Or even Saint Vincent, or even Trinidad, Walmart has more employees.So, when you talk about turning the ship of these small countries, it's a lot less complicated than trying to influence Nigeria or Ethiopia or the US or Canada.Tobi;I want to square that a bit with what we saw in China in the last 40 years.China is obviously a very large country and some people would say that it went through a process of rapid change, I mean, after the 1978 reforms. How did a country like China and to some extent what we are seeing in India recently, do you think that having, even if you're a big country, having a homogenous culture, language, ethnic population, does that also help speed up the process of change.China, obviously, communism being the central guiding ideology and of course, majority of the population is Han Chinese. And we're seeing Modi, you know, rally around Hinduism as the national identity of the country. So, how does homogeneity play in here? And you see some pretty screwed up small countries, you know, Haiti…What are the constraints and what are the catalysts?Rasheed;So China is obviously a good example, but China didn't just transform itself via ideas. It transformed itself via a dictatorship. And I think most people would not want that trade-off. You know you go to Shanghai, [which] I've been to many times, you go to Shanghai and you say “it's so great here, the transportation is fantastic the skyline is amazing, all this happened in 30 years” but then the problem is this; the way [and] how it's done, the effects, the results are quite spectacular but for most people in Western countries, you are not willing socially, morally, to make that trade-off even if the trains are so nice. Because you don't want to have the authoritarian system that China has. So, you know, you can describe China as communist and of course the party structure is very Leninist communist structure [but] of course how the economic stuff operates is very open in terms of price mechanisms that you typically find in other capitalist operation. But, you know, don't make no mistake, this was a very harsh trade-off that the Chinese people did not have a chance to make particularly because they had a very authoritarian, still has a very authoritarian party. And I would also say that a lot of the transformation of China that has happened it wasn't particularly directed by the party. People always use Deng Xiaoping as the start point for the opening up policy. But when you look at the proper historical literature, he really just allowed the people to do what they were starting to do already.The market reforms were a very bottom up process. So it wasn't like they kickstarted the actual change themselves. As usual, it's a market system that happened first. So, again, I don't think in Western countries that have a history of democracy, a history of institutions, history of social liberties would want the kind of trade-offs needed that China used to rapidly push in one direction.Now, India is tricky because India, of course, had a lot of growth, but India has very weak institutions. You know, when you are there on the ground, there is a massive difference between India and China, even states like Bangalore, for example, or New Delhi.It is still quite a developing country because there's so much development, the numbers kind of look good but in my opinion no unit, no particular place itself can be called developed yet and a lot of the really massive growth in India… again, its government has not really been very good at capacity building, although at some measurements of state capacity India still runs very high for some strange reason but it is always a bottom-up process in India. However, depends on where you go in India, again, there are some parts that are still very far, far behind and some parts that are very, you know, far forward.Again, same in China. You go to Western China, it's as poor as it was 50 years ago. Because those are big places, very big populations, it's very difficult to look at macro measurements as like default indicators, whereas if you go from Shanghai to even like Jiling, it's a very, very, very difference in economic proportionalities.Tobi;Yeah.It brings me to this question of democracy versus autocracy in the context of economic development. As you know, a lot of African countries, especially around 20, 25 years ago, after a very long history of military coups and dictatorships, started democratising, you know. And if I use Nigeria as an example, the challenge and why there seem to be a pining for autocracy, especially if you look across and, you know, compare what East Asia was able to do, there seem to be no continuity.For example, in Nigeria, the way I describe Nigeria is bad ideas are immortal, but good ideas have no continuity, right? So what is the nuance, precisely, in this democracy versus autocracy debate when you want to kickstart development and sustain it, you know, and try to reach for high income?Rasheed;See, it really depends on what people mean when they say democracy, because oftentimes I get the sense people really mean just voting and competitive elections.Is that what you mean by democracy or they mean something deeper?Tobi;Well, that's a good distinction because I think loosely we use democracy basically to mean that, okay, you have cyclical elections, you have a constitution that grants people relative freedom, on paper, in practice might actually be very different. You have a somewhat independent judiciary and there is separation of powers.So that's how I would describe what I'm talking about.Rasheed;I see that's tricky, right? Because England does not have separate powers. It doesn't have a separate judiciary. People still call it democratic. So it's a complicated question there.Also they don't even have an actual constitution either.Tobi;Yeah, they don't. I'm fascinated by how that works, by the way, but i'll say maybe from the 2000s upward, most new states or newly democratising states have gone for the American-style presidential system, you know, and i feel like that is part of the struggle with a lot of states especially in Africa. For example in Nigeria, after independence it was a parliamentary system of government then there was the war and the coups and then during the second republic we kind of went the way of the American presidential system and then there's always this constant debate about: do we really have a federal system, how do we handle things like state independence, how do you balance minority rights versus rule of majority, right?Now, for states that have opted for this American federal system, you know, without having the same history and the same institutions, they seem to struggle. And I'm trying to understand why.Rasheed;So the basic premise on which you structure your electoral process is not enough to govern a country. And new states tend, by definition obviously, don't really have a history of institutional capacity behind the electoral process. And many states probably of course in African states, also even Latin American states to be honest, they never actually stabilise on a particular path of institutional growth, capacity building, and so on. So you can look at Nigeria, Burkina Faso, you can even look at Peru or look at Guatemala and Nicaragua, these countries have very constant states of flux all the time. And, you know, a lot of that is obviously a remnant of how the independence movement happened and what happened after independence and things were essentially kind of, you know… the the way how the state

In this episode, I had a conversation with economic historian Johan Fourie, who is a professor of economics at Stellenbosch University, and the author of one of the most enjoyable books on economic history called Our Long Walk to Economic Freedom. We spoke about the resurgence of economic history, particularly in Africa. Johan attributes this revival to multiple factors, including an interest in understanding past economic patterns, technological advancements enabling data analysis, and scholarly work drawing global attention to the field. We discuss Africa's economic development, noting the continent's reliance on primary goods and the impacts of political and economic policies on growth. Johan stresses the heterogeneity within Africa and warns against generalizing the continent's economic narrative.The discussion then delves into the role of ideas in shaping economies, with a focus on industrial policy. Johan highlights the importance of empirical evidence in policymaking and warns against the potential misuse of industrial policy for political gains. He emphasizes the need for a more inclusive research ecosystem in Africa, advocating for better representation and the promotion of economic history as a vital sub-discipline.Johan also addresses the importance of economic freedom, defining it in simple terms and discussing its implications in policy decisions. He touches on the challenges of racial history and representation in academia, emphasizing the need for diverse voices and a marketplace of ideas for better policy formulation.Finally, Johan discusses the optimism inherent in economic history, acknowledging the significant progress humanity has made while remaining cautiously hopeful about the future. He advocates for policies that ensure the equitable distribution of the benefits of increased productivity, highlighting the potential of new technologies to contribute positively to Africa's economic growth.TranscriptTobi;Welcome Johan. It's good to talk to you. I guess where I’ll start is economic history is enjoying a bit of a renaissance, I'd say. Personally, for me, I'll say in the last five years I've read more economic history books and papers than actual economics itself. So I just want to ask you, what was the turning point, at least in recent time, why does economic history seem to be having a moment or its moment right now?Johan;I think there are many answers to that question. I'll focus on African economic history because I think that's something, firstly, that I know a little bit of, and secondly, that the factors that affect African economic history might be slightly different than those that make economic history attractive to, kind of, global audience.Although I do think your sentiment is true also for for global economic history, that there's certainly been a resurgence in interest. Of course, they were previous episodes where this also happened in the 1960s there was a great interest in econometrics, but that kind of died down by the 80s and 90s. And certainly I think in the last decade or two that's made a comeback, but certainly in African economic history, also by the 60s and 70s, for different reasons, again, because of the end of the colonial period and many Africans being interested in their own economic pasts;  it was, you know, certainly intended to improve the development outcomes of many of these countries. And so studying what had happened in the past became important. And then by the 80s, you know, for reasons like the shift in history towards more cultural aspects of African history and, perhaps, also, to some extent, the fact that economics became more technical, more mathematical.The fields really, economic history really, had kind of dialed down interest in Africa's past, but perhaps also to some extent, the fact that many African countries were struggling to grow. And so there was little interest in understanding of why these things had persisted. But by the 2000s, of course, African growth turned around and, you know, this is a continent [where] there were several countries that were growing quite rapidly and you had this covers of The Economist and Time magazine and all that was talking about Africa Rising, all these things, but also, I think, an interest by scholars, often scholars based outside of Africa, to understand this resurgence or what Morten Jerven called the, kind of, recurring African growth. So we know actually in the past that this had happened, that there were periods of growth. But understanding why there are these fluctuations became quite important. And then that combined with the ability to transcribe large historical data sets. Find many of these sources in African archives and then transcribe them and analyze them. So access to computing power also.So it was both from a demand side like interest in Africa's past and also the supply side, the fact that they were now tools that would help us analyze what had happened in the past, that really kind of created this resurgence or Renaissance as some might call it. Of course, you know, initially led by economists in some of the leading universities. Work by, you know, James Robinson and Acemoglu, Nathan Nunn who wrote a book on slavery that was quite prominent and really pushed interest into the field. And so various kinds of groups of people, you might kind of think of them as two types, the one with the economists interested in kind of causal persistence studies. So thinking of how past shocks still affect the present outcomes and others, who're more kind of classically more like an old school economic historians that are interested in actually understanding long term patterns. So thinking of wages or standards of living or trade statistics that are actually trying to collect them and rebuild them for many African countries, because we don't actually have long term series for many of the regions across Africa. So I think that's really the main reason why we see this kind of renewed interest. And you can see that in, you know, participation of African Economic History Network meetings where you see papers maybe 10 or 15 in the early 2010s. And now you have, you know, the most recent conference in Pretoria was about 100 people attending. So it's a really massive growth in the participants and researchers trying to study Africa's past.Tobi;What immediately comes to mind, and when I talk to people, ordinary Africans, I should say, is that how did Africa sort of missed the boat on prosperity? I mean, as you said in your answer, growth has been recurring in Africa, but it has not been sustained enough for Africa to really join that group of countries that had a sustained growth spurt for decades. It happened a little bit in Latin America. Of course, East Asia is the most famous example of this. I mean from history what happened in Africa? Johan;Yeah, I think the thing to stress is that Africa's experience has been quite different from, say, you know, a Western Europe, or if you want to take the kind of country where it'll started… this sustained period of economic growth - Britain or, you know, England more specifically. So what you find is you also find periods of quite rapid growth in Africa. But then, as you've just mentioned, there are periods of stagnation or even decline in many countries. I mean, that's a very valid question, is why is that? And again, there are, you know, a myriad of different reasons. I think one of the things that one should keep in mind is that Africa's economies are often tied very closely to kind of mineral resources, and even before that, before the mineral era, to cash crops. And these prices often fluctuate quite a lot. And so you would find periods when there's a boom cycle, you would find obviously countries doing quite well. But then when these prices collapse, then of course these countries suffer. So that's a very obvious reason. And of course there are other countries in the world that also are tied to kind of cash crops or minerals, and they seem to have experienced less of this. And that is also, of course, true.But it's worth keeping in mind that for many African countries, they have a pretty short history of independence. So it's really only in the last 70 years or so that African countries are independent and where the economic policies are not determined by some, you know, European power. Of course, you can think of pre-colonial times before the kind of mid-19th century, but even then, these were mostly kind of subsistence based or focused on trade in commodities, cash crops and, even before that, of course, in slave individuals. So it's really only in the last 70 years that we can think really of kind of modern economic growth in many of these economies. And then, for example, think about industrialization, you know, growth of manufacturing and more recently, service industry. But many countries are still very much tied to primary sector exports and therefore are closely correlated to these international price fluctuations. So that's kind of one reason.Of course, one could also think of political economy reasons that we see quite also large fluctuations in terms of political regimes. Often we find coups that undermine kind of longterm economic planning. Many people will also argue that, you know, there was involvement of international organizations setting certain rules for African countries, certainly in the 1980s and 1990s [that] put them on a different trajectory. But I think the kind of point is that actually many African countries were relatively young and therefore tied to very much primary goods exports and it's only really in the last 3 or 4 decades where we could see this kind of shift. And in fact, by the 2000, when we do see some growth, I suspect we do see lower levels of fluctuations than we did, say, 50 years earlier. So maybe we’re just too soon yet to think of African countries as echoing some of the trends that we would see elsewhere in Europe, may

In this episode, I had a conversation with Kurtis Lockhart who is the executive director of Charter City Institute - a non-profit that thinks and executes governance models for cities to power developing economies into growth and productivity. Our conversation started with an update on the concept of Charter Cities and how they differ from traditional models like Special Economic Zones (SEZs), particularly in the context of economic development. Kurtis describes Charter Cities as new cities with distinct governance models designed to drive sustained economic growth and alleviate poverty, primarily in lower-middle-income countries. This approach is seen as an alternative to the model first prescribed by the economist and Nobel Laureate Paul Romer, which involved a high-income country importing its governance to a low-income nation. Kurtis emphasizes a public-private partnership (PPP) model, where a host country collaborates with an urban developer, ensuring local involvement and sustainable development.The conversation addresses concerns about Charter Cities being enclaves for the wealthy, clarifying that the Charter City Institute (CCI) focuses on broad-based economic growth and poverty alleviation. Kurtis highlights the importance of political buy-in and stability, acknowledging the challenges of expropriation and policy consistency across different political regimes. He suggests mitigation strategies like revenue-sharing agreements, equity stakes for host countries in city developers, and political risk insurance.Discussing the geographical constraints, Kurtis acknowledges that location and economic geography play a crucial role in the success of Charter Cities. However, he argues that geographical advantages can evolve with changing technologies and transportation networks, as seen in historical examples like the Erie Canal.Addressing concerns about existing urban challenges and inequalities, Kurtis talked about CCI's involvement in upgrading existing cities and supporting secondary cities, especially in Sub-Saharan Africa, where most urban growth is anticipated. He shares plans to collaborate with Kenya's State Department for Housing and Urban Development to empower select secondary cities through the Special Development Zone initiative, leveraging their success as models for other cities.TranscriptTobi;Welcome to Ideas Untrapped. It's fantastic to talk to you, Kurtis. I've been wanting to do this for a long time.Kurtis;Yeah. Thanks, Tobi. I know we've been trying to do this for a while. It's good to finally be on with you. Tobi;So let's start from the absolute basics. I'm trying not to get carried away because Charter Cities are something that sort of excites me as well. I should also say it annoys me, possibly in equal measure. So I'll try not to get carried away, but if you can just give me an elevator pitch, so to speak, but you can go as long as you want. What are charter cities and how are they relevant to issues surrounding economic development, particularly in the 21st century?Kurtis;Yeah, so thanks again. And I'll start at the highest level I can, and then you can ask more specific questions as we go on. So at the very basic level, the definition of charter cities is new cities with new rules to improve governance. And so why do we think that that's really important? Zooming out, the best way to lift people out of poverty at scale is through sustained economic growth over one, two, three, four- decades. That's what happened in East Asia, in Japan, in Taiwan and South Korea. It's what happened in China, and I think it's what's happening in India now. You then have to ask yourself, how do we increase economic growth rates over sustained periods of time? Economists are pretty agreed that the single greatest determinant of long-run economic growth rates is governance, right? It's institutions. And the problem with governance and institutions and getting good governance is many countries, especially across the global south, lower-middle income countries are, you could say, stuck in poor governance traps.So the question becomes, okay, how do we reform and change this governance institutional structure to improve governance? It's really hard to do that, it turns out, at the national level. And so we see charter cities as a mechanism - a localised mechanism - in a concentrated geographic area where there are no incumbent or entrenched special interests in that localized area. You can get a lot deeper governance reforms at this local level and that gets people rich within that jurisdiction, within that concentrated space, number one, as well as number two, it's able to serve as a demonstration effect to the broader host country that then hopefully sees that demonstration effect and scales up those governance improving policies across the whole country. And this is what you saw in China when Deng Xiaoping instituted the opening up and reform in 1979-1980, with four Special Economic Zones in the south, Shenzhen being the most famous. But we can get into that if you want to later. Anyways, that's the high-level pitch.Tobi;Yeah. So for a lot of folks like me, and I'm sure some other people in the international development community when they hear charter cities, you immediately go back to Paul Romer, the Nobel Laureate economist Ted Talk in 2009. That's the popular conception of charter cities. But like you and your colleagues have reiterated over and over again that your model and the vision that you are pushing differs from that. Can you spell out the differences from Romer's charter city model?Kurtis;Yeah, I'm glad you asked this. So basically to go back first, so Paul Romer in 2009 gave his now pretty famous Ted Talk on charter cities, and he basically proposed that a high-income, well-governed country like a Canada come into a low-income, poorly governed country. His example was Honduras. Honduras would then cede [a] city-scale chunk of land to Canada. Canada would then, "import its good institutions" into that city-scale chunk of land and therefore that better governance within that concentrated piece of land would crowd in investment, it would spur business formation, job creation and sustained economic growth. That's the very high-level Romer model. And we can call that the Guarantor Model, [with] Canada as the foreign guarantor. CCI's model is different. We advocate for a public-private partnership between a host country and an urban developer, a city developer. So we don't think, number one, Romer's Foreign Guarantor model is either feasible or number two, very desirable.Why isn't it feasible? I think you saw in the feedback in the response to Romer's Ted Talk. It smacked a lot of people - this foreign guarantor model smacked a lot of people as a form of neocolonialism. I don't think that's a very fair characterization, but still, it got taken by a lot of people in the international development world as a form of that. I don't think it's fair because charter cities as Romer proposed them were completely voluntarily entered into. It was a free choice among both parties to enter into these things, whereas colonialism was a form of coercion usually done at the barrel of a gun or through some sort of violence. So I don't think that's necessarily a fair critique, but it nonetheless was a critique and speaks to the feasibility of this model. I don't think it's desirable, number two, because I think a lot of the process of institution building needs to involve the host country in the institution building. And I think when you have a foreign guarantor like a Canada just stepping in and bringing in their institutions without involving or partnering with the host country, that kind of cuts off the learning and the muscle building that needs to happen in order for the host country to develop itself more broadly. So, we propose this public-private partnership because we think it's a lot more feasible, number one, especially if you're partnering as a host country with a domestic urban developer that knows the context and what‘s not. And then, number two, we think it's sustainable because developers they have an incentive to maximize land values over time. That's how they make their profits. How do developers maximize land values? They attract as many firms and residents to their cities as humanly possible. How do you do that? You create a fantastic city with urban amenities, good public goods and service provision, with a great business environment, so firms are attracted to locate there. So we think it aligns incentives in that way and also has a mechanism to be financially self-sustaining over time through the profit motive. So that's why we think our kind of PPP approach is both kind of more attractable and more desirable over time.Tobi;Okay, so another key distinction I like you to make before we go on is usually when we talk about charter cities, special economic zones come up a lot. Is there a particular distinction between a charter city and a special economic zone or multiple variations of SEZs like export processing zones, free trade zones and the likes?Kurtis;Yeah, so this is a great question. So really CCI's version of charter cities, this PPP model is what we can call the next generation of Special Economic Zones. So a lot of Special Economic Zones are restricted to what sectors can operate and get incentives in that zone. So there are textile zones or there are, you know, manufacturing zones or high-tech zones, etc. And then oftentimes these Special Economic Zones are small in scale, so they can be limited to smaller industrial parks where you don't really get the agglomeration benefits that come with bigger size urban agglomerations in cities. So the big differentiator between a charter city and Special Economic Zones is around those two things. So charter cities would be mixed-use developments. So it's not just industrial uses that are able to operate in the city, but also commercial uses and rea

Welcome to another episode of Ideas Untrapped podcast.In this episode, I spoke to Portia Roelofs who is a Lecturer in Politics at the Department of Political Economy at King's College London, and also a research associate at the African Studies Centre in Oxford. She is the author of a fantastic book titled Good Governance in Nigeria; Rethinking Accountability and Transparency in the Twenty-First Century. Portia critiques the "good governance" agenda, arguing it's a continuation of structural adjustment programs from the '80s and '90s, which focused on market-driven development, privatization, and state withdrawal. She asserts these reforms didn't consider the social and political realities in African countries, leading to significant challenges, including a narrowed policy scope and "choiceless democracies."Portia proposes a more socially embedded approach to governance, emphasizing the need for government officials to be accessible and accountable in more culturally resonant ways, beyond just transparency and efficiency. She suggests practical steps like politicians residing in their constituencies and being directly reachable. The conversation also explores the tension between technocratic and populist approaches in Nigerian politics, highlighting the importance of addressing immediate social needs alongside long-term developmental goals.Despite the critique of current governance models, the conversation acknowledges the complexity of governance in Nigeria and the need for nuanced solutions that consider both the efficiency of the civil service and the broader economic and social goals of the state. The discussion concludes by reflecting on the need for a more comprehensive discussion on the role and aims of the state in Nigeria, beyond just improving civil service efficiency.TranscriptTobi;I'll start with where you started your book. I should say I enjoyed your book very much.Portia;Thank you.Tobi;It's very interesting, and I really connected with it as a Nigerian. So, what you described as the good governance agenda and its challenges, its failures, and way it has come short in the context of Africa and Nigeria, in this case, is where I’ll like us to really start. So just give me a brief rundown of that, because what you call the good governance agenda or the technocratic World Bank-type description of what good governance is, is still the popular and, I should say, acceptable form of discourse in the popular mind about how we think governance should be. So, just give me a brief rundown of your critique of that.Portia;Okay, sure. So, I think to understand a good governance agenda you really have to understand what it was a response to and, kind of, the immediately preceding history. So in the 1980s and the 1990s, you have the structural adjustment programs which are promoted by the World Bank and the IMF and adopted by many, many countries both in Africa and in the global south. And these are programs that take aim at the kind of bloated state and too much state intervention in the economy. And they say the economy needs to be structurally changed to allow market forces to drive development. So you see a kind of consistent pattern of privatization, liberalization, devaluation, removal of capital controls. And that was driven by a strongly ideological belief that the market is the best allocator of resources and the best driver of development.And Nigeria, in 1986, under Babangida adopted something that was basically the structural adjustment programs, albeit not quite in name. And then by the kind of 1990s, the early 1990s, the late 1980s, people were starting to realize, actually, these structural adjustment programs don't work. They don't achieve what we wanted them to achieve. In many places, they had absolutely disastrous results. And a lot of the critique of that is coming from places like CODESRIA (Council for the Development of Social Science in Africa). So African scholars, from a more heterodox perspective saying: you can't rely on the market to just fix all of Africa's problems. And actually, in doing so, you did things like eliminating much of the middle class, these are hitting a lot of people who were otherwise in the professions. So there are lots of controversy over the structural adjustment, and it's seen as being a very ideological project.And then in response to this, within the World Bank, there was thinking about, okay, maybe the problem isn't necessarily at the level of the policies, it's at the level of how does government itself operate. And so you see this move - you've got reports from the early 90s like governance and development, this move towards saying, okay, we need to reform how government operates. And this is actually applicable to all governments. All governments should be accountable. All governments should be transparent. All governments should be made more efficient. And if we do this by focusing on how government itself operates, then that's a better route to development. It's kind of like way of answering some of the critiques of structural adjustment.However, many people say that the good governance agenda was really just a continuation of much of the structural adjustment policies. That the core ideas that you need to withdraw state intervention in many, many areas of the economy, privatize, liberalize, adopt private sector methods of operating and import them into the public sector, kind of lived on. So there's as much continuity as there is rupture. And so in practice, a lot of what the good governance agenda was doing was things like public finance reform or civil service reform and that kind of lives on. But I should also say that the word good governance has been used to cover many, many different things. And so people aren't always talking about the same thing when they use the term.For example, in the early 90s, you have this, like, third wave of democratization. And in some ways, the good governance agenda was a bit interwoven with this. It was seen as multiparty democracy, elections. So there are definitely different debates to be had. But the one I guess I'm interested in is this one that says good governance is accountability, transparency, and the public-private divide. And the interesting thing there is it really promotes this idea of good government is technocracy. And so that means the people who are making decisions really should be the people with technical knowledge. That's often like public finance experts or economists. And the interesting thing is that that immediately sets up a bit of a tension, not necessarily with politics, which I know we've touched upon already, but with democracy.Because if you've basically got, like, philosopher kings, wearing suits, with their degrees, then what's the role for the people? What's the role for mass participation? So the Thandika Mkandawire's critique of this was he said that you create choiceless democracies. So at a time when African countries were often opening up to democratic governance, in 1999, in Nigeria, for example, it also came at the same time that the kind of menu of policy options that it was acceptable to pursue and that were permissible within this kind of good governance framework and aid conditionality and increasing controls from the IMF and the World Trade Organization was really narrowing.So finally people have the vote, but what can they vote for? Actually, quite a narrow set of kind of pro-market policies that pursue development in quite a narrow way as defined by international institutions. So that's kind of what I see as being some of the central tensions of the good governance agenda. And in the book, I kind of explore how does this play out at the level of state government in Oyo State, for example, or how is this playing out in debates in Lagos State government’s new agencies or whatever. So, yeah, I'm really standing on the shoulders of other people like Yusuf Bangura, and other Nigerian political scientists, people who were critiquing the good governance agenda as it was developing in the 90s.Tobi;We'll get into your field work in Oyo States, and I'm curious what the Lagos model really is, and I know a lot of people in the audience are curious as well. But I want you to help me contextualize the good governance argument better. So I think where I share your sentiments, especially around the Structural Adjustment Program and other donor driven programs of the like is that they are very antidemocratic, they are not even accountable in the sense that they define accountability to be. And I think we share similar sentiments in that regard.So let me take one very popular example that sort of intersects with the discourse around governance, which is that in Nigeria we've been talking about corruption for decades, right? There are always stories in the news of bureaucrats, civil servants and even politicians misappropriating public funds, you know, and the way the good governance narrative sort of feeds into that is that if you then have a process of rules that holds people accountable, it then becomes difficult to misappropriate public funds. Funds that should be invested in social programs or infrastructure that then find their way into people's accounts via very clever and, in some cases, not so clever means.But what we have seen is that despite all the talk of instituting all these frameworks and rules, we haven't really solved the corruption problem. It never really goes away. Even under a President Like Buhari who was strongly seen as clean and incorruptible, there were still massive news reports of corruption under him. So help me use corruption to contextualize the failure, I would say, of the good governance agenda. And what's the alternative to that? How can we better understand the concept of good governance?Portia; Yeah, so this is such an important thing to talk about. And actually, when I first came to studying southwest Nigeria, I thought that my project was going to be

Hello everyone, and welcome to Ideas Untrapped podcast. My guest for this episode is Decision Scientist, Oliver Beige - who is returning to the podcast for the third time. Oliver is not just a multidisciplinary expert, he is one of my favourite people in the world. In this episode, we talk about scientific expertise, the norms of academia, peer review, and how it all relates to academic claims about finding the truth. Oliver emphasized the importance of understanding the imperfections in academia, and how moral panics can be used to silence skeptics. I began the conversation with a confession about my arrogance about the belief in science - and closed with my gripe about ‘‘lockdown triumphalism’’. I thoroughly enjoyed this conversation, and I am grateful to Oliver for doing it with me. I hope you all find it useful as well. Thank you for always listening. The full transcript is available below.TranscriptTobi;I mean, it's good to talk to you again, Oliver. Oliver; Tobi, again.Tobi;This conversation is going to be a little bit different from our previous… well, not so much different, but I guess this time around I have a few things I want to get off my chest as well. And where I would start is with a brief story. So about, I dunno, I’ve forgotten precisely when the book came out, that was Thinking Fast and Slow by the Nobel Laureate Daniel Kahneman. So I had this brief exchange with my partner. She was quite sceptical in her reading of some of the studies that were cited in that book. And I recall that the attitude was, “I mean, how can a lot of this be possibly true?” And I recall, not like I ever tell her this anyway…but I recall the sort of assured arrogance with which I dismissed some of her arguments and concerns at the time by saying that, oh yeah, these are peer-reviewed academic studies and they are most likely right than you are. So before you question them, you need to come up with something more than this doesn't feel right or it doesn't sound right. And, what do you know? A few years, like two or three years after that particular experience, almost that entire subfield imploded in what is now the reproducibility or the replication crisis, where a lot of these studies didn't replicate, a lot of them were done with very shoddy analysis and methodologies, and Daniel Kahneman himself had to come out to retract parts of the book based on that particular crisis. So I'm sort of using this to set the background of how I have approached knowledge over my adult life. So as someone who has put a lot of faith naively, I would say, in science, in academia and its norms as something that is optimized for finding the truth. So to my surprise and even sometimes shock - over different stages of my life and recently in my interrogation of the field of development economics, people who work in global development - [at] the amount of politics, partisanship, bias, and even sometimes sheer status games that academics play and how it affects the production of knowledge, it's something that gave me a kind of deep personal crisis. So that's the background to which I'm approaching this conversation with you. So where I'll start is, from the perspective of simply truth finding, and I know that a lot of people, not just me, think of academia in this way. They are people who are paid to think and research and tell us the truth about the world and about how things work, right? And they are properly incentivized to do that either by the norms in the institutional arrangements that birthed their workflows and, you know, so many other things we have known academia and educational institutions to be. What is wrong with that view - simply academia as a discipline dedicated to truth finding? What is wrong with that view? Oliver;There's many things. Starting point is that it was not only Daniel Kahneman, behavioral economics has multiple crises also with Falsified work. Not only with wrong predictions, wrong predictions are bad but acceptable. This is part of doing science, part of knowledge production. But Falsification is, of course, a bigger problem now and they had quite a few scandals in that. The way I approach it always is sort of like a metaphor from baseball. Basically there's something called the Mendoza Line in baseball which is a hitter that has a 200 hitting average. This is like the lowest end of baseball. If you go below 200, then you’re usually dropped off the baseball teams. And on the upper end you have really good hitters that hit an average of like 300 or something. If you have a constant 300 average you usually get like million dollar contracts, right? We can translate this to science in a lot of ways. Of course, there is a lot of effort involved in going from a 200 average to a 300 average to a 20% average of being right to 30% a average of being right. But still if you're at a 300 level, you're still wrong 70% of the time. And so the conversations I observe, they're people that are not specialists in a field [and] we're trying to figure out who is right in a certain conversation. Talking about conversations in a scientific field we basically try to use simple pointers, right? One of the pointers is of course a paper that has gone through peer review. You see these conversations of like, okay, this paper has not been peer reviewed, this paper has been peer reviewed. But peer review does not create truth. It sort of reduces the likely likelihood of being wrong somewhat but it doesn't give us any indicator of this is true. The underlying mechanism of peer review usually cannot find outright fraud. Cannot detect outright fraud. This happened quite a few times. And also peer review is usually how close is the submitted paper to what the reviewers want to read. There is a quality aspect to it, but ultimately it changes the direction of the paper much more than it changes quality. So academia overall is a very imperfect truth finding mechanism. The goal has to be [that] the money we spend on academic research has to allow us to get a better grasp of so far undiscovered things, undiscovered related relationships, correlations, causal mechanisms, and ultimately, it has to give us a better grasp of future and it has to give us a better grasp of what we should do in order to create better futures. And this all basically comes down to, like, predicting the future or things that were in the past but yet are to be discovered. Evolution tends to be a science that is focused on the past, looking at things in the past. But there's still things we have to discover, connections we still have to discover. And this is what academia is about. And the money, the social investment we put into academia has to create a social return in the way that we are better off doing the things we need to do to create a better future for everyone. And its [academia] track record in that regard has been quite mixed. That's true.Tobi;So let's talk a little bit about incentives here. Someone who has also written quite a lot, who talked so much about some of the issues - I think he's more focused on methods. He's andrew Gelman, the statistician. I read his blog quite a lot, and there's something he consistently allude to and I just want to check with you how much you think that influenced a lot of the things that we see in academia that are not so good, which is the popularity contest - the number of Twitter followers you have; whether you are blue checked or not; bestselling books; Ted Talks that then lead to people making simplistic claims. There's the issue of scientific fraud, right, some of which you alluded to also in behavioral economics, behavioral science generally. There was recently the case of Dan Ariely, who also wrote a very popular book, Predictably Irrational, but who was recently found to have used falsified data. And I recall that you also persistently criticized a lot of people during the pandemic, even till date - a lot of people who made outright wrong predictions with terrible real life consequences because policymakers and politicians were acting under the influence of the “expert” advice of some of these people who will never come out to admit they are wrong and are less likely to even correct their mistakes. So how is the incentive misaligned? Oliver; Okay, many questions at once. How does academia work? And like I always like to say that academic truth finding or whatever you want to call it is not too far away from how gossip networks work. The underlying thing is, of course, any kind of communication network is basically sending signals. In this case, snippets of information, claims, hypotheses and the receiver has to make a decision on how credible this information is. You have the two extreme versions, which is basically saying, yeah, I just read this paper and I think this paper makes a good claim and is methodologically sound or I just read this paper and this paper is crap as everything about it is wrong. So you basically start with a factual claim and an evaluation. This happens in science Twitter in the same way a gossip network communicates typically good or bad news about the community. Also, a gossip network communicate hazards within the community, sending warnings, which is what academics have been doing quite a bit over the last two and a half years. And they also have this tendency to, a) exaggerate claims, reduce claims, and [they] also have this tendency to create opposing camps. Because very few middling signals are being retransmitted. I've been watching the funeral of the Queen, I have no strong opinion about British royalty in either direction so if I post something on Twitter about it, nobody will retweet. And, of course, the two extreme ends will be retweeted. This is how Twitter works, but it's also how science usually works. You’ll see that strong claims in either direction are being transmitted much more frequently than middling moderate claims. So the bifurcation of opinions is inherent in both of the

Welcome to Ideas Untrapped. My guest today is Vincent Geloso who is a professor of economics at George Mason University. He studies economic history, political economy, and the measurement of living standards. In today's episode, we discuss the differences between democracies and dictatorships, and their relative performance in socioeconomic development. The allure of authoritarian governance has grown tremendously due to the economic success of countries like China, Korea, and Singapore - which managed to escape crippling national poverty traps. The contestable nature of democracies and the difficulty many democratic countries have to continue on a path of growth seems to many people as evidence that a benevolent dictatorship is what many countries need. Vincent challenges this notion and explains many seemingly high-performing dictatorships are so because their control of state resources allows them direct investments towards singular objectives - (such as winning Olympic medals or reducing infant mortality) but at the same time, come with a flip side of unseen costs due to their lack of rights and economic freedom. He argues that the benefits of dictatorships are not as great as they may seem and that liberal democracies are better able to decentralize decision-making and handle complex multi-variate problems. He concludes that while democracies may not always be successful in achieving certain objectives, the constraints they place on political power and rulers mean that people are better off in terms of economic freedom, rights, and other measures of welfare.TRANSCRIPTTobi;You made the point that dictatorships usually optimise, not your words, but they optimise for univariate factors as opposed to multiple factors, which you get in democracy. So, a dictatorship can be extremely high performing on some metric because they can use the top-down power to allocate resources for that particular goal. Can you shed a bit more light on that? How does that mechanism work in reality?Vincent;Yeah, I think a great image people are used to is the USSR, and they're thinking about two things the USSR did quite well: putting people in space before the United States and winning medals at Olympics. Now, the regime really wanted to do those two things. [That is], win a considerable number of medals in [the] Olympics and win the space race. Both of them were meant to showcase the regime's tremendous ability. It was a propaganda ploy, but since it was a single objective and they had immense means at their disposal, i. e. the means that coercion allows them, they could reach those targets really well. And it's easy to see the Russians putting Sputnik first in space, the Russians putting Laika first in space. We can see them winning medals. It's easy to see. The part that is harder to see, the unseen, is the fact that Russians were not enjoying rapidly rising living standards, they were not enjoying improvements in medical care that was commensurate with their level of income, they were not enjoying high-quality education. You can pile all the unseens of the ability of the USSR as a dictatorship to allocate so much resources to two issues, [which] meant that it came with a flip side, which is that these resources were not available for people to allocate them in ways that they thought was more valuable. So, the virtue of a liberal democracy, unlike a dictatorship, is that a liberal democracy has multiple sets of preferences to deal with. And in a liberal democracy, it's not just the fact that we vote, but also that people have certain rights that are enshrined and which are not the object of political conversation. I cannot seize your property, and it's not okay for people to vote with me to seize your property. And in these societies, the idea is that under a liberal democracy, you are better able to decentralize decision-making, and people can find ways to deal with the multiple trade-offs much better. Whereas a dictatorship can just decide, I care about this. I am king, I am president, I am first secretary of the party, I decide this and we'll do this regardless of how much you value other things that I value less than you do.Tobi;Two things that I want you to shed more light on. Depending on who you talk to or what they are criticizing, people usually selectively pick their dictatorships. If someone is criticizing, say, for example, capitalism, they always point to the Cuban health care system in contrast to the American health care system. How the American system is so terrible, and how capitalism makes everything worse because of the profit motive. And how we can do better by being more like Cuba.  On the other end of that particular spectrum, if you're talking about economic development, critics of democracy like to point to China. China is not a democracy. And look at all the economic growth they've had in the last 40 years, one of the largest reductions in human poverty we’ve ever seen in history. I mean, from these two examples, what are the shortcomings of these arguments?Vincent; Let's do Cuba first, then we can do China. So, the Cuban example is really good for the case I'm making. Because the case I'm making is essentially that the good comes with the bad and you can't remove them. So, people will generally say with Cuba, “yes, we know they don't have political rights, they don't have economic freedom, but they do have high-quality health care.” And by this they don't mean actually health care, they mean low infant mortality or high life expectancy at birth. My reply is, it's because they don't have all these other rights and all these other options [that] they can have infant mortality that is so low. That's because the regime involves a gigantic amount of resources to the production of healthcare. Cuba spends more than 10% of its GDP on health care. Only countries that are seven or ten times richer than Cuba spend as much as a proportion of GDP on health care. 1% of their population are doctors. In the United States, it is a third of that, 0.3% of the population are doctors. So, it's a gigantic proportion. But then when you scratch a bit behind, doctors are, for example, members of the army. They are part of the military force. The regime employs them as the first line of supervision. So, the doctors are also meant to report back what the population says on the ground. So, they're basically listening posts for the dictatorship. And in the process, yeah, they provide some health care, but they're providing some health care as a byproduct of providing surveillance.The other part is that they're using health care here to promote the regime abroad. And that has one really important effect. One of those is that doctors have targets they must meet, otherwise they're penalized. And when I mean targets, I mean targets for infant mortality. [If] they don't meet those targets, the result is they get punished. And so what do you think doctors do? They will alter their behaviour to avoid punishment. So in some situations, they will reclassify what we call early neonatal death. So, babies who die immediately after exiting the womb to seven days after birth, they will reclassify many of those as late fetal deaths. And late fetal deaths are in-utero deaths or delivery of a dead baby so that the baby exits the womb dead. Now, if a mortality rate starts with early neonatal death [and] not late fetal ones, so if you can reclassify one into the other, you're going to deflate the number total. And the reason why we can detect this is that the sources of both types of mortality are the same,[they] are very similar, so that when you compare them across countries, you generally find the same ratio of one to the other. Generally, it hovers between four to one and six to one. Cuba has a ratio of twelve to 17 to one, which is a clear sign of data manipulation. And it's not because the regime does it out of, like, direct intent. They're not trying to do it directly. It'd be too easy to detect. But by changing people's incentives, doctors’ incentives, in that case, that's what they end up with.There are also other things that doctors are allowed to do in Cuba. One of them is that patients do not have the right to refuse treatment. Neither do they have the right to privacy, which means that doctors can use heavy-handed methods to make sure that they meet their targets. So in Cuba, you have stuff like casa de mata nidad, where mothers who have at-risk pregnancies or at-risk behaviour during pregnancy will be forcibly incarcerated during their pregnancy. There are multiple cases of documented, pressured abortions or literally coerced abortions. So not just pressured, but coerced. Like, the level is that the person wants to keep the infant, the doctor forces an abortion to be made. Sometimes, it is made without the mother's knowledge until it is too late to anything being done. So you end up with basically the infant mortality rate, yes, being low, but yes, being low because of data manipulation and changes in behaviour so that the number doesn't mean the same thing as it does in rich countries. And now the part that's really important in all I'm saying is [that] what people call the benefits for Cuba is relatively small. My point is that, yeah, maybe they could be able to do it. But the problem is that the measures that allow this to happen, to have a low infant mortality rate are also the measures that make Cubans immensely poor. The fact that the regime can deploy such force, use doctors in such a way, employ such extreme measures, it's the reason why Cubans also don't have property rights, don't have strong economic freedom, don't have the liberty to trade with others. Which means that on other dimensions, their lives are worse off. That means that, for example, their incomes are lower than they could be. They have higher maternal mortality. So, mothers die to [a] greater proportion in labour than in other countries or post-labour. There a

Welcome to another episode of Ideas Untrapped. My guest today is Charlie Robertson, who is the chief economist of Renaissance Capital - a global investment bank - and in this episode we talked about the subject of Charlie’s new book, "The Time-Travelling Economist''. The book explores the connection between education, electricity, and fertility to economic development. The thrust of the book's argument is that no poor country can escape poverty without education, and that electricity is an important factor for investors looking to build businesses. It also explains that a low fertility rate helps to increase household savings. Charlie argues, with a lot of data and historical parallels, that countries need at least a 70-80% adult literacy rate (defined as being able to read and write four sentences in any language) and cheap electricity (an average of 300 - 500 kWh per capita) in order to industrialize and grow their economies rapidly. Small(er) families (3 children per woman) mean households are able to save more money, which can improve domestic investments by lowering interest rates - otherwise countries may repeatedly stumble into debt crises. We also discussed how increasing education can lead to higher domestic wages, but that this is usually offset by a large increase in the working-age population - and other interesting implications of Charlie's argument.TRANSCRIPTTobi;The usual place I would start with is what inspired you to write it. You mentioned in the book that it was an IMF paper that sort of started your curiosity about the relationship between education, electricity, fertility, and economic development. Generally. So, what was the Eureka moment?Charlie;Yeah, the eureka moment actually came in Kenya, um, because I'd already done a lot of work showing how important education was. It's the most important, no country escapes poverty without education. So I'd already made that clear and there wasn't much debate about that. Perhaps there was a debate about why some countries have gone faster than others, but there wasn't much debate about that. The second thing I was very clear on was electricity, which kept on coming up in meetings across Sub-Saharan Africa, Pakistan, [at] a number of countries, people kept on talking about the importance of electricity. But the eureka moment came when somebody pointed out to me that Kenya, where I was at the time, couldn't afford to build huge excess capacity of electricity, which I was arguing you need to have. You need to have too much electricity, so that it's cheap and it's reliable.And then investors come in and say, "great! I've got cheap educated labour, and I've got cheap reliable electricity. I've got the human capital and the power I need, that then enables me to invest and build a business here." And the question then was, well, why was it so expensive in Kenya but so cheap in China? Why was the cost of borrowing so high in Nigeria but so cheap in Morocco or Mauritius? And when I was trying to work out where did the savings come from in China, uh, well I was looking globally, but China's the best example of economic success and development success we've seen in the last 50 years. Over half the answer came from this IMF paper saying, actually it came from their low fertility rate. That's over half of the rise in household savings, which are massive in China, came about because the fertility rate had fallen so dramatically.And I then thought, could this possibly be true for other countries as well? Could this help explain why interest rates are so high in Nigeria or Kenya and so low elsewhere? And the answer is yes. So this book, The Time Travelling Economist is bringing all of these three things together - the fertility rate, the education rate, and electricity - to say not just how countries develop, cause I think I've answered that, but when they develop. Because once we know those three factors are key, we can then work out the when. Not just in the past [of] countries, but also in the future. Um, so that's where this came from.Tobi;I mean, we're going to be talking about each of those factors over the course of this conversation, but another question...some would say boring question, but I know how development economists and economists generally always try to defend their turf, you know, around issues like these. So, has anybody like taking you to task on the causal link between these three factors and development? And how would you defend yourself against that were it to be asked?Charlie;I haven't found anyone yet who's argued successfully against these points. Um, the closest criticism I get, and just to say, you know, this book came about off the back of three key reports I did in 2017 on education, 2018 on electricity, and 2019 on fertility and savings. So I've now been talking about these ideas for three to five years. The book only came out in July, 2022, bringing them all together. But in five years I haven't had pushback other than people ask, "is it not correlated?" You know, "is it not perhaps economic growth leads fertility declines or boosts savings?" And I think I show really clearly in the data that "no." Um, the fertility declines give us the growth. You don't get growth without adult literacy of at least 40%, you certainly don't get industrialization until literacy is at 70 to 80.So, you know, I'm looking at the data and I think it's pretty crystal clear that you've gotta get these other things right first before your economy can take off. And I can't find any counter-examples. Except, I mean there's the inevitable few, those countries like Qatar or Kuwait with huge amounts of energy exports per capita or diamonds in Botswana's case. And there you don't have to get everything right before you get wealthier because you just happen to be lucky to have huge amounts of energy exports per person and a very small population. But they are a bit of an exception. I think you could probably argue that they do grow first before they get everything else right. But for the vast majority of the planet and all countries in history, it's the other way around. You gotta get education, power, fertility rates in the right place to take off.Tobi;So I mean, getting into the weeds, let's look at education first. Before your book, personally for me, and I should say what I really like about your book is, it's well written, it's an interesting read. It comes across as a bit less analytical, which is what you get from the standard development literature, you know, and I think that's partly because you are writing about a lot of the countries that you have also worked in and interacted with a lot of these factors. So it really gives it a first-hand experience kind of narrative. So I like that very much. So prior to your book, if someone were to ask me about the relationship between education and economic development or catch-up growth, generally, the reference usually goes to Studwell's big claim, Joe Studwell, that: Yeah. You don't really need a super high level of education metrics for a country to industrialize because the standard explanation is that how a relatively poor country starts industrializing is from the low-skill, uh, labour-intensive, low-skill manufacturing jobs, that you don't need a high level of education and skill for you to be able to do that.So what I wanna work out here is what is the transmission mechanism between adult literacy and industrialization the way you've, like, clearly analyzed in your book?Charlie;Well, thank you very much for saying it was nicely written, I appreciate that. I wanted to try and make it as accessible as possible. Yeah, I think Joe Studwell's books are really good and I think he's right that you don't need a high level of education to do that first step out of rural poverty, subsistence farming into a textile mill. I think what's interesting is how many people writing about development forget how important just adult literacy actually is, because we've taken [it] so much for granted. So Adam Smith, who wrote The Wealth of Nations, the father of economics back in the 18th century in Scotland, he didn't make a big deal about adult literacy driving growth. And more recently, you know, people like Dani Rodrik have echoed exactly that saying you don't need any great education to work in a textile mill. You just need to be dextrous with your fingers. Which is almost exactly actually what Adam Smith said 250 years ago. And I was sympathetic to that, but I then kept on seeing in the data, well, first of all, I found this theory written in the sixties that said that no country has industrialized even to that first basic level of textiles without adult literacy being about 70 to 80% of the population. Which means basically all adults, all men, plus well over half the female population as well. And this was the theory written in the sixties and when I looked at the data, it was proven right and I couldn't quite understand why - if you just need dextrous fingers to work in a textile mill, why would there be that link? And I ended up talking to a guy who ran Levi's factories in Asia in the 1980s and he said, “Charlie, just think about it.”You've got this box of Levi's jeans coming down the conveyor belt. Do you put that box onto the truck labelled United States or that truck labelled Europe for export? And if you can't read and write, you won't even get that right. So the adult literacy thing I think is overlooked. People are focusing on secondary school, high school education, how much [many] university graduates a country needs and they do need graduates too. But until you get to that 70 to 80% adult literacy, textile mills don't go to a country. And we can see that they did go to China in the nineties when they got to adult literacy of 70%. They are in Southeast Asia. They're in Bangladesh since education hit about 70 to 80% in the last 10 to 15 years. But they're not big in sub-Saharan Africa, or at least in parts of

Bangladesh has transformed tremendously in the last twenty-five years. Average incomes have more than quadrupled, and many of its human development indicators have improved alongside. It has also become an export powerhouse with its garment industry, and generally a shining example of development - though things are far from perfect. Five decades ago, when Bangladesh became an independent country, many were not hopeful about its chances of development. So how did Bangladesh turn its story around? Well, it turns out the history of its transformation is longer than credited - and the process is more complex than what is cleanly presented.I could not think of a better person to help me unpack the Bangladeshi miracle than Dr. Akhtar Mahmood. He is an economist and was a lead private sector specialist for the World Bank Group - where he worked in various parts of the world for three decades on privatization, state enterprise reforms, investment climate, competitiveness, and more broadly private sector development. He has written some excellent books (see embedded links), and his column for the Dhaka Tribune is one of my wisest sources of economic development commentary.TranscriptTobi;Welcome to the show Akhtar Mahmood. It's a pleasure talking to you. I am very fascinated and curious about Bangladesh, and you are my number one option for such a journey. It’s a pleasure, personally, for me to be having these conversations. I've been reading your column for about a year now with the Dhaka Tribune, and I've learned so much. They are very perceptive, and I'm going to be putting up links to some of my favourites in the show notes for this episode. Welcome once again, and thank you so much for doing this.Akhtar;Thank you very much for having me. Thanks, Tobi.Tobi;There's so much that I want to talk to you about, as you'd imagine, but let me start right at the end, which is now. There has been a lot of attention on Bangladesh, recently, at least in my own orbit, there have been two quite detailed and interesting columns in the Financial Times about Bangladesh. There is also Stefan Dercon’s book, which used Bangladesh as a positive case for what he was describing about the development process. But also, there's the issue of what's going on right now with the global economy. First, it started with COVID and how the economy suddenly stopped, and all the reverberation that comes with that - the supply chain, and now, a lot of countries are going through a sort of sovereign debt crisis and Bangladesh, again, is in the spotlight. So, I just want you to give me an overview, and how this, sort of, blends with countries that put so much into development…you know, in terms of policy, in terms of the things they are doing right, in terms of investment and attracting investment, and the exposure to these sorts of global economic risks and volatility. [This is] because, usually, what you get in Western discourse is that a lot of countries are victims of some of these risks because of some of the wrong policy decisions they make. But in the case of Bangladesh, at least to my knowledge, nothing like that is going on. And yet, it is usually talked about as a very exposed country in that regard. I know you wrote a column recently about this. So I just want you to give me a brief [insight]—is there anything to worry about? How do countries that are trying to get rich, that are trying to do things right, how do they usually manage these sorts of global risks?Akhtar;Right? I think, inevitably, we'll have to go a bit into the history of how we came here. But since you started with the current situation, let me briefly comment on that, and then maybe I'll go to the history. Right now, yes, like most other countries, we are facing challenges, but I think there has been a bit of hype about how serious the challenge is, in terms of the risk of a debt default, the risk of foreign exchange reserves going down very sharply. And I think there is a bit of the Sri Lanka effect, and then also the Pakistan effect, as people are trying to put Bangladesh in the same bracket, which I think is very, very misplaced. I think the IMF has made it clear, [not only] in its latest country report, which came out in March 2022 but also in many recent statements, that Bangladesh has both a solvency situation and a liquidity situation. As you know [that] the solvency is typically measured by the external debt to GDP ratio, one of the ratios is external debt by GDP and the liquidity is measured by debt service requirements - the external debt service requirements by the export earnings ratio. And there are these certain thresholds, and if you go beyond that, it's considered a bit risky. Bangladesh on both these accounts is much below the threshold. So there's already a lot of headroom in the sense that even if things get worse over the next few months and maybe a year or two, Bangladesh would still be able to manage the situation. So I just wanted to make that clear at the beginning. Now, that doesn't mean that there aren't other issues in Bangladesh, issues which have been brewing for quite some time. For example, many of us are concerned with the efficiency of public expenditures. We know of projects where there have been cost overruns. Some of it may be for genuine reasons, some of it may be related to corruption, which sadly still remains a serious problem in Bangladesh. I feel that I've written about it, and you may have read some of these articles about the spectre of rising cronyism, which, again, is not surprising; when an economy grows as fast as Bangladesh's has, there are certain people who become economically powerful. And at some stage they acquire political power as well, and then you start seeing the problem of cronyism. So we have that, we have a serious problem in the banking sector with a lot of non-performing loans. I'm not suggesting that we don't have serious problems, we do. But there is a disconnect between the typical headlines and where the real problems lie in Bangladesh.  Now, this may be a good moment to bring up a little bit of history, and I can go deeper into it. The Bangladesh economy has certain resilience. And I just want to comment on that. One which is not discussed much, because the story often is about garments and remittances, is the transformation that has happened in the rural areas. It started with agriculture, it actually started with rice production, which is the most important crop in Bangladesh. And then it expanded into other crops, and then even non-farm activities in the rural areas, we can go into the details of this later. But agriculture provides a certain resilience. And we saw that again during COVID. Because the agricultural activities in Bangladesh were not affected that much by COVID, and that was a big benefit. The other is the unleashing of an entrepreneurial spirit in Bangladesh. And this spirit has been unleashed across the board, so it's not just some large conglomerates or some large government manufacturers who have become entrepreneurial. This is something which has happened across the board, from small farmers to large conglomerates. And that, I think, is a big asset for the country. Because we don't have natural resources; unlike Nigeria, we don't have natural resources. In some ways, it's actually a good thing. Because then we are forced to use other assets and latent entrepreneurship… you know, Albert Hirschman, the famous economist, wrote a book in 1956, which is a classic, on the strategy of economic development, and he made a very interesting comment. He said, in developing countries, you have a lot of latent resources. In developed countries, the task is how to allocate the resources you have; how to best allocate them. In developing countries, it is about bringing out the latent resources you have; and entrepreneurship is one of the latent resources developing countries have, but many countries have not been able to bring that out and make use of it. Bangladesh has, and that gives a certain resilience to the economy. So yes, the shocks are going to affect us, especially because our major industry, in fact, is export-oriented, which is garments. So that is affected by the shocks, but unlike commodity prices, export earnings don't fluctuate that much. And the industry has proven to be resilient over the years.Tobi;Yeah, I'm glad you touched on history because, really, that's where I wanted to start. But I just want to get the pulse of the moment and how to make sense of all the headlines that we're seeing around. So usually, and I’ll refer to the two pieces I've read in the FT [Financial Times] recently that I referenced in my first question. The development trajectory of Bangladesh is usually dated as something that started around 1990. But Bangladesh became an independent country two decades before that. So my question then is: that intervening period before that sort of consensus about the takeoff point, what were the things that were brewing in the background that culminated in that takeoff? I know a lot of things went down, and just to mention that one of the reasons I’m very interested in Bangladesh is that it sort of defies some of the seductive examples of development and progress - the Asian tigers, you know, so to speak - where things seem to be very clear, the prescriptions are very precise, you need to do this and do this. Bangladesh seems like a regular country - like Nigeria, with its history, its complexities, its problems like every other country in the world, but that has also managed, despite a situation that has seemed hopeless, at first, to people who look at these things in terms of hard boundaries - that has emerged as this fantastic example of economic growth and development. So what were the major things that happened before 1990 that sort of made this takeoff possible?Akhtar;Now, one may debate on whether 1990 is the point of the takeoff. In any case, it's very difficult to

This is a free preview of a paid episode. To hear more, visit www.ideasuntrapped.comBangladesh has transformed tremendously in the last twenty-five years. Average incomes have more than quadrupled, and many of its human development indicators have improved alongside. It has also become an export powerhouse with its garment industry, and generally a shining example of development - though things are far from perfect. Five decades ago, w…

We often speak of economic development as a phenomenon of sovereign national countries, but the process by which that happens is through what happens at individual firms in the economy. The decisions by firms to upgrade their products (services), export, and adopt new technology are the most important determinants of economic development. The incentives and conditions that shape these decisions are the subjects of my conversation with my guest on this episode. Eric Verhoogen is a professor of economics at Columbia University school of international and public affairs. He is one of the leading thinkers and researchers on industrial development.TRANSCRIPT (edited slightly for context and clarity)Tobi; Usually, in the development literature, I know things have changed quite a bit in the last few years. But there is a lot of emphasis on cross-country comparisons and looking at aggregate data, and a lot less focus, at least as represented in the popular media on firms. And we know that, really, the drivers of growth and employment and the source of prosperity usually are the firms. The firms in an economy, firms are the ones creating jobs, they are the ones investing in technology, and doing innovation. So firms are really important. One of the things you often hear a lot is that one of the reasons poor countries are poor is that the firms are not productive enough. So that's sort of my first question to you, how exactly do we define and also measure productivity, you know, for us to be able to distinguish why firms in the developed countries are more productive than the lower income countries?Eric; Yeah, this is a big important question. So I agree, in principle, that firm productivity is very key. So countries that are going to be doing well are countries that are populated by firms that are being very innovative, and their productivity is rising, they're learning how to do new stuff, they're producing new products, etc. And so there's a reason why people are very focused on this conversation about firm productivity. The sort of, I would say, dirty secret of economics is that it's very hard to measure productivity well, right? And so the productivity measures we have, I think, are very noisy, and most likely fairly biased. But basically, the way you estimate productivity is you run a regression of like sales on inputs, okay, so on how much you're spending on labour and how much you're spending on materials, and then the part that's left over, we call that productivity. So it's like unexplained sales, you know, sales that can't be explained by the fact that you're just purchasing inputs and purchasing workers. But that is actually a very noisy measure of productivity. And so I've been working on a review paper, and a separate research paper kind of pointing out some of the issues with productivity estimation. So in principle, it's exactly what we want to know; in practice, it's very hard to measure. So one argument I was making in that paper is we should go to things that we can actually directly observe. Okay, so sometimes like technology adoption, we can often directly observe whether the firm has adopted this particular new technology, or if they're producing new products, we can directly observe that. Sometimes we can observe the quality of products that can be measured. Now, the standard datasets that we have typically don't have those things. It is possible now, in many countries, to follow manufacturing firms or even other sorts of firms, [to] follow them over time, which is great, at a micro level. But those that have the technology, they don't have quality, they do it now increasingly have like what products they're producing, often they don't have the product people are producing and so it's harder, you have to go out and you have to talk to people, you have to access new sorts of data, there's a lot more work, a lot more shoe leather - we'd say you wear out your shoe is going to talk to people trying to get access to other datasets in order to have these measures that you can observe directly. But I think there's a big advantage to that. Just in terms of measurement. Like, can we measure these things, and record that technology quality and product innovation together? I'm not sure that's answering your question. But, you know, I mean, I totally agree that what firms are doing, that's crucial, right? So the big macro question is, why are some countries rich and some countries poor and how can we make poor ones richer? That's the big question. I think that's kind of too big to be able to say much about. The much more concrete thing, which we need to be focusing on is how can you make firms in countries more innovative and productive. That's the absolutely right question. But that's just hard. There are challenges and research about, you know, how you actually analyze that, and it has to do with these issues of measurement.Tobi; I understand the measurement problem, and of course, TFP, the residual, and so many things like that. But practically, I want to ask you, what can you say, maybe if you have a handy checklist or something? what distinguishes firms in rich countries from firms in poorer nations? Eric; Yeah. So let me say what I don't think first, and then I'll say what I think. So it's become increasingly common to say that firms in poor countries are just poorly managed. The firms in rich countries have better management, and the firms in poor countries have poor management, right? And partly that's coming from the influential paper by Nicholas - Nick Bloom - and others, and David McKenzie and John Roberts. You know, they had consultants go to some factories in India. In some they camped out for four months, some they were there for only one month, and the ones where they camped out for four months ended up doing better, right? And they say that that's because these consultants improve the management of the firms and management matters. And I do agree that sometimes these management practices matter, but I don't think... sort of, one kind of implication of that line of work is somehow, like, the firms in a developing country are just making mistakes. They haven't gone to business school in the United States, and so, therefore, they don't know what they're doing. And I think that's incorrect. I think that's incorrect. I think the problem is, firms in developing countries face many, many constraints that firms in rich countries don't face. Right. So often, for instance, gaining access to high-quality inputs can be very difficult, right? That you just don't have the supply chains domestically producing high-quality inputs. Often skilled workers are very expensive relative to unskilled workers, and even relative to the price that you might pay in rich countries. Having skilled workers, including skilled managers, is very expensive. In addition, you have all these frictions on trying to get your goods to market or trying to, you know, trying to access export markets, often there are, you know, their costs involved in that. In addition, being productive requires know-how and often firms lack that know-how, right and so the question is, how do you get that know-how, you know, like, the distinction I'm trying to make is, it's not that they're making mistakes, it's just that they're doing the best they can given know-how they have, and given the constraints that they face. And so in that sense, I would sort of point to those constraints, right, those constraints both in know-how and both in the input and output markets, rather than just failure of management. So now, one of the constraints I should say, actually, so is often, you know, legal and regulatory institutions are much weaker in many countries. It is true in Nigeria, and it's true in many places, right? And so then that does create a complicating factor also when you're trying to do business with somebody, but you don't have the legal recourse of going to court to enforce whatever contract you write down. And so that creates friction. So then you have to do things differently in part because of that. And so you're likely to be much more based on, like, networks of various types. It might be ethnic networks, or it might be people that you know or that you have long-term relationships with. But then that means you can't necessarily just find the best supplier of something, you actually have to find someone that you trust, and that can complicate your life, basically, if you're trying to do business and develop.Tobi; So one thing I want us to discuss is the issue of firm upgrading. I mean, one of the things that have helped me in reading your work and taking this firm-level view of development is that, okay, on the one hand, if you look at a country like Korea, we can say the average income, the income per capita for Korea 40 years ago versus now and compare with say Nigeria, but also we can look at Korean firms 40 years ago versus where they are today. Today, Korea have global firms that are at the very frontier of technology. Companies like Samsung are innovating and making chips and making electronics and making smartphones and you compare with firms in Nigeria who have not been able to upgrade their products over that same period. And now what I want to ask you is how important is a firm's ability to upgrade productivity. I take your point on the measurement but controlling for that, how important is a firm's ability to upgrade its output? Its products on its productivity?Eric; No, no, I think upgrading is crucial. And upgrading in various ways, you know, more specifically technology, producing higher quality products, producing new products, new innovative products, you know, you might be reducing costs, right, all those things. I do think that's crucial. I think that's crucial to the development process. I mean, much of the conversation in development economics has often been not about firms. It's about, you know, social policy, or it's a