Ideas Untrapped

Hello everyone, and you are listening to Ideas Untrapped podcast. This episode is a continuation of my two-part conversation with Lant Pritchett. It concludes the discussion on education with the five things Lant would recommend to a policymaker on education policy, how to balance the globalized demand for good governance with the design of state functionalities within a localized context - along with RCTs in development and charter cities. I also got an exclusive one of his infamous ‘‘Lant Rants''. I hope you find this as enjoyable as I did - and once again, many thanks to Lant Pritchett.TranscriptTobi;Yeah, I mean, that's a fine distinction. I love that, because you completely preempted where I was really going with that. Now, on a lighter note, there's this trope when I was in high school, so I sort of want us to put both side by side and try to learn more about them. There's this trope when I was in high school amongst my mates, that examination is not a true test of knowledge. Although it didn't help the people who were saying it, because they usually don't test well, so it sort of sounded like a self serving argument. But examination now, or should I say the examination industry, clearly, I mean, if I want to take Nigeria as an example, is not working. But it seemed to be the gold standard, if I want to use that phrase. It's as bad as so many firms now set up graduate training programs. Even after people have completed tertiary education, they still have to train them for industry and even sometimes on basic things. So what are the shortcomings of examination, the way you have distinguished both? And then, how can a system that truly assesses learning be designed?Lant;  Let me revert to an Indian discussion because I know more about India than Africa by far. There are prominent people, including the people around JPAL and Karthik Muralidharan, who say, look, India never really had an education system. It had a selection system. And the ethos was, look, we're just throwing kids into school with the hopes of identifying the few kids who were bright enough, capable enough, smart enough, however we say it, measured by their performance on this kind of high stakes examination who are going to then become the elite. So it was just a filter into the elite, and it really meant the whole system was never really in its heart of heart geared around a commitment to educating every kid. I've heard teachers literally say out loud when they give an exam and the kids don't master the material, they'll say, oh, those weren't the kind of kids who this material was meant for. And they leave them behind, right? There's a phrase “they teach to the front of the class.” You order the class by the kid's academic performance, and then the teachers are just teaching to the front of the class with the kind of like, nah, even by early grades. So the evils of the examination system are only if it's not combined with an education system. So essentially, an education system would be a system that was actually committed to expanding the learning and capabilities of all kids at all levels and getting everybody up to a threshold and then worried about the filter problem much later in the education process.So if they're part of an education system like they have been in East Asia, they're not terribly, terribly damaging. But if they're part of a selection system in which people perceive that the point is that there's only a tiny little fraction that are going to pass through these examinations anyway and what we're trying to do is maximize the pass rates of that, it distorts the whole system start to finish. My friend, Rukmini Banerjee, in India started this citizen based assessment where it was just a super simple assessment. You need assessment in order to have an effective education system, because without assessment, I don't know what you know or don't know, right? And if I don't know as a teacher or as a school what my kids actually know and don't know, how is anybody imagining that you're giving them an effective education? So I think the role of early assessment and the drive to integrate teaching with real time assessment, I think is hugely, hugely important. This is why I had the preemptive strike on the question of testing [which] is that I want radically more assessment earlier, integrated with teaching. And there are still some educationists that will push back against that. But if we put in a bundle, formative classroom assessment integrated with effective pedagogy and high-stakes examinations, then everybody's going to hate them both. So we have to really unbundle those two things.And the hallmark of an education system is that it really has targets that every kid can learn and believes every kid can learn, and builds a system around the premise and promise that every kid can learn. There's this example out there, Vietnam does it. And Vietnam did it and continues to do it at levels of income and social conditions that are very much like many African countries. So if I were a country, I'd kind of hate Vietnam as this goody goody, that, you know. You know how you always hated the kid in school who would really do well, and then the teacher would go, well, how come you're not like that kid? On education, Vietnam is that country. It's, like, out there producing OECD levels of learning with very little resources and starting at least in the 1980s, at very low levels of income. So they're proving that it's possible. They're the kid who, like, when everybody goes, oh, that exam was too hard, and like, Bob passed it, like, how hard can it be? Anyway? So I think radically different bases for assessment versus examinations. And to some extent, the only integrity that got preserved in the system wasn't the integrity of the classroom and teaching, it was the integrity of the examination as a filter.Tobi;I want to ask you a bit about the political economy of this a little bit. So if, say, you are talking to a policymaker who is actually serious about education, not in the superficial sense, but really about learning and says, okay, Lant, how do I go about this? How do I design an educational system that really does these things? I've written quite a number of reports here and there that rely so much on your accountability triangle. I would have sent you royalty checks, but it wasn't paid work. Sorry. So how exactly would you explain the political economy of designing a working educational system? I know people talk a lot about centralization versus decentralization, who gets empowered in that accountability triangle? Where should the levers to really push, where are they? So how exactly would you have that conversation?Lant;  So let me start with the accountability triangle and design issues. I think people mistake what the accountability triangle and design issues are about in the following sense. If I'm going to design a toaster, and the toaster is going to turn my untoasted bread into toasted bread, and it's going to be an electric toaster, there are certain fundamental things that have to happen, right? I have to have a current. I need to get that current running through something that heats up. I need that heat to be applied to the bread. I need it to stop when I've applied enough heat. Now, those fundamental principles of toaster design can lead to thousands of different actual designs of toasters. So I want people to get out of the notion that there's a single best toaster and that the accountability triangle or any other mode of analysis is to give you the best toaster and then everybody copies the best toaster. The principles are, design your own damn toaster, right? Because there's a gazillion ways to toast bread. Now, [for] all of them to work, [they] have to be compatible with the fundamental principles of electricity and current flow. You know, so I'm trying to get to one size doesn't fit all, but any old size doesn't necessarily fit everything either.You raise the question of decentralization, right? The thing is, if you look across countries that have roughly similar learning outcomes from PISA and other assessments, they're radically different designs. France is an entirely centralized system. Germany is a completely federalized system. The US is almost completely localized system. The Low Countries, Netherlands and Belgium have money follows the student system into the private sector. They have the highest private sector enrollment of any country in the world because they allow different pillars of education between the secular, the Catholic and the Protestant to coexist. So then if you ask is decentralization the best way to design your education system? It's like, no, no, no, you're missing the point. The point is, if you choose a centralized system, there are principles in how you design the flows of accountability that are going to produce success and those that are going to produce failure. If you choose a decentralized system, there are systems of the alignment of accountability that are going to produce success and failure. So the analytical framework doesn't determine the grand design, it determines the mechanics of the design. And I just want to get that straight up front.Second, as a result of the eight year research project of RISE, we have a policy brochure that has, kind of, here are the five kind of principles and here's the 15 minutes if I have five minutes with a minister or leader of a country, here are the five things I want to tell. And the first of those things is, commit. A lot of times we want to skip the most fundamental stage. And what I mean by commit is you actually need to create a broad social and political consensus that you're really going to do this and that you're committed to it. This big research project, RISE, which is based out of Oxford and I've been head of for eight years, we included Vietnam as one of our focused countries because it was a success case. Hence, we wanted our research team to partly do research about Vietnam and issues that were relevant in Vietnam. But we really wanted to answer the question, how did Vietnam do this? Why did they succeed? Right? And five years into the research effort, I was with the Vietnamese team and they had produced a bunch of empirical research of the econometric type. Is Vietnam success associated with this or that measurable input? Nothing really explains Vietnam at the approximate determinant input level. And finally, one of the researchers said to me, Lant, we're trying to get around the fundamental fact that Vietnam succeeded because they wanted to. And on one level it's like, my first response was, I can't go back and tell the British taxpayers that they spend a million dollars for a research project on Vietnam, and the conclusion to why Vietnam succeeded was because they wanted to.[Laughs]Tobi;  That's kind of on the nose, right? Lant; Yeah. On another level, it's a deep and ignored truth. The policymakers ignore it, the donors ignore it. Everybody wants to ignore it. Everybody wants to assume it's a technocratic issue, it's a design issue. I think the fundamental problem of these failing and dysfunctional education systems, it's a purpose problem. The purpose of education isn't clear, understood, widely accepted among all of the people from top to bottom responsible for achieving results. And once that leads to what I call norm erosion. Within the teachers, there's this norm erosion of what does it really mean to be a teacher? So again, the first and maybe only thing I would say if I had five minutes with a leader is, how are you going to produce a broad social, political and organizational commitment that you are really going to achieve specific, agreed-upon learning results? The technical design issues have to flow from that commitment rather than vice versa. And you could copy France's system, you could copy the Vietnamese system. I think you've heard the term from me and others, isomorphic mimicry. You can copy other people's systems and not have the same effect if it isn't driven by per purpose. Like, if you don't have the fundamental commitment and you don't have the fundamental agreed-upon purpose, the rest of the technical design is irrelevant.Tobi;It sort of leads me to my next theme. And that is the capability question in development.Lant; Yeah.Tobi;  First of all, I also want to make a quick distinction, because lately, well, when I say lately that's a little vague. State capacity is all the rage now in development.Lant;  Really? Is that true?Tobi; Yeah,Lant; I'm so happy to hear that. 3s I'm glad that you think so. And I hope that that's true, because it wasn't. It really wasn't on the agenda in a serious way. So, anyway …Tobi; But I also think there's also a bit of misunderstanding still, and usually, again, maybe I'm just moving with the wrong crowd. Who knows? People focus a lot more on the coercive instruments of the state and how much of it can be wielded to achieve certain programmatic results for state capacity. Revenue to GDP in Nigeria is low, how can the states collect more taxes? How much can the state squeeze out of people's bank accounts, out of companies, or the reverse. That, the reason why the state collects very little taxes is because state capacity is low. But, I mean, nobody really unpacks what they mean by that. They just rely on these measures like X to GDP ratio.Another recent example was, I think it was in 2020, when the pandemic sort of blew over and China built a hospital with 10,000 bed capacity in, I don't know, I forgot, maybe 20 days or…Lant;  Yeah. It was amazing.Tobi; A lot of people were like, oh, yeah, that's an example of state capacity. It's very much the same people now [who] are turning around and seeing China as an example of failure on how to respond to a pandemic. So I guess what I would ask you is, when you talk about the capability of the state, what exactly do we mean?Lant; In the work that were done and the book that we wrote, we adopt a very specific definition of capability, which is an organizational measure. Because there are all these aggregate country level measures and we use them in the book. But in the end, I think it's easier to define capability at the organizational level. And at the organizational level, I define [that] the capability of an organization is the ability to consistently induce its agents to take the policy actions in response to circumstances that advance the normative objective of the organization. And that's a long, complicated definition, but it basically means can the organization, from the frontline worker to the top of the organization, can it get people to do what they need to do to accomplish the purpose?And that's what I mean by the capability of an organization. And fortunately, unfortunately, like, militaries, I think, make for a good example. It's amazing that highfunctioning militaries have soldiers who will sacrifice their lives and die if needs be, to advance the purpose of the organization. Whereas you can have a million man army that's a paper tiger. No one is actually willing to do what it takes to carry out the purpose that the organization has been put to of fighting a particular conflict. And I think starting from that level makes it clear that, A, this is about purpose, B, it's about inducing the agents to take the actions that will lead to outcomes. And the reason why I'm super happy to hear that capability is being talked about is (you're doing a very good job as an interviewer drawing out connection between these various topics) the design of the curriculum is almost completely irrelevant to what's happening in schools. And so there's been way too much focus in my mind in development discourse on technocratic design and way too little on what's actually going to happen in practice. And so my definition of capability is, you measure an organization's capability of what actually happens in practice, what are the teachers actually going to do day to day? Right? And having been in development a long time, I often sit in these rooms where people are just, you know, I go out to the field and teachers aren't there at the school. Teachers are sitting in the office drinking their tea while the kids are running around on the playground, even during scheduled instructional time. And then I go back and hear discussions in the capital about higher order 21st century skills. You know, I wrote this article about India called Is India a Flailing State?Tobi;Yeah.Lant;And what I meant by flailing is there was no connection between what was happening in the cerebrum and what was being designed at the center. And what was actually happening when the actual fingers were touching the material and the nerves and sinews and muscles that connected the design to the practice were completely deteriorated. And therefore, capability was the issue, not design. So that's what I mean by capability. I mean, you use the example of tax. I think it's a great example. It's like, can you design a tax authority that actually collects taxes? And it's a hard, difficult question. And I think by starting from capability, I was really struck by your description of capability being linked to the coercive power of the state because that's exactly not how I would start it. I would start it with what are the key purposes for which the state is being deployed and for which one can really generate a sufficient integrated consensus that we need capability for this purpose.Tobi; Now, one of my favourite blogs of yours was how you described… I think it was how the US escaped the tyranny of experts, something like that. So I want to talk about that a bit versus what I'll call the cult of best practice…Lant; Hmm.Tobi;  Like, these institutions that are usually transplanted all over the world and things like independent central bank and this and that. And you described how a lot of decentralized institutions that exists in the United States, they were keenly contested, you know… Lant Yes.Tobi; Before the consensus sort of formed. So I'm sort of wondering, developing countries, how are they going about this wrong vis a vis the technical advice they are getting from development agencies? And the issue with that, if I would say, is, we now live in a world where the demand for good governance is globalized. Millions of Nigerians live on the internet every day and they see how life is in the industrial rich world and they want the same things. They want the same rights. They want governments that treat them the same way. Someone like me would even argue for an independent central bank because we've also experienced what life is otherwise.Lant; Right. Tobi; So how exactly to navigate this difficult terrain because the other way isn't also working. Because you can't say you have an independent central bank on paper that is not really independent and it's not working.Lant;  Your questions are such a brilliant articulation of the challenges that are being faced and the complex world we live in because we live now in an integrated world where people can see what's happening in other places. And that integrated world creates in and of itself positive pressures for performance, but also creates a lot of pressures for isomorphism, for deflecting the actual realities and what it will take to fix and make improvements with deflective copies of stuff that has no organic roots. I've written lots of things and even though you love all of your children, you might have favorites. One of my favorite blogs is a blog I wrote that is, I think, the most under cited blog of mine relative to what I think of it, which is about the M16 versus the AK-47.Tobi;Oh, yeah, I read that.Lant;It's an awkward analogy because no one wants to talk about guns.Tobi;Hmm.Lant;But I think it's a really great analogy because the M16 in terms of its proving ground performance is an unambiguously superior, more accurate rifle. The developing world adopts the AK-47. And that's because the Russian approach to weapon design was - design the weapon to the soldier. And the American approach is - train the soldier to the weapon. And what happens again and again across all kinds of phenomena in development is the people who are coming as part of the donour and development community to give advice to the world, all want them to adopt the M16 because it's the best gun, and they don't have the soldiers that can maintain the M16. And the M 16 has gotten better, but when it was first introduced, it was a notoriously unreliable weapon. And the one thing as a soldier, you don't want to happen is as you pull the trigger and the bullet doesn't come out at the end. That's what happens when you don't maintain an M16. So I think this isomorphism pressure confuses what best practice is with assuming there's this global best practice that can be adopted independently of the underlying capacity of the individuals and capabilities of the organizations. So I think huge problem.Second, I think there is a super important element of the history that the modes of doing things that now exist in the Western world and which we think of as being “modern,” I'm using scare quotes which doesn't help in a podcast, but we think of as being modern and best practice had to struggle their way into existence without the benefit of isomorphism. In the sense that when the United States in the early 20th century underwent a huge and quite conflicted and contested process of the consolidation of one room, kind of, locally operated schools into more professionalized school systems, that was politically contested and socially contested. And the only way the newer schools could justify themselves was by actually being better. There was no, oh, but this is how it has to be done, because this is how it has been done in these other places, and they have succeeded. And so there was no recourse to isomorphism, right. So in some sense, I think the world would be a radically better place for doing development if we just stopped allowing best practice to have any traction at all. If Nigerians just said, Screw it, we don't want to hear about it. Like, we want to do in Nigeria, what's going to work better in Nigeria? And telling me what Norway does and does not do, just no. Just no, we don't want to hear about it. Like, that doesn't help because it creates this vector of pressures that really deteriorate the necessary local contestation. My colleague Michael Wilcock, who is a sociologist, has characterized the development process as a series of good struggles. And in our work on state capability, we say you can't juggle without the struggle. Like, you can't transplant the ability to juggle. I can give you juggling lessons, I can show you juggling videos. But if you don't pick up the balls and do it and if you don't pick up the balls and do it with the understanding that unless you juggle, you haven't juggled, you can never learn to juggle. So I think if development were radically more about enabling goods, local struggles in which new policies, procedures, practices had to struggle their way into existence, justifying themselves on performance against purpose, we would be light years ahead of where we are. And that's what the debate about capability has to be.And I think to the extent the capability discourse gets deflected into another set of standards and more isomorphism, just this time about capability, I think we're going to lose something. Whereas if we start the state capability from discussion of what is it that we really want and need our government to get better at doing in terms of solving concrete, locally dominated problems, and then how are we going to come about creating the capability to do that in the Nigerian context, (I'm just using Nigeria, I could use Nepal, I could use any other country). That's the discussion that needs to happen. And the more the, kind of, global discourse and the global blessed practice gets frozen out completely, the sooner that happens, the better off we'll be.Tobi;  So I guess where I was going with that is…Lant; 78:25Yeah.Tobi; One of those also fantastic descriptions you guys used in the book is” crawling the design space” on capability. So now for me, as a Nigerian, I might say I do not necessarily want Nigeria to look like the United States. Because, It wouldn't work anyways. But at the same time, you don't want to experiment and end up like Venezuela or Zimbabwe. It may not work to design your central bank like the US Federal Reserve, but at the same time, you don't want 80% inflation like Turkey. So we're ate the midway, so to speak?Lant; I get this pushback when I rail on best practice. I often get the push back, well, why would we reinvent the wheel? And I've developed a PowerPoint slide that responds to that by showing the tiniest little gear that goes into a Swiss watch and a huge 20 foot large tire that goes on a piece of construction machinery. And then say they're both wheels. Nobody's talking about reinventing the wheel. There are fundamental principles of electricity that a toaster design has to be compatible with. So, again, there is a trade off. There are fundamental principles, but there's a gazillion instantiations of those principles. We don't want to start assuming that there's a single wheel, right? When people say, don't reinvent the wheel, it's like, nobody's reinventing the idea of a wheel. But every wheel that works is an adaptation of the idea of a wheel to the instantiation and purpose for which is being put. And if you said to me, oh, because we're not going to reinvent the wheel, we're going to take this tiny gear from a Swiss watch and put it on a construction machine and expect it to roll, it's like, no, that's just goofy, right? And what I've really tried to do in the course of my career is equip people with tools to think through their own circumstances.Tobi;Hmm.Lant;Coming back, the accountability triangle or the crawling the design space. What I'm not trying to do is tell somebody, here is what you should do in your circumstance, because my experience is what's actually doable and is going to lead to long-run progress is an unbelievably complicated and granular thing that involves the realities of the context. But what I do want to do is help people understand there are certain common principles here and some things are going to lead to, like, Venezuela like circumstances, and we've seen it happen again and again, but there are a variety of pathways that don't lead to that. And you need to choose a pathway that works for you. And the PDAA isn't a set of recommendations, it's a set of tools to help people think through their own circumstances, their own organization, their own nominated problems and make progress on them. The accountability triangle isn't a recommendation for the design of your system. It's a set of tools that equip people to have conversations about their own system. And I have to say, at one time was in some place in Indonesia and it was a discussion of PDAA being mediated by some organization that had adopted it and was teaching people how to do it in Indonesia. And I had the wonderful experience of having this Indonesian woman who was a district official working on health, describe in some detail how they were using PDAA to address the problem of maternal mortality with no idea who I was. And I was like, oh, just for me to hear her say, here is how I use the tool to address a problem I've never thought about in a context, in an organization I've never worked with. So I think equipping people with tools to enable them in their own local struggles is my real objective rather than the imagination that I somehow can come up with recommendations that are going to work in a specific context.So the don't reinvent the wheel is just complete total nonsense. It's like every wheel is adapted to its purpose and we're just giving you tools to adapt the idea of the wheel to your purpose. Adapting a square to the purpose just isn't going to work. So I agree. We want to start from the idea of things that work. And there are principles of wheel design that you can't violate. You can't come in and say, I have a participatory design of a water system that depends on water running uphill. No. Water runs downhill. That's a fundamental principle of water. But I think the principles are much broader and the potentiality for locally designed and organic, organically produced instantiations of common principles are much broader than the current discourse gives the possibility for.Tobi; 83:47 I can't let you go without getting your thoughts on just a few more questions. So indulge me. I've stayed largely away from RCTs because there's a bunch of podcasts where your thoughts can be fairly assessed on that issue, but it's not going away. Right? So for me, there's the ethical question, there's the methodological question, and there's the sort of philosophical question to it. I'm not qualified to have the methodological question, not at all. Maybe on the ethics, well, there's a lot of also biases that get, so I'm not going to go there. For me, when I think about RCTs, and I'm fairly close here in Nigeria with the effective altruism community, my wife is very active, and I have this debate with them a lot. Surprisingly, a lot of them are also debating Lant Pritchett, which is which is good, right now. The way I see it is. The whole thing seems too easy in the sense that, no disrespect to anybody working in this space at all… in the sense that it seems optimizing for what can be measured versus what works.So for me, the way I look at it is, it's very difficult to know the welfare effects for maybe a cohort of households. If you put a power station in my community, which has not had power for a while. So, but it's pretty easy if you have a fund and you distribute cash to households and you sort of divide them into a control group, and you know… which then makes it totally strange if you conclude from that that that is the best way to sort of intervene in the welfare and the well being of even that community or a people generally. I mean, where am I going wrong? How am I not getting it? Lant;  No, the people listening to the podcast can't see me on the camera trying to reach out and give you a big hug. I think you have it exactly right. I think we should go back and rerecord this podcast where I ask you questions and your questions are the answer. So I think you've got the answer exactly right. So first of all, by the way, the original rhetoric and practice of RCTs is going away, and roughly has gone away. Because the original rhetoric was Independent Impact Evaluation. All of the rhetoric out of JPAL and IPA and the other practitioners is now partnerships, which is not independent, but essentially everybody's adopted the Crawl the Design Space use of evidence for feedback loops in making organizations better. So they've all created their own words for it because they don't want to admit that they're just, again, borrowing other ideas. So to a large extent the whole community is moving in a very positive direction towards integrating, seeking out relevant evidence for partner organizations in how can they Crawl the Design Space and be effective. And they're just not admitting it because it's embarrassing how wrong they were first, but they've come to the right space. So I want to give them credit.When I gave a presentation at NYU called The Debate About RCTs Is Over And I won. It's not a very helpful approach, it's true, but it's not very helpful because I have to let them do what they're now doing, which is exactly what I said they should have been doing, and they are now doing. So, to some extent, asking people to say, yeah, we changed what we're doing is a big ask. And I'd rather they actually change what they're doing then they admit they did that. So to some extent it is going away. I think it's going away as it was originally designed, as this independent white coat guys, descend on some people and force them to carry out an impact evaluation to justify their existence. They're much more integrated, let's Crawl the Design Space in partnership with organizations, let's use randomization and more AB testing ways. And so I feel it's moving in a very positive direction with this weird rhetoric on top of it.Second, I think you're exactly right and I think it's slightly worse than you said. Because it's not just about what can be measured, but it's about attributability. It's not just what can be measured, but what can be attributed directly, causally to individual actions. And my big debate with the Effective Altruism community is I'm hugely, you know, big, big, big wins from the Effective Altruism movement attacking kind of virtue signaling, useless kind of philanthropic endeavors. I think every person should be happy for them. But if I were African, I would be sick of this philanthropic b******t that you guys are going to come and give us a cow or Bill Gates talking about…Tobi;Or chickens.Lant;Chickens. My wife doesn't do development at all. She's a music teacher. But when she heard Bill Gates talking about chickens, she think, does Bill Gates think chickens haven't been in Africa for hundreds of years? Like, what does he think he knows about chickens that Africans don't know about chickens? That's just such chicken s**t, right? But again, I'll promote a blog. I have a blog called let's All Play for Team Development. And I think what you're raising in your thing is that it's not just what we can measure, it's what we can measure and attribute to the actions of a specific actor. Because, you know, your example of not having power in a village, that we can measure. But all of the system things that we've talked about so far - migration, education, state capability - these aren't going to be solved by individualized interventions. They're going to be solved by systemic things. And with my team on education, we've had this big research project on education standards but I keep telling my team, look, if you're not part of a wave, you're a drop in the ocean. The only way for your efforts to not be a drop in the ocean is for you to be part of a wave [of] other people around you working on the same issue, pushing in the same direction, to build that. And that kind of thing gets undermined by attributability. So with my RISE project, I sometimes tell my funders, you can have success or you can have attributability, but you can't have both, right? Because if we're going to be successful at changing the global discourse in education, we're not going to do it by ourselves. We're going to be part of a team and a network. So, anyways…By the way, like early, early, early in the Effective Altruism movement, I had an interview with Cari Tuna and I think Holden Karnofsky, when they were thinking about what to do, and I made exactly this point. It's like, look, being effective at the individualized interventions that are happening is one thing, but don't ignore these huge systemic issues because you can't measure the direct causal effect between the philanthropic donation and the outcome. And that's your point, I think, which is, Nigeria is not going to get fixed by cash transfers.Tobi;No way.Lant; I mean, for heaven's sakes if Nigeria had the cash to transfer to everybody and fix it, well, then the national development struggle wouldn't be what it is. It's a systemic struggle across a number of fronts.Tobi;Why not just get Bill Gates to donate the money.Lant; But again, even Bill Gates, his fortune relative to the…you know, impact you could have through these programs, relative to what happens with national development, is just night and day. So to the extent that the adoption of a specific methodology precludes serious, evidence-based, hard struggle work on the big systemic issues, it's a net negative.Tobi;Again, to use your term, “kinky ideas in development.” Lant; Yeah.Tobi;I was reading a profile in the FT, a couple of days ago, all about charter cities, right?Lant;  About what?Tobi; Charter cities. It was an idea I was kind of into for a while, I mean, from Paul Roma's original presentation at TED. But you strongly argued against it at your CATO debate. So what is wrong with that idea? Because there are advocates, there are investors, who think charter cities are this new thing that is going to provide the space for the kind of organizational and policy experimentation. And China's SEZs are usually the go to examples, Shenzhen particularly. So, what do you have to say about that?Lant;I like discussing charter cities.Tobi;Okay.Lant;And the reason I like discussing charter cities is because they're not kinky. Right. My complaint about Kinky is that you've drawn this line in human welfare and you act as if development is only getting people over these very low-bar thresholds. So conditional cash transfers are an example of Kinky, and conditional cash transfers are just stupid, right? Charter cities are wrong.I mean, conditional cash transfers are just stupid in a trivial way.Charter cities are wrong in a very deep and sophisticated way. So I love talking about charter cities. The reason I love talking about charter cities is A, they have have the fundamental problem posed, right? The fundamental problem is countries and systems are trapped in a low level equilibrium and that low level equilibrium is actually a stable equilibrium and so you need to shock your way out of it. And the contest between me and Charter cities is I think there's good struggle paths out of low level equilibrium. So I'm a strategic incrementalist. I want to have a strategic vision, but I want incremental action. So I'm against the kinky, which is often incremental incremental, it doesn't really add up to a development agenda. So I like, yes, we need to have a way out of this low level equilibrium and state capability in the way education systems work, in the way economic policies keep countries from achieving high productivity, et cetera. But I'm a good struggle guy. And charter cities want Magic Bullet. Right.Now, the rationale for Magic Bullet is that good struggle is hard and hasn't necessarily proved successful. And these institutional features that lead to these low level traps just are resistant to good struggle methods out. And I think that's a really important debate to be having. But I think the right way to interpret China's experience and Yuen Yeun Ang's book on how China did it is, I think, a good illustration of this is China was Good Struggle. Using regional variations as a way of enabling good struggles. It's instructive that difficulty with Charter Cities always goes back. You keep going deeper and deeper of who's going to enforce this, who's going to enforce this, who's going to enforce this, you know. They're caught in their own catch 22 in my mind. So the first proposed, what appeared to be feasible Charter City in Honduras eventually got undermined by governance issues in which the major investor didn't want to actually be subject to rules based decision making. So, I love talking about charter cities. I think they're on the right set of issues of how do we get to the institutional conditions that can create a positive environment for high productivity firms and engagement and improved governance. And they have a coherent argument, which is good, that, it's a low level trap and there's no path out of the low level trap and so we need big shock to get out of it.But I don't think they're ultimately correct about the way in which you can establish the fundamentals. You can't just big jump your way to having reliable enforcement mechanisms and until you get to reliable enforcement mechanisms, the whole Charter City idea is still kind of up in the air. The next podcast I have scheduled to do is with the Charter Cities podcast, so that hopefully…Tobi;Oh. Interesting. Last question. We sort of have a tradition on the show where I ask the guest to discuss one new idea they would like to see spread everywhere. But I think more in line with your own brand, like you said earlier, I think I would like to ask for our own exclusive, Ideas Untrapped Exclusive Lant Rant, something you haven't talked about before or rarely. So you can go on for however long you wish. And that's the last question.Lant; I think if I had to pick something that if we could just get rid of it, it would be this fantasy that technology is going to solve problems. My basic point I make again and again and again is Moore's Law, which is the doubling of computer capacity every two years, has been chugging along, and it might have slowed down, but has been chugging along since 1965. So computing power has improved by a factor of ten to the 11th. And just as an illustration of just how big ten to the 11th is, the speed you drive on a freeway of 60 miles an hour is only ten to the 7th smaller than the speed of light. So ten to the 11th is an astronomically huge number in the sense that only astronomers have any use for numbers as big as ten to the 11th. Okay. My claim is anything that hasn't been fixed by a ten to the 11th change in computing power isn't going to get fixed by computing power. And I ask people sometimes in audiences, okay, particularly with older people, you look a little young for this question, but I ask them, okay, you older people that have been married for a long time, computing power has gone up ten to the 11th over the course of your marriage, has it made your marriage any better. And they're like, well, a little bit, sometimes when we're abroad, we can communicate over Skype easier, but on the other hand, it's made it worse because there's more distractions and more temptations to not pay attention to your spouse.So on net, ten to the 11th of computing power hasn't improved average marriage quality. And then I ask them, has it improved your access to pornography? And it's like, of course, night and day, like, more instantaneous access to pornography. And my concluding thing is a huge amount of what is being promoted in the name of tech is the pornography of X rather than the real deal. So people promoting tech in education are promoting the pornography of education rather than real education. People that are promoting tech in government are promoting the pornography of governance rather than true governance. And it's just like, no, these are deeper human issues, and there's all kinds of human issues that they're fundamentally technologically resilient. And expecting technology to solve human problems is just a myth. It enables salespeople to pound down people's doors, to sell government officials some new software that's going to do this or that. But without the purpose, without the commitment, without the fundamental human norms of behaviour, technology isn't going to solve anything and the pretence that it is is distracting a lot of people from getting to the serious work. So if we could just replace the technology of X with the pornography of X, I think we'd be better off in discussions of what its real potentialities are. How's that for [an] original?Tobi;Yeah, yeah.Lant;You asked for it.Tobi; Yeah, that's a lot to think about, yeah. Thank you so much for doing this.Lant;  Thanks for a great interview, Tobi. That was super fun. We could go back and record this with my asking questions and your questions being the answers. Because you're really sophisticated on all these issues. You're in exactly the right space.Tobi;Thank you very much.Lant;Great. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.ideasuntrapped.com/subscribe

Welcome to the Ideas Untrapped podcast - and my guest today is Development Economist Lant Pritchett. He is one of the most incisive and insightful scholars in the field, and his influence at the frontier of development research cannot be overstated. His research mostly focuses on economic growth, its contributing factors, and the development implications for peoples and countries. It was a privilege for me to talk to Lant, and I took the chance to ask him questions about some of the big themes of his research like Migration, Education, and State Capability. This is a two-part conversation. In this episode, we discussed Migration and Education. Lant provides insights into how the demographic transition in many rich countries has now pushed the migration debate to the forefront, as opposed to when he was writing about it two decades ago. How the Solow model might explain the absence of migration on the development agenda, and why he thinks the ‘‘brain drain'' is ‘‘mostly a myth''. He also explained to me how we ended up with the wrong dashboard in education policies and the distinction between assessment and examination in measuring learning. I want to thank Lant for talking to me, and thank you all for always listening. I hope you enjoy it.TranscriptTobi;My guest really needs no introduction. There's nowhere in the world of development, global development, and development economics, where Lant Pritchett is not a household name. So I'll like to say welcome, and it's a pleasure to talk to you.Lant;Thanks for inviting me.Tobi;On a light note, let's start on a very light note. What have you been working on recently?Lant;So recently I've been doing two things. I've been wrapping up a large research project on basic education in the developing world, sort of K to twelve, and that had been an eight year research project that's just wrapping up. But more recently, I'm trying to ramp up my engagement on labour mobility. The world is facing a real demographic transition point, with the rich industrial world, particularly workforce age populations, just in constant decline while their aging population is increasing. And at the same time we have this massive youth bulge in parts of, not all of, but in parts of the developing world. And, you know, I'm an economist, whenever you see huge differences, you think, well, here's an opportunity for exchange. So the world's biggest opportunity for exchange right now is the West, as we call it, desperately needs workers, Africans definitely need the hide productivity income and jobs. And it's a great opportunity for exchange, but it's blocked by laws and policies that just make migration next to impossible. And I'm working to break that gridlock and get some sensible ways in which we can put willing workers into needed jobs.Tobi;I think that's a good launchpad to start the conversation on migration, which you've worked quite a lot on. I read your book Let Their People Come a couple of years ago. As a general question, what do you think we have learned from the time you wrote that book and you were compiling that research and now? Because definitely to me, it doesn't feel like much has changed in terms of the debate. And like you said, migration is such a big issue with economic and political consequences on both sides of the Atlantic. So what have we learned? And if nothing, why is that so? Why is there such a resistance to thinking differently about migration?Lant;What have we learned is a great question. Let's start with the demography of this. That book was written in 2006. One thing about demography is you can predict it very far into the future, right? Everybody who's going to be a 30 year old worker in 20 years is ten years old today. And so it's really not that hard to know what the future, the 20-, 30-year future of the labour force is going to look like, because everybody gets a year older. So on one level, we've learned nothing. But on another level, I think there's a current ongoing night and day shift in the urgency of the issue, because things were easily forecastable when I wrote the book - what is it, 2006? 2023 - 17 years ago. 17 years ago, I was saying, look, there's going to be this demographic crisis in the West and you're going to need these workers, but it was far away. So when you ask has anything been learned, it's like, no, but all of the projections for what was going to happen 17 years ago are now 17 years closer. And now, all of a sudden, the Prime Minister of Japan, I don't know if you've seen this, but the Prime Minister of Japan gave a speech a couple of days ago saying, “for the demographic future of Japan, it's now or never.” And it's like, no, it's never. The opportunity you might have had to address your labour force crisis through fertility was 30 years ago. It's over now.Now the only issue is how are you going to get workers to work in the Japanese economy to fill the jobs that you need, given that you have the demographic crisis you have, which you now can't fix? I wish I had a good word for this or a clever way to put it, but it's sort of like when a child touches a hot stove, do you say they learned something? Well, yeah, kind of. They learned that the stove is hot. But people had been telling the kid, the stove was hot, don't touch it for years. So, you know, did they learn something? Well, kind of. They know it in a different, more intense way than they maybe knew it before, but they didn't learn anything new. So my first response is, I was just way premature with Let Their People Come in 2006 because the problem was still too far away for politicians and policymakers really to focus on it. But now it's like, boom, it's in your face. labour shortages in the West aren't like this hypothetical going to come thing. They're here, they're now. They're everything I do, everything I look at, I think it's here now. And now, like I said, the prime ministers of countries are going, “we really need to worry about this demographic thing.” So on one level, nothing learned. On another level, radical change and attention to the issue because what was easily predictable and was predicted is now happening in a way you can't ignore it.Tobi;But even with that, you still hear many of the standard objections to more migration, whether it's in the wages of domestic workers in the host countries and things around cultural integration. So, just do a quick recap for me why these objections are false or untenable at best. Because a lot of people are still susceptible to the same arguments even with copious evidence and years of research debunking them, you still hear these things. And in the age of social media, where information travels very very fast, you know, and it's also easy to appeal to people who might be affected by this and politically weaponize their disaffection. So the standard arguments to migration, whether we're talking about the work of Borjas and people who are built on the back of that, why are they untenable?Lant;I mean, we can talk about why they're untenable or many of the factual claims are false, but I think we want to start a step before that. I think the biggest problem with conversation about migration is fundamentally, and I'm talking mainly about the rich industrial West, which West includes Australia and West includes Japan, the rich industrial world. Okay. The problem is, since the early 20th century, these countries have forced two questions to have the same answer. And they're radically different questions. One question is, who are we as a sovereign entity that control a border? Who are we going to allow to be physically present on our territory and perform labour services? That's a clear question. It's a policy question. It's a legal question. It's a regulatory question. You can have an answer to that question. Then there's the separate question which is, who is the future of we? Who are we going to allow to come to our country and on the premise that they're going to become a citizen, become a future one of us and determine the future of who is us? Right? And I feel that forcing these two questions to be the same, you get a complete distorted discussion of the first question. So I think nearly everybody who's arguing about the impact of migration or labour mobility, which is by the way, I try and use two different words…I try and always use the words labour mobility because when I use the word labour mobility it's clear I'm talking about the first question [which is] who are you going to allow under what terms and conditions to be physically present on your territory and what kinds of work are you going to allow them? What kinds of contracts and labour are you going to allow them to engage in? That's a question we can debate and have independently, in my view, of the question - who are the future citizens of the country? Right? But when you force those questions to be the same, I think nearly all the discussion of wage impacts is complete subterfuge b******t. Because the problem is if you say, oh, I don't want people coming to my country because I just don't feel they're going to fit in with us, boy, that sounds racist. That sounds exactly why whites in America had restrictive covenants that wouldn't allow African Americans to move into their neighborhoods because they're not like us. They'll change the nature of our way of life. And so most intellectuals in the West are reluctant to actually deploy cultural-based arguments for migration, but it's much more politically acceptable to say, “oh, well, I'm not saying that I am racist and that I don't want people of different races or ethnicities in my country, but it would be terrible for our workers. And therefore, that's why we're not going to do it.” And I think for the most part that's just b******t. It's just subterfuge. It's just substituting an argument that's politically acceptable but false for an argument that's true but not politically acceptable.So, I think the reason why these false arguments, quite untenable arguments persist is exactly that. It's that these arguments are factually untenable, but it's easier to justify action in terms of those rather than deal with the concrete issue. And the way in which I'm proposing countries can deal with a concrete issue is start to think about separating these questions. So we have legal mechanisms for people to come and work in the country that perhaps have some path to citizenship, but you don't have to decide the citizenship question immediately when any work authorization is granted.Tobi;Of course, there are also people on the other side of these arguments who advocate for more migration and letting more people travel and be able to work. And like you said, they often mix up these two arguments as you have delineated them. So my question then is, is it time for advocates of more migration to maybe swallow some bitter pills, especially on questions of rights? Because I think that is where some of the hot buttons lie. What rights would people have? What are the benefits they are entitled to in their host country? And some of the fiscal implications of that, you know, even though some of you may be a cover to hide larger cultural or behavioral argument. So is it time for advocates of migration to, I dunno, maybe, embrace more pragmatic arrangements, so that we can move this issue forward a bit, you know? What do you think?Lant; Absolutely. I think that's a very perceptive question because I feel in the space of people that are debating and talking about migration, refugees and labour mobility, those three kind of different channels, the kind of if we use the word migration just to mean the intent that somebody is going to move permanently from one country to the other country and acquire different citizenship, then there's refugees, and then there's labour mobility. I think there's this tension between more and better. And I'm advocating that the path to better runs through more. Whereas a lot of people in this space want better, but it's not at all obvious that they aren't willing to sacrifice more for better. So I'm an economist, so I believe that if the price price of something is higher, people will do less of it. So I feel if you go to countries and you say every person who you allow into your country to do labour services of any kind automatically has to be entitled to the following long list of entitlements. They'll say, “gee, no, we're not going to do that then, we're going to have robots or we'll do without.” No one really should be talking about abrogating fundamental human rights. I mean, I've never say, oh, people should be expected to in any way, shape or form sacrifice fundamental human rights in order to move to another country. But there's a huge space in between. I like that you use the word entitlements versus rights. I feel a lot of human rights are negative rights. These are things that you can't have done to you. It's just immoral, illegitimate to ask you to sacrifice the privileges against these negative things being done to you. Suppressing your freedom of speech, suppressing your freedom of association, forcing you to change your religion, et cetera. But citizens of the West enjoy this huge amount of entitlements which they're entitled to legally as citizens. But migrants don't necessarily need to become endowed with the full panoply of entitlements that citizens have just because they're in the country. And we accept that for students. If you go to study in the United States, no one says, oh, because he's in the United State as a student, he's entitled to every social program available to any citizen in the United States or a tourist. I guess it's the lack of imagination here and I love the title of Ideas Untapped. I think there's a lack of imagination here because we're not making the right analogy.It's like, look, we allow people to be in countries for all kinds o f reasons, like tourism, for students, for passage, to do high level business deals, and we don't expect that to come with this huge array of the complete entitlements of the citizens of the country they happen to be in. And, you know, there's kind of a fetishism about work. Like, if you happen to go to another country and work for three months, that needn't come with the full entitlements of every entitlement every citizen of that country has. And then we just need to have an open and untapped conversation about what is the right line between, for sure protection of rights, for sure limitation of reneging on contracts, of abusing migrants because they're in a difficult legal situation of not being in their home country, but the array of entitlements is a hard question to answer, and countries need to take that on. Okay, if we're going to let people come to our country, what does that entitle them to and in what sequence and how? It's a hard question that countries need to deal with but I don't think it's impossible question. But it is often made impossible by the insistence of like, no, it has to be perfection immediately. Because if you say that, you act as if you're advocating for better, but I feel you're not advocating for more, and lots and lots of people would love more.And second, it's not obvious that there is a path to better that doesn't go through more because a lot of the abuse that people suffer is that they're being trafficked to reach these labour opportunities in illegal and informal and undocumented ways, which puts them at even more risk of abuse. So the analogy I use is prohibition in the United States. At one point in the United States, we passed a constitutional amendment, we banned the sale and production and import and everything of alcohol. But then what did we end up with? We ended up with a whole bunch of alcohol being marketed illegally and everybody marketing alcohol was, by definition, breaking the law. And so we ended up with a really, really crappy regulation of alcohol. And the only path to better regulated alcohol was to end prohibition and have it be legal. And I feel we're in this prohibition mode, vis a vis labour mobility, and it just isn't viable.Tobi; Sometimes the context within which these debates happen is also ideological, especially in America the right, the left. There's a tiny section of the right that I would like you to respond to their argument, or I should say their sentiments. Maybe I'll fit someone like Tyler Cowen in this category, who are pro immigration but who largely favors high performing technical talent from other countries and not people that can work in the jobs that you argue are actually badly in need of workers in the industrial world, what you call the hard non-tradables. Right? So how would you respond to that? What would you say to them who favour more immigration, but what they want is basically the stem talents of other countries? You know, let them come. Perhaps, they argue, that, productivity is stalling in the United States and to keep pushing the technological frontier, it has to be a large absorption of technological talent from other countries.Lant;My first response is that's exactly the inevitable consequence of bundling the two questions. If you bundle the question who are future citizens? And the question, who's going to be allowed to work in our country? It inevitably leads to we should allocate the few scarce slots we're willing to allocate, that inevitably leads to global war for talent kind of migration policies where you're going to attract the best and the brightest out of Nigeria, out of India, out of other places to come to America. And that makes economic sense. My point is there shouldn't be two categories. There should be three categories. Currently the debate happens as if there's two categories. There's migrants and there's refugees. Those are the two kinds of people that move. Whereas my point is we need a third category. In part, we need a third category because as you point out, and as I point out, and this is something that is, I think, completely absent from the debate in the West so far is that the change in occupational demand with respect to some measure of underlying skills in those occupations, it's U-shaped. There's actually been more increase in demand for the low skill, physical, non routine activities and an increase in demand for the super high skill. So if you look at change in wages or change in occupations in Europe, in the US, there's more demand for things that aren't easily amenable to technology and aren't repetitive, like, just to use a prosaic example, like cleaning a hotel room.Cleaning a hotel room is a very hard, it's not an easily automatable thing because it's different every time, you walk in, things are in different places. And so the result of the technological changes in the West is that everybody's complaining about the falling wages because the middle of the wage distribution has been hit hard by technological changes. But we have a whole bunch of jobs that are needed at the low end that the domestic citizens don't want to fill, and in the US, there's going to be something like a million more needed people in home health care. It's not a job that any American middle class family is, oh, you need to grow up and be a home health care aid. It's not a super attractive job to the emerging youth, and we just don't have any youth coming into the labour market, so we need to fill those jobs. But if you say to a country, oh, you should determine who you are as a people and who you are as a nation and who your future citizens are, in order to meet your needs for home health care, they're like, no, we want computer scientists, we want data engineers, we want doctors. So what I'm saying is, Tyler's argument is inevitable if you accept the premise that what we're talking about is immediate and expected path to citizenship, labour mobility and the only form of labour mobility is migration.If you look at what's happened with Canada and Australia, who adopted points systems for their immigration, that's exactly the way it went. You gave points for higher levels of education. You gave points for speaking the language. You gave points for things that were cultural match. Canada has massively benefited from global war for talent kind of recruiting through a points-based system. But there's a whole bunch of other jobs in Canada that you also need to fill. And Canada is dealing with this. It's like, okay, how do we deal with all of these existing [jobs] native born Canadians don't necessarily want and so you're not taking them away from anybody by having more people in here working on those, but on the same type, it's a very difficult political discussion to say, we are going to, in some sense, put the future of who we are as a people at the hostage of the immediate needs of the labour force. So Tyler's arguments make a ton of sense if you accept the premise there's no temporary mobility. Once you allow for rotational or temporary or time limited mobility, which can include path to citizenship, then the whole conversation changes. A fundamental principle of economics that is often ignored is instruments to targets. If you have two different targets, you need two different instruments. And so if we've have multiple needs for immigration, we need multiple pathways. And I think Tyler is right about one pathway. I'm a big advocate of the other pathway. Because I am a development economist, if I say what would really benefit Africa, it's not Tyler Cohen having aggressive American policy to take the best and brightest out of Africa, it's creating multiple pathways for Africans.Tobi;On Africa, I don't want to draw into any particular comments on that, but let's move the debate closer. Which is, we also worry about migration in Africa, especially… Lant; Oh, within…Tobi;Yeah. For example, in Nigeria, there is always a huge debate about the number of Nigerian doctors that leave for the UK every year. Canada is also a big competitor now. Another industry that is causing quite a bit of domestic disruption in Nigeria is software talents, which is a new and burgeoning industry with lots of investments but the talents are moving in droves, which inevitably brings up the issue of the brain drain. Right. I usually cite Sandefur and Clemens work on the Philippines, but I encounter some resistance to that argument that no, no, no, don't tell us about Filipino nurses. So now, is the brain drain, is it a myth or reality? I know that's a bit of a vague question, but… [Laughs]Lant;Well, like, it's mostly a myth, but at the same time, most myths have some grounding in some deep aspect of human reality. Myths that persist are capturing something deep and important. Right. So let's start with the way that it's not a myth. The way that it's not a myth is that if a country is not yet in the position in which there's really rewarding ways for the high talent workers to use their skills, then people are going to leave the country and not come back. And then brain drain is, I think, a significant problem because a lot of the pathway of the the education of the people to become the superstars in software and medicine, capable of moving to Canada, Germany, and the US, was publicly funded. So there is a legitimate concern. The whole premise is we'll educate our people because we'll recoup our investment through taxes when they become more productive people. But if that productivity happens in another place, then, yes, there's a serious problem there. But I think what we've learned from lots of experiences with India, where I live and have been working on and off for over 30 years, eventually there's another rhyming thing that's never going to become as popular as brain drain, and I call it cortex vortex. I think one reason brain drain gets so much attention is the two words rhyme, which is not a good reason for an argument to have credibility. But I'm afraid it's like people [go] “brain drain, oh, yeah. Brain drain, oh, yeah. Rhymes. It must be true.” So I want to contrast that with cortex vortex, your brains moving back and forth. There's a vortex of movement, and I think India undoubtedly has benefited from the fact that the early migration out of India into America was permanent. These people left India. But then, as India changed its economic policies, became a more dynamic place, the rotational mobility that there were trained Indians in both places that you could establish the connections, that you could create essentially huge software firms that were essentially US firms based in India. Meaning. All of the revenue was in the US. All of the work was in the US. But the work was being done in India. That was a consequence of the previous establishment of connections.So I think, on net, the benefits of vortex cortex, when countries become sensible and viable places to do business, exceed the risks of brain drain. So, not that there can never be a brain drain situation, but the brain drain situation is often a much deeper problem with the country. And when the country changes, you can move from brain drain risks to cortex vortex benefits. And I think that as a country, in Nigeria, I would be saying, well, look, we really should be thinking about why software engineers aren't setting up businesses in Nigeria much more than worry about losing Nigerians to the US. And moreover, the more Nigerians we have going and working in the US, eventually it is going to benefit Nigeria in the long run by creating the possibility of connections. The third issue. I realize I'm giving long answers, but the third issue is an issue that Michael Clemens has raised and has documented is if there were viable, again, time limited pathways, then the net effect of investment in training in these things can far exceed the drain and hence you actually get more skilled people from the possibility of migration. So if you look at the Philippines as an extreme example, like if brain drain were true, Philippines should be desperately short of nurses because there's Filipino nurses all over the world. Exactly the opposite, because Philippine nursing schools train a whole bunch of people with the promise and premise that some of them are going to go work and get jobs as nurses in other places. But the net number of nurses trained versus the net number that actually go abroad is very small. So the opportunities for Filipino nurses to work abroad have dramatically increased the supply. And so there's way more nurses, we need to think of the long-run endogeneity of the number.So again, people's ability for counterfactual is often very limited. They see a Filipino nurse working in the Gulf and think that nurse could have been working in the Philippines, so therefore it's created less nurses in the Philippines. And they have a very difficult time imagining the more complex counterfactual of well, that nurse actually created five or six additional trained nurses who are in the Philippines because they got trained as nurses and went abroad for a while and then came back and worked in the Philippines. Or never got the opportunity to work abroad. So the net brain creation is a huge driver to the extent that these very high returns to possibility of going abroad increase the total creation of supply often gets completely ignored in the brain drain discussion. So I'm sure a lot of Nigerians are investing in their software skills in the hopes of working abroad. And the net effect of software skills available in Nigeria may well be hugely positive, even though you can point to lots of individuals who leave.Tobi;One evidence that you're having a conversation with Lant Pritchett is if his answers always lead you to your next question. Speaking about the cortex vortex now. There are people who argue, and sometimes they toy with a very horrible idea of limiting emigration in African countries, especially emigration of highly educated, highly skilled people because of the fear of brain drain. And one argument that I've heard is that there is less incentive for national development if your brightest and the best leaves. The political incentive is for the ruling class to keep looting. They have no incentive to fix anything. I mean, citizens get educated, they grow up, they leave. Nothing about the political dynamics of the country changes. How would you respond to such people? How would you tell me to respond to such people?Lant; I have to say there's two levels to this. First kind of this is getting beyond my pay grade, so to speak. It's like the true dynamics of how countries come to do national development in this fourfold transformation that I talk about, of the politics, the society, the economy, and the administration, it's a huge, complicated historical transformation. And I'm not at all convinced forcing your best and brightest to stay in the country because they'll be really unhappy, and therefore, by being unhappy, they're going to play a positive role in the political dynamics is a plausible story to first order at all? I don't know. Maybe. But it's hard to point to the cases where by not allowing these people to migrate, they instead of becoming a Nigerian doctor working in Canada, they became this path-breaking political transformational figure. And a very striking counterexample is Gandhi in India. Came back to India when he was in his 40s, having spent a significant amount of time in the UK and a significant amount of time in South Africa. You could have said, oh, man, if we had just forced Gandhi to stay in India, things would have been so much better. And there are a number of significant examples of people who went abroad for a period and then came back and made a positive difference, too. So that first one, it's like, kind of on first order sounds plausible, but I don't know of any either historical, or social or political or economic solid evidence that it's true.Part of my brand is skepticism. Just because it sounds plausible doesn't mean it's true. First of all, yeah, that sounds plausible, but I'm not sure it's true. Had Gandhi not been allowed to go study law in the UK, would India have in the long run historical trajectory, be in a better place? I don't know. The actual historical thing was, and I feel embarrassed as someone who has lived in India for a long time, but I think he was 44 years old before he came back and became a prominent and effective political advocate in India. And who's to know that that experience of living broad didn't radically increase his productivity as a transformational political leader? So that's the first thing I'd say. Second thing I'd say is I have these fundamental liberal tendencies that forcing people, even if it's good for the country, forcing people to do it, makes me nervous.Tobi;Yeah.Lant;Even if I did accept that it were true, that it would be marginally better for Nigeria if these people didn't go off and work in other countries, putting that burden in a coercive way on the individual makes me nervous. Just makes me nervous. Because how did the burden of Nigeria's national development transformation fall on this person just because they happen to be a good programmer? That's not at all an obvious thing. And then the last point I want to make is, you know, I sometimes want to promote the analogy that human capital is a lot like physical capital, right? And on this, both sides have been completely hypocritical in the sense that when Westerners make this argument, I go, hey, until you guys start refusing to take Nigerians physical capital, when Nigerians want to invest in Swiss banks or British banks and say, no, this physical capital should be forced to remain in Nigeria to promote the national development of Nigeria and so we should ban Nigerians from being able to put money in Switzerland because it would be better used there than in Switzerland. Until you're willing to make that same argument, I'm pretty sceptical that your argument a Nigerian should be forced to remain in Nigeria is really a principled argument. Because analytically, it's exactly the same. And yet the West is like, oh, yeah, yeah, all of the money that wants to roll out of Africa into Swiss, and British and other banks [we're] super happy to take it, even though exactly the analytically same argument can be made as, oh, this money should be better invested and if we force people to invest their money in Nigeria, they'd be more aggressive about creating a better investment climate. But the West is fully complicit in taking all the money that wants to come out of Africa, and yet when it's people, all of a sudden they acquire principles. And then, secondly, the same thing for the country, it's like, look, if you're losing physical capital, you might want to look at why people don't want to invest in Nigeria and create a better investment climate.Tobi; My final question on migration, before we move on to another baby of yours - education. So as a development economist, and also you've written about this, why isn't migration so much on the “development agenda”? I don't know any development organization or any communique or report that is so big on migration as a development policy. Policy that radically increases the welfare and the incomes of the people, like you said. Because sometimes development is usually framed more as a country thing than the people. So why is it missing on the agenda?Lant; I think there are lots of reasons. And let me start with the one that is less, I think, discussed and deserves more consideration. And the answer is the Solo model.Tobi;Okay.Lant;So let's talk economics first, right? The Solo model, which I don't know how many of the listeners are actually into economics, but it was the dominant model of economic growth. And it said that economic growth is a combination of this thing called investable stuff. We'll call it capital. And that includes human capital and infrastructure and all kinds of physical stuff. I'm taking human capital as a physical stuff. So there's capital and then there's the productivity with which capital is used, which we'll call A. And that was kind of the dominant model of economic growth when development organizations in the 1950s and 60s came into being. Now, in the Solo model, and I had the privilege of actually being taught by Bob Solo, so I can speak with some authority about how Bob Solo talked about it. A, was regarded as blueprints. This total factor productivity that interacted with capital was ideas that were in the air. It was regarded as technical. Now, if you think about, therefore, how the dynamics of growth were going to work, is A, this technical blueprints of how to do stuff was going to diffuse very fast, right? Because after all, if I have a blueprint for how to build a power plant or build a dam or build a highway or run a coffee processing plant, that blueprints can transfer across countries really fast. So if you scratch what was the intellectual kind of environment in which the bones and DNA of places like the World Bank were built? They were built on a model that ideas were going to diffuse fast. Well, if ideas diffuse fast, then the productivity of factors in the places that now have high A but have low human capital and low physical capital was going to be super high. And so the whole problem was how do we invest in this super high productivity, physical and human capital in these places with high A and low K? That was the whole model of development. Right? Now, what we have learned and this we really have learned in the sense that we didn't know it and now we know it, is what we have learned from five decades of research on economic growth is that model isn't exactly wrong. Exactly wrong. A, is what hasn't converged. If you ask why hasn't Nigeria had the gross prospects that we would have hoped and anticipated for Nigeria, it's because A stayed low. Not because Nigeria and we'll get to this when we get to education in two minutes, but not because Nigeria has necessarily had radically underinvestment in human capital or radically possibility for investment in physical capital. It's that A didn't diffuse, and it turns out A isn't blueprints. A is much deeper things about how you can make factor productivity in a country which go way beyond do you have the blueprint to build a power plant? Right. So the first reason why development wasn't originally part of the development agenda is that in the Solo model, we should have had human capital flowing to Nigeria because the return to factors should have been super high, because A should have been super high relative to the level of K and HK. So before we get into more cynical, and hence probably more realistic and true positive models of why it's not on the agenda, I think there was an intellectual flaw about economics itself and how it thought about growth that I don't think we've pointed out strongly enough, how completely, totally wrong it is, and how it leads to radically different assumptions with how important migration is going to be. And in the Solo model, there was no need for migration. Like, once A was there, the returns to HK were going to be phenomenally high, not low.So we really have learned from constructing data sets and just decades and decades of growth research, that A doesn't converge. And that is a huge, huge puzzle. Right. Because if A were, as Bob Solo thought it was, a set of blueprints, it should have diffused very fast, and instead it's been not diffused. So that's an economic-based argument for why it wasn't on the development agenda. And the problem is, like I say, the DNA and bones of the World Bank were built because if you ask, why does the World Bank focus on moving money? Well, again, in this model that A has converged and we need K and HK to catch up, what these countries need is money. Right. Anyway, and it's very hard to change an organization's DNA. Then there are the obvious, and I just want to point out, I'm not being completely silly and naive… it's also the case that most of the development organizations have their intellectual agendas dominated by the rich donors, and the rich donors never really wanted it. Since they never really wanted it, it was always easy to push it off the agenda. Now, on the plus side, the World Development part of the World Bank, which is often a very flagship document, is this year on migration. So for the very first time, the World Bank is going to solidly bring development issues and migration issues side by side. This is another way in which I think the overall environment for discussing migration is going to change radically, I think, in the next ten years. And I think this is a harbinger of that.Tobi; I look forward to reading the document.Lant;  I've seen drafts of it, and it will be good.Tobi;  Okay, moving to education now. Yeah, so I'll start this way. It's one of those things that is super sexy to talk about politically. We are in [an] election season now in Nigeria, and every candidate is saying, I'm going to invest in education. We need to fix basic education. We need to make our education work. If we make it work, then this and this and X and Y will not happen. There will be no crime. People will no longer kidnap. They can, you know, a lot of things. The benefits of education seems intuitive.  But what frustrates me, whether you're talking to policymakers or investors or even my friends who talk about education, is, other than researchers like yourself who are working in the field, almost nobody stops to look at the evidence. Nobody. And then we've ended up with this, to use one of your phrases, we ended up with the wrong dashboard for education, where we are basically measuring schooling and not learning. How did this happen? You can't talk about human capital without talking about education. So how come we are still measuring the wrong things? How come countries are putting in money, and there's basically nothing to show for it? Lant; Wow, okay, well, that was a long set-up. So I'm writing, like, one of these efforts where a variety of people are getting together, writing about different topics, people are writing about infrastructure and other things, and I'm writing about education. And I start by saying I feel that the field of education is the field in which more false things get set than any other domain. Just completely, totally, obviously false things. Perfect people are perfectly happy to repeat them again and again, year after year, decade after decade. So let me start with the most positive possible spin on it. The most positive spin on what's happened with schooling and education is that if you go back again to the origins of decolonialisation and these newly independent national governments come in and they have control of policies for the first time, it was obvious to everyone and completely accepted that the education level and if now by education we mean mastery of certain capabilities. If we define education in some sense as a vertical axis of, we want them to have skills and capabilities and values and dispositions that are going to contribute to national development, how many years of schooling are going to do, right? There's two ways to increase the stock of, kind of, skills and capabilities. One is more kids in school. One is more learning per year. Well, in the 1960s, it was obvious more kids in school was an easily available, doable, and viable way to do that. You could just push more kids through school, and as long as you push them through at roughly the same level of skills per year, you've got more of it. Right? And every time either national leaders or global leaders or people raised the quality issue, the response is, we'll cross that bridge when we come to it. There was a lot of nervousness that a lot of the early pushback against excessive expansion in the education system was really elitist nonsense, right, that, oh, these people don't really need to be educated and we should reserve education for the elite. And so it was easy to create this debate where the people talking quality were hidebound traditionalists that were anti-egalitarian, and the only acceptable position was [to] expand schooling. And so to some extent, people kept saying, we'll cross that bridge when we come to it. We'll cross that bridge when we come to it. We'll cross that bridge when we come to it.So the reason for starting with this positive thing is, hey, we're now at the bridge. Like, around the world, nearly every kid goes to school. Like, something like 3% of children don't go to any school ever in their life. And most kids are going to school for a very long time now. And we haven't ever really come back to say, by the way, in the 1960s, it was obvious more kids in school and at constant learning per year was okay. In 1980s, there was still a lot of kids not in school, girls were out of school, et cetera, poor kids were out of school, et cetera. But in 2020, it's like, hey, we're at the bridge. The scope for increasing a country's stock of human capital or the stock of learning and skills and capabilities by expanding the years of school is over. It's just over. It's just over. The additional marginal gain from pushing out on the quantity of schooling access just doesn't hold any promise in most countries of the world. So to some extent, the discourse has to change because the facts have radically changed. Like, I don't want to go back and say people in 1960 were wrong to radically and rapidly expand education or that free primary education in 1970s was a mistake, because there were still lots of kids not with the opportunity or access to school. But that world is gone. That world is gone. And our views and attitudes and discourse hasn't changed nearly as much as the facts on the ground have changed. And so we just have to recognize that, look, the only real viable possibility for substantial, sustained improvements in the level of skills and capabilities of youth is now from more learning per year. We have to radically change that.Tobi;So I mean, pivoting to learning, I get that. But I want to talk a bit about testing. Right.Lant;About who?Tobi;Tests.Lant;Oh, okay, let's not talk about tests.[Laughs]I'm being quite serious, because there's two radically different things.Tobi;Okay.Lant;One is assessment and one is examinations.And then tests, I'm not quite sure what you mean. I'm preempting you here because I was just literally writing about this two days ago.Tobi;Okay.Lant;Most education systems relied radically too much on high-stakes for-the-student-late-in-the-cycle examinations. But they relied radically too little on assessment of learning. And so when you say testing, I want to be clear, are we talking about grade ten school leaving high stakes for the student examinations, or are we talking about assessments of, in third grade, can kids read and how do we use assessment of learning? Because within the education community there's this huge negative stigma around testing, which then I think leads in radically unproductive directions, because assessment gets thrown into the bundle with high-stakes examinations. And everybody hates high-stakes examinations, particularly because they're often unbelievably crappy examinations, meaning they're examinations of how much can you memorize? And hence we're allocating future opportunities to go to college on the basis of a really crappy assessment of learning. So everybody hates examinations, but I think everybody should love assessment. Sorry, so I've answered a question you haven't asked yet. This is a public episode. 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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 them. This element of credibility, that you build credibility, based on how someone else reflects your own beliefs. Your own prior beliefs, really. This is the core mechanism [that if] I read something that confirms my prior beliefs, I'm much more likely to retransmit it with a positive note that "I really like this and I think it's methodologically sound." And if it's something that contradicts my prior beliefs, I'm very much more inclined to question its methodology. And I think we've seen this to an extreme over the two and a half years because we had situations where the discussion was very polarized. And the really bad thing to observe in a scientific discourse in general, but also the amplified scientific discourse on Twitter, is like the absolute lack of quality control when something confirms one's own prior beliefs. So this is usually what a scientist has to do. Like, if I get something that confirms my beliefs, I still have to do a minimum quality control [to check] if it's actually methodologically sound. And this clearly did not happen. People were just passing on anything that confirmed their beliefs and basically expected someone else to do the quality control. The first job any academic has is basically to subject everything, even that confirms your beliefs, and this is also [what] you think is true, you still have to subject it to quality control. And clearly this rarely ever happens. This is why academia is supposed to run on confrontation that, basically, the other camp does it. But if you bring academia together with Twitter, which is [an] amplification network that runs on social engagements, likes and retweets, then you have a very toxic mix. And this is the situation we had over the last two and a half years, how scientific communities can coalesce around things that are just not empirically sustainable.Tobi;Now pardon my language, there's a way that academics, whether they are scientists or social scientists (I know economists are particularly notorious in this arena), they completely f**k with your mind when you're a skeptic. So I'll give you an example. Two days ago…I opened with the replication crisis in psychology, so two days ago, I read a SubStack by someone who is presumably a psychologist, who was then basically complaining that, “oh, yeah, after the replication crisis, a lot of them in academia who were doing PhDs, were also having their own crisis of confidence, because then you have to confront a public who thinks they know everything.” So, like, you describe your study or you say you found something and someone says, "oh, but the field didn't replicate." The whole thing just sounded like some weak apologia that just didn't make any sense. I recall that sometimes a little bit after the financial crisis [of] '07-'08, if I recall correctly, Paul Krugman was dismissing something Talib, Nicholas Nassim Talib, wrote by saying that, oh, if you think you found something that a whole community of academic experts… I'm not quoting him verbatim, I'm paraphrasing… If you think you found anything that a whole academic community of experts missed, then you are most likely to be wrong.So, it brings me to the question of skepticism and how to approach it, because at the other extreme end of this is to say… and certainly there are people like that in the world today who think that no scientific knowledge is true, who question even proven medicine, and there are also conspiracy theorists who say outrightly false things for their own motives, no doubt. So, like, how does one deal with skepticism? Especially if you have conspiracy theorists and outrightly ignorant people on one side, and on the other side you have academic confusion or experts who out of their own biases or some of these institutional and social problems that you have described can also not really come out and admit that, oh, we botched this and this and this is what we are doing to correct our errors. How do you handle skepticism in such a milieu?Oliver; The first thing is and it's also the reason why I like the baseball metaphor is if you are [an] academic, you're an expert in a field, you spend far more time studying this field than others, you're communicating with other experts in the field, so you can get this feeling, and probably justified feeling that because you put more effort into it you should get more reward in the form of more recognition and more credibility. But you should also come up with a realization or understanding that any field you're in and that includes economics and all other fields, there are so many things that are still undiscovered, so many things that are undiscoverable that we have to build axiomatic constructs around in order to actually help us move forward. And if you're able as an academic to move from 20% right over many years to 30% right, you're still 70% wrong. So these are not empirical numbers, but I think they get the point across. And if you don't get that, then you're doing something wrong in academics in general, right? And we've seen this arrogance that was not supported by imperial superiority, like, quite a bit over the last years. Especially Paul Cook when he got some of the things very wrong just recently when he came out, when he admitted that most macroeconomists have been dead wrong about inflation for over a year. And then he claimed that nobody could have foreseen that. This is doubly wrong. You can be arrogant or you can be incompetent, but you cannot be both at the same time. Basically, academia is also a competition for attention. This is an attention industry and exaggerated claims get more attention than moderate claims. So this is not a problem. The problem is, and I see in the discussion is the complete absence of understanding of what the scientific method entails. And that clearly, a lot of academics become specialists in a particular subsection of the scientific method but don't have an understanding of how the whole thing works. Which is interesting, especially in economics, because economics has this very strong claim that it underwent An Empirical Revolution over the last 20 years, which is certainly true. Econometrics have got a much bigger role over the last 20 years, but they also claimed that because they underwent an empirical revolution, they also underwent a credibility revolution, that their results are much more credible and this is a much bigger claim. And this is not a claim that recent events have validated or recent economic performance has not been up to par to support it. But the key thing [is that] the scientific method is basically starting out from a theory which does not have to be a formal way of expressing, but you have to have an overarching idea of how things are connected, how some things cause other things. And from this, you have to be able to create predictions. Basically, foresee future discoveries. And you do this in a number of steps. The first step is usually formalization. You try to come up with a formal model. There are lots of discussions about like, okay, how formal does a model have to be? Usually, formalization is a self-discipline device. It means that you don't come up with ad hoc predictions, but the predictions are based on a clear mechanism that should be working under a variety of conditions. And then once you have a formal model, which we've seen a lot of people trying to build formal models over the last few years, and a lot of them have gotten more attention than they deserved or that they expected, and then you come up with a hypothesis. Hypothesis usually means are you comparing your own view of the world to competing views of the world. You try to find the positions where they diverge the most or where it becomes visible. And then you do empirical test experiments. Or in economics, you try to do a natural experiment or control trials in order to show that your overarching theory, your model, is closer to the truth than the competition. But the key is also and this is remarkably what a lot of people have just simply missed out on, this is the replicability and the role of moving away from a subjective view of the world to an objective view of the world so this can be refuted or replicated by others.And this also means that people who are opposed to your viewpoint have to admit that your view of the world was better than others. And this has almost completely broken down. Because in the two scenarios, economics (macroeconomics) in particular has been dead wrong, especially about inflation which is really one of the core predictive elements of macroeconomics and they have been dead wrong for an extended period of time for the very simple reason because they did not want to acknowledge it. And this is a problem, right? So then we start obfuscating about where you went wrong and you're trying to play political games that being wrong was not just unexpected change in economic environment or social environments or something but being dead wrong was basically caused by your model being fundamentally wrong. Very clearly economics should be in a crisis. The crisis should be clear within the field and the less the field itself owns up to this crisis, the more the outside world [should] pressure the field itself to come clear with its wrong predictions because the cost of getting these things wrong are staggering Tobi;True. So I have three questions but I'll ask them differently. You mentioned towards the end of your answer you talked about political games which is something that also gets me really angry and sometimes confused. And a related issue about that I found also is in development economics. But that will take us into the second question. So let's talk about the politics here. For example, take a field like economics which is highly partisan. You have some people that are called neoliberal economists. Some people are socialists, some people are heterodox, some people are capitalists. I know within the field of macroeconomics itself, they have all these other labels - new Keynesian monetarist, you know, whatever. But what I'm getting at is the role of partisanship, because you always have rival camps accusing themselves of partisanship. One story I related to, which I'm sure you also must have come across is - I saw a story on Twitter a couple of weeks ago before the Chilean constitutional referendum that Mariana Mazukato, Gabriel Zukman and Thomas Piketty, who are all economists, who are all leftists, who mix their research with political preferences and policy advocacy, plan to travel to Chile to celebrate the new draft constitution because it's a win for justice, it's a win for this or that. It's the final rejection of the Pinochet dictatorship and the neoliberal imposition that is. I did not encounter in that particular discourse chain anybody asking what is good for Chile, and Chileans, and even more relevantly how Chileans feel about this. And, I mean, what do you know? The referendum happened and 60% of the voters rejected the new draft. And I know that partisanship and political games, like you said, play not just in economics, it happens in other fields as well. So I'm curious - is this okay? And how exactly did should I say, scholars, particularly in social science, people that have been able to make extraordinary contributions to our body of knowledge and what we know, how have they managed to keep their politics, their personal politics away from their work? Or is it just that everything just used to be easier before we had Twitter? Oliver;Politics and economics have been intermixed long before Twitter. So this is not particularly new, and the mechanism itself is also not new. But your starting point is basically, as I said, like, very simplified that the role of academia is to predict the future and to design strategies to reach good futures. So in that situation, it's not surprising that academics take political positions. The problem comes in, of course, that if the ideological mix in academia and the ideological mix in the overall population and the ideological mix in sort of the ruling elites don't line up. This is a tricky situation, but being close enough to the highest echelons of power for long enough to observe what happens. If you have a change in the administration in Washington DC, then usually the new administration brings in economic experts from favourite schools. And then if the administration loses to the other party, then the other party brings in their favourite economists. So in that regard, if you have this semiconstant exchange of viewpoint, an economic viewpoint gets discredited, it gets replaced via the political process with other people, this is usually how you get closer to the view - I used to call it the drunk unicyclist. You're not really moving forward in a straight path, but you're moving around left and right, and you just try to avoid falling into a ditch. And this is what we observe. No political process is perfect. And as long as the political interests of the academics and the political interests of the elite are aligned with population ones, this is as good as we can get it. I generally have a problem with ideology in economics, but it's inevitable. And my quality is that I be able to read and appreciate writers from the left end of the spectrum, on the right end of the spectrum. I usually deduct points over ideological bent. But good thinkers can make good points even if they are driven by ideology. The problem also comes in when there is essentially no penalty for being wrong in academia. So basically being wrong and being catastrophically wrong externalizes the damage to others. So the worst scenario you do if you're tenured faculty, sort of what I call the endowed chair blue check, like a tenured faculty with a wide reach in social media, you can be dead wrong,you can be persistently wrong, completely unwilling to own up being wrong, and there's no real penalty to it. This is the major problem we're facing right now.Tobi;So that then brings me to the question of niches or what I'll call cottage industries in academic research generally. I know recently I did ask you about what you think about the EA movement. I'm not talking about them, but for descriptive purposes we see the behavior of that group, the adherents, the critics and how much commitment, particularly adherents display to their tribe. I see a lot of that too in academic research. One group I am very familiar with is in economic development (development economics) where everything now is about field experiments and randomized control trials. And one of the fundamental ways it biases research in my opinion and also have negative real life consequences is, if you do a field experiment, a randomized control trial on cash transfer, say in a Kenyan village over a period of time and you measure your results and they are positive and say oh yeah, well, cash transfer works. But the real question that policymakers, whether local governments or central governments or regional governments really deal with every day are sometimes bigger than that. So, like, for example, if you want to choose between building a power station for that particular village at $1 million versus scaling up your cash transfer program, what you'll find is that development economists in the current paradigm would most likely go for the cash transfer plan. Let's scale it up. We have tested this. It works. Essentially they are biased to what they can measure - like, we don't know the spillover benefits of electrification, it would be difficult to design a study, there are so many externalities. So basically they reduce real-life situations into the parameters of their methods and its limitations. And such behaviour is very, very similar to what you see with other social groups. Whether it is the Effective Altruism movement… I was briefly involved also with the Charter City people where for every problem that they can see, the solution is to build a charter city.That movement was actually inspired by your dear friend, Paul Romer. So there is this almost blind commitment and loyalty to their method, to their cottage industry. And sometimes I see it as just drumming up support for their tribe, as opposed to a commitment to the truth and finding what works. So, again, pardon my big question, what's going on here?Oliver; Okay, two things on the starting point about tribes within academia is…like, one of my favourite sayings is that tribalism is the shared belief in counterfactuals, counterfactual being everything that is unknown. And the less we know, the more unknowns there are, the more we tend to flock with our own tribes. So this is something you see everywhere in academia. That's what we call thought collectives. Ludwig Fleck, one of the guys who influenced Thomas Kuhn, came up with this term, thought collectives, to describe this idea that people that share the same idea of causal mechanisms tend to come together and confirm each other and create this thought collective. And this is, of course, what we see here, especially in academia. Economics has additional problem. I think it's not nearly as strong in development economics as other fields, but it's also visible there. This is very much the way economists are recruited. Economics, especially US and UK-centric economics, is extremely mathematicized. So, like, mathematical skills are basically number one, two, and three and the priority. And so you have basically a situation where real-world understanding has almost no role in getting accepted into PhD programs or getting promoted within the system. It used to be theory knowledge, formal theory knowledge. Now it's econometrics knowledge that gets you promoted. And this is very far away from qualification to solve real-world problems. And of course, people are impressed by mathematical skills. So this is something that you can play as a trump card. And this is what happens in the field. And the field is closing itself off from all kinds of outside knowledge because of that, especially in the social sciences. And in my world, I use people with mathematical skills, but only for very, very clearly defined tasks. I have my own mathematical skill set, but I also understand what the limitations are, and I think that's a major problem. And basically, if everyone around you came up in this system that promotes mathematical skills over real-world skills, then you believe that this is the only thing you need. And it's been very clear that basically every ten years, economics has a major crisis about being completely wrong in their predictions. And this intellectual monopoly is a major problem with that.Tobi;My third question in that line then pertains to the philosophy of science. Oliver;Yes. Tobi;So there are people who argue that a lot of these problems are also because modern science or the methodology of science today is divorced from some kind of philosophical foundation. I'm familiar relatively mildly with three philosophical approaches to science and let's just say truth finding. Thomas Kuhn basically puts everything down to competing paradigms. Like my last question, you know, competing tribes. And it's the tribe that wins at the moment that sort of has the monopoly of truth, not strictly, but socially. Then there's Karl Popper, which is also quite popular, that for anything to be valid as truth, it has to be falsifiable. And we've seen this play out so much in particle physics with things like string theory and things like many-worlds interpretation and so many things where their critics are saying, you guys are basically making claims that are not falsifiable, that cannot be tested and what you are doing is not science. And that has been going on now more or less for about three decades, right? And, of course, there's the Lakatos approach, which sort of fits into your own view, correct me if I'm wrong, which is that science has to make novel claims and it has to be predictive, it has to make predictions about the world. So my question then is academia, science, the truth-finding industry, so to speak, or the knowledge production industry, is it having a philosophical crisis?Oliver;I think it has more of a structural crisis. I'm not that deep in the philosophy of science I'm much more interested in the process itself. But one of the things that I think matters to me is Milton Friedman's claim that there are no wrong assumptions but whatever assumptions you make about the world has to generate correct predictions. A theory is being evaluated by its ability to produce non-falsifiable predictions, right? Predictions that turn out to be true even if others don't believe them. This is something you see in the arts as well, you see actually in religion as well, this mechanism of belief propagation that starts with one person believing and over time and over time, can be many decades, of something being accepted as true by everyone. So everyone starts believing in it. Basically, social contagion mechanism. I've always been interested in this. One scenario where this happens or should be happening is science. Right. This is, of course, a process. A process happens via this academic mechanism of peer-reviewed publications, getting tenure based on publication records and so on. And these are all very very imperfect mechanisms. The two extreme versions of that [are] the American system, which is extremely stratified, and the German version is the opposite, it's non-stratified, [and] we produce a massive amount of mediocrity. So, like, neither of them are optimal mechanisms to create truth. And we've seen that over the last two and a half years that political posturing took precedence over truth finding. Is it in a crisis? I think, yes, very clearly. We have two and a half years where very wrong, easily debunkable claims were propagated and were not retracted, even after they've been proven to be wrong. And ultimately, we're in a situation where an economic crisis is very clearly caused by misjudgment from people which we support and pay for being less wrong than the overall population. And that just simply did not work.Tobi;One last thing I'll like to get off my chest and then I'll pass them out to you is, I mean, specifically, if we follow from our last two podcast episodes, I'm a bit frustrated that there is a bit of lockdown triumphalism that the people who vigorously and vehemently used their academic or expert pedigree…Oliver;Credentials. Tobi;Yeah…to advocate for lockdowns are also taking a sort of victory lap. So the pandemic is over. Everything is back to normal. We did the right thing, even though the whole world was against us. That frustrates me a little. I was still watching a clip on YouTube recently because you get even more sensible take from everyday people, people who are experiencing these things than people who are building models and tweeting. One person somewhere here in southwest Nigeria complaining during the pandemic that the government has decided that it is better for us to die at home of hunger than not die from the pandemic. Because this pandemic, we don't know what it is, we don't know how it spreads, but without giving us any information, you basically confined us to our homes with no means of livelihood and nothing to depend on. That makes me sad because in Nigeria here and in many parts of Africa today, a lot of what we are seeing as, and are calling the food crisis, cost of living crisis, whatever it is you want to call it, did not necessarily start, but were aggravated or exacerbated by that approach to the pandemic. And it makes me sad that the people that are culpable, we can have a situation where they can take a victory lap. So that's me. Over to you. What would you like to get off your chest about everything that we have disclosed today?Oliver; Number one is epidemiological modelling was clearly an empirical debacle. The predicted epidemic wave that would take five to six months, that would wipe all large parts of the population never happened. And we have, I don't know, how many thousand waves in our database now, they all go for eight weeks. They start declining, acceleration starts declining very early on. And now we had enough scenarios where simple no measures were taken at any time during the wave. The key moment in that case was, I think, Paul Krugman complained that Denmark was removing all restrictions at the height of the epidemic wave and basically the very next day, the Danish wave dropped. Not a lot of people saw it, but it was extremely embarrassing for him. I've been in very much the same situation because I was living in the United States in the early 2000s and I was very clear from the very beginning of the Iraq war that Saddam Hussein did not have bioweapons. And so the whole invasion was built on Untruth. And the United States and the UK back then also knew that. Back then there was a strong moral panic, especially in the United States, against anyone who was basically speaking against the rationale for going to war. Now, 20 years later, almost nobody is willing to admit that they were speaking up in favour of the invasion back then. This is like a one-generation thing. And we'll see the same thing about the epidemic. This is very clear. The young people who had to carry most of the restrictions…up till now in Germany they're still forced to wear masks at school. They will have a very different view about what happened than the politicians in power. These are the things that'll evolve over many, many years. So I expect the same thing to happen. The interesting thing is really sort of back then it was more on the right end of the spectrum that drove this moral panic. Now it's moved over to the left end of the political spectrum. This is something that we're still to be investigated, why these moral panics unfolded onto the ideological spectrum as we know it. But it might be an interesting topic for the next call.Tobi;True. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.ideasuntrapped.com/subscribe

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 are lower rates of access to clean water than in equally poor countries in Latin America. There are lower levels of geographic mobility within the country, there are lower levels of nutrition because, for example, there are still ration services. So that means that, yes, they have certain amount of calories, but they don't have that much diversity in terms of what they're allowed or are able to eat without resorting to the black market. Pile these on. These are all dimensions of life that Cubans get to not enjoy because the regime has so much power to do that one thing relatively well. Let's assume it's relatively well, but the answer is, well, would you want to make that trade-off? And most people would probably, if given the choice, would not make the choice of having this. So, those who are saying, “look at how great it is,” are being fooled by the nature of what dictatorships are. Dictatorships can solve simple problems really well, but complex multivariate problems, they are not able to do it in any meaningful way.The other part that is going to be of also importance is when you look at Cuba, before we move on to China, the other part about Cuba that's worth pointing out is, I was assuming in my previous answer that the regime was actually doing relatively well. Even without considering all the criticism, it still looks like it has a low infant mortality rate. But when you actually look at the history of Cuba, Cuba was exceptional in terms of low infant mortality. Before the Castros took over, Cuba already had a very low level of infant mortality even for a poor country. And so with a friend of mine, a coauthor, Jamie Bologna Pavlik, we used an econometric method to see if Cuba has an infant mortality rate that is as low as it would have been had it not been for the revolution. So, ergo, we're trying to find what is the effect of the revolution on infant mortality and we're trying to use other Latin American countries to predict Cuba's health performance. And what we find is that in the first year of the regime's, infant mortality actually went up, so it increased relative to other Latin American countries, but it gradually reverted back to what would be the long-run trend. So that Cuba is no more exceptional today in terms of infant mortality than it was in 1959. That is actually a very depressing statement because it's saying that the regime wasn't even able to make the country more exceptional. So even if it's able to achieve that mission quite well, it's not clear how well they've done it. At the very least, they haven't made things worse in the very long run, they only made things worse in the short run. So when you're doing, like, kind of, a ledger of goods and bads of the regime, all the bad trade-offs I mentioned: lower incomes, higher mortality rates for mothers and maternity, lower rates of access to clean water, lower rates of access to diverse food sources, lower rates of geographic mobility - pile these on, keep piling them on, that's the cost. What I'm saying is what they call the benefits, they're not even as big as it's disclaimed. The benefits are relatively small.And now with regards to China…Tobi;Yeah.Vincent;The Chinese case is even worse for people because they have a similar story with GDP. So, in China, a regional bureaucrats have to meet certain targets of economic growth. Now, these same bureaucrats are in charge of producing the data that says whether or not there is economic growth. You can see why there is a who guards the guardian's problem here? The person who guards the guardian is apparently one of the guardians. So you could expect some kind of bad behaviour. And there is an economist, Luis Martinez, out of the University of Chicago. What he did is he say, well, we have one measure that we know is a good reflector of economic growth and it is artificial light intensity at night. Largely because the richer a country is, the more light there will be at night time. And so if you have like 1% growth in income, in real numbers, you should have some form of commensurate increase in light intensity during night time. If the two deviates, it's a sign that the GDP numbers are false, that they're misleading. Because if they deviate, the true number, the always true number will be the light intensity at nighttime. So, when Martinez used the nighttime light to compare GDP in Chinese regions overall and the actual GDP, he found that you can cut the growth rate of China by, maybe, two-fifths, so it is 40% slower than it actually is. So, China is not even as impressive as it is. And the thing is now think about the pandemic, think about how extreme the measures that China deployed to restrain this has been, no liberal democracy would have been able to do that, no free society would have tolerated forcibly walling people into their houses. And there are massive downsides to the communist regime in China. Like, yes, the regime is free to do whatever it wants, but it also means that it can put Uyghur Muslims into concentration camps. It also means that it can wall people into their houses when they do not comply with public health order. It also means that people are under the social credit system where they are being largely surveilled on a daily basis. It also means that the government can allocate massive resources to the act of conquering Taiwan or flexing muscles towards Japan. All things that when you think about it, is that really an improvement in welfare? Obviously, you can say that, oh yeah, they're doing X or Y things really well but here are all the bad things that come with this. And those bad things are on net much worse than the good things.Tobi;Now, you keep emphasizing liberal democracy and I want to get at the nuance here because I've seen several results. Either it is from Chile and other countries that say unequivocally that democracies are better for growth than dictatorships, even in the case of Chile, despite all the reforms of Pinochet regime. But what I want to get at is, what exactly about democracies make them better? Because, for example, we can think of Nigeria and Nigeria as a democracy. We've had uninterrupted election cycles for over two decades now, but there's still very weak rule of law. Successive governments still rely on extracting oil rents, basically. And, the degree to which people enjoy rights vary depending on who is in power or their mood on any particular day. And, of course, Nigeria is a democracy. So is it liberal democracy? Is that the key factor?Vincent;So, think about it this way.Tobi;Yeah.Vincent;Think about it this way. Inside the big box of liberal democracy, there is for sure democracy. But the part that makes the box liberal democracy is not only the smaller babushkadal inside that box which is a democracy one, it is the other constraints that we put on the exercise of political power. The true definition of a liberal democracy, at least in my opinion, is that not only are people allowed to vote, but they are restraints on what we can vote on. So, for example, if it's not legitimate for me to steal from you, it is no more legitimate for me to vote with two other people to steal from you. The act of democracy should warrant some acts that are outside the realm of political decision-making. There are also constraints that exist on rulers, so it's not just that there are some rights that are not subject to conversation. There could be also incentives that prevent rulers from abusing the powers they have. That would mean, for example, checks and balances, where there are different chambers that will compete with each other, different regional powers of government that will compete with each other for jurisdiction, and so they will keep each other in balance. It could also be some form of external constraint, because a liberal democracy can also rely on external constraints upon political actors. It could be the fact that people can leave the country, the fact that taxpayers can migrate to another country, puts pressure on politicians to not abuse them. People can move their capital out of the country, [this] creates a pressure on politicians to not try to steal from them, because people will just remove all the productive capital and the ruler will be left with very little to exploit as a result, regardless of whether or not the ruler is elected or not. So the way to think about this is liberal democracy is, you want to have a system where there are rules, incentives, constraints that make it so that we are not betting on a man or a woman, for that matter, being the correct man and woman for the moment. We care about a set of incentives, constraints, and rules that will make sure that even the worst human being possible will feel compelled or compulsed [sic] to do the right thing. So, that's like the old Milton Friedman thing, it's like “I don't want the right man. I want to have a system that makes sure that even the most horrible person on earth is forced to do the right thing.” That's what a liberal democracy is.Now, it is a broad definition that I've provided. It is not narrow in any way. It is not specific, largely because I don't think it can be what works. It's not everywhere the same. The general family to which this belongs is universal. But the way it can work is not the same everywhere. A homogeneous, small, Sweden probably doesn't need as much level of, say, breakdown of provincial versus federal powers. Whereas, from what I understand, Nigeria is a somewhat multinational country, multiethnic country with multiple groups east and west from what I understand the divide is in Nigeria. There, it might be good to have a division inside the country where things that are most homogeneous, you leave to the federal government, to the highest level of power. Then the things that you can delegate to the local level, [it is] better to do it that way. Countries that are incredibly heterogeneous maybe need even more federalism. What is optimal for one place won't work elsewhere. So I couldn't take Belgian institutions and then just dump them in Nigeria. Same as I couldn't just say, well, let's take Swedish institutions and dump them into Canada. But what makes generally Sweden work better in terms of institutions than Nigeria, for example, is the fact that Sweden does fit in that general box of liberal democracy. There are clear constraints, there are restrictions, there are constitutions that are well respected, there's a strong rule of law, and politicians are compelled to not fall prey to their own baser instincts.Tobi;  A couple of months ago, I had Mark Koyama on the show.Vincent; Great guy. He's a colleague of mine.Tobi;Yeah. So, we were talking about state capacity. We're talking about his book with Noel Johnson. So I did bring up your paper on state capacity, [in] which, basically, one description that stuck with me is that you never really find a poor, but highly capable state in history…Vincent;You mean backwards. A rich society with an incapable state?  Tobi; Yes, a rich society with an incapable state. Thanks for that. So, I've been trying to disentangle this state capacity thing, I know Bryan Caplan basically dismissed it as a sleight of hand. Right. So, like, how does it work and how is it a necessary ingredient for economic development, so to speak?Vincent; I am actually quite respectful of the state capacity literature in one way. So let me do like kind of a quick thing. State capacity says that you want the state to be able to do certain missions. Right, so we're not making judgments as to whether the mission is good. State capacity is about the abilities of the state. The reason why that literature has emerged since the 2000… here's a story of economic thought really briefly: in the 1950s, Samuelson and others show, ‘oh, well, there are market failures' and then a few years later there are the public choice rebuttals, where the public choice economists say, ‘well, you're kind of wrong. There are also government failures.' And the state capacity crowd tries to come in between these two and say, ‘yeah, there are market failures and there are government failures. How do we get a state to solve the market failures but not fall into government failures?' Okay, straightforward, good argument. The part that I'm sceptical of is that the argument of the state capacity crowd is that you will have a lot of rich societies that will have strong states, you will have much fewer societies that have strong states but are very poor (the USSR would be a good example of that), [and] you will have a lot of societies that are poor and have weak state. The thing is that they can't seem to explain why it is under their theory that there are no societies that are relatively weak state but rich. Even though in history we do have many examples of these and they collapse all the time.The argument that I make with my colleague, Alexander Salter, is that societies that have weak states will fall prey to predation because their neighbours with stronger state will try to capture their wealth by conquest. If they are conquered, they grow immensely poor, they are made poor. Basically, it's a terrible event for them. Or they resist, and if they resist ably, the result from resistance is that they have to build a strong state themselves to resist predation by other rulers. And so in the argument me and Alex build, it boils down to: the state is not necessary for development, but it is inevitable as an outcome. So, the task of political science, of political economy, is understanding if we are going to be stuck with one of them, how do we make it that we get the least terrible one? If it's not necessary, but it is inevitable, then how do we get to one that will maybe do some benefit, or at least, we can get the best kind possible? Well, that's where the liberal democratic answer gets into. [It] is [that] we need to find sets of constraints, rules, incentives that force the politicians to make it too costly for them to engage in predatory behaviour, in redistributive behaviour, and that they concentrate on what you could call productive behaviour. That would be like solving externalities. Like dealing with pollution or producing public goods stuff that markets have a harder time to produce. Getting into that category is the task of what liberal democracies are trying to do. That is a much harder proposition. Daron Acemoglu in his somewhat awful book, The Narrow Corridor, calls it a narrow corridor. (I don't like that book that much. I think it's a horrible piece of literature. He should have kept it at Why Nations Fail, we had everything we needed with Buchanan, and it was much better in the other version. He was a much worse version of that.) So, Parenthesis over on Daron Acemoglu, but his point is still relatively okay. There is a narrow corridor on which we evolve. That is a very narrow equilibrium that we want to stay on to, to avoid veering either into more territorial forms of government or into different types of authoritarian[ism], in a certain way. So the corridor for a liberal democracy is very, very, very, very narrow.Tobi; I like that description. The state is not necessary but inevitable. Whereas with the traditional state capacity crowd, the state is often assumed and never justified.Vincent;Actually, that's a bit unfair to them. The state capacity crowd, a lot of them are interested in state capacity as a story of the origins of states. That, I think, is a much-valued contribution. However, the issue of whether or not state capacity is linked to growth, I think this is where there's overstretching. My point is “no, there's very little reason to believe that state capacity is related to growth.” State capacity is more the direct or indirect result of growth in the past. So, either you are getting state capacity because you get conquered and you get imposed it by somebody else, or you get state capacity because you want to protect your wealth from other predators.Tobi; For the record, I'm not talking about your colleagues. There's this industrial policy school in development economics who are also big on state capacity, who think the state has to do this heavy lifting. They sort of assume the state and not justify it. But I won't let you go without asking you this final question. You recently published a paper - talking about the work of Thomas Piketty, the French economist - with Phillip Magness, I should say. What is your critique of his work? Because so far as I can tell, yes, I read the op-ed in the Wall Street Journal, [but] everybody else is sort of pretending that a critique of Piketty does not exist. And the political coalition around their research, along with [Emmanuel] Saez and [Gabriel] Zucman is moving rapidly apace, whether it is in taxation or other forms of agenda. So, what is your critique? I know there have been others in the past Matthew Rognlie, I'm not sure how to pronounce his last name.Vincent;Yeah. Our argument is actually very simple. And to be honest, I don't really care about the political conversation where, [for] the political people who are using Piketty's work, I ignore them. There may be a motivation for doing this work because it tells you the importance of his work, but the person I'm trying to talk to is Piketty himself. And the point we make in the paper is that he [not only] massively overestimates inequality in terms of levels, but he also misses times a lot of changes. In the article that me, Phil, another Phil, and John Moore published together in the Economic Journal, we find that there is a very different timeline of inequality in the United States. The most important part is that unlike Piketty and Saez, who can assign most of, and later Zucman… who can assign most of the changes in inequality to tax policy, we find that actually half the decline in inequality that happens between, say, 1917 and 1960, half of it is because of the Great Depression. And just as good economists, we should not be happy that, okay, the rich are growing poor faster than the poor, but the poor are also growing poor. That is not a decent outcome. So we're minimizing the role of fiscal policy and tax policy in doing inequality, but also the other changes that we find give a very different story of what matters in changing policy rather than being taxes, it has more to do with labour mobility within the United States. With capital mobility within the United States. So poor workers from the south, mostly black Americans, move to richer northern cities where wages are higher. Capital moves from the rich north to the poor south where workers are made more productive. So, the levelling has to do with a very standard force in economics - it's a Solow growth model - capital goes to where the returns are greatest, labour goes where the wages are greatest. Most of the convergence is explained by this, not by tax policy changes. So that's the critique we make of them. And there's a lot of other people who are joining in, Gerald Holtham, David Splinter, a lot of people are actually finding that their numbers don't make much sense and they're actually in violation of a lot of other facts of economic history, even though they're correct in the general idea that inequality fell; fell to 1960 and rose since the 1980. The problem is that all they got right is the shape, but they got wrong the timing, the levels, the extent of the changes. They got most of it wrong. They just got the general shape right. And that's no great feat.Tobi;Thank you so much for joining me.Vincent;It was a pleasure. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.ideasuntrapped.com/subscribe

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 Nigeria or the Sahel or West Africa because the education levels still aren't there yet. So, you know, I looked as far back as I could go to the 19th century and even the first non-European country to take off, Japan, had an adult literacy rate of about 70% by 1900 and 20 years later, they had a thriving textile industry. The education always comes first. And Korea copied that Japan model in the 1950s and sixties, Taiwan, Hong Kong, all the rest [of] Southeast Asia's followed. Now, South Asia's doing it and luckily it's spreading across Africa too. But the adult literacy is the first essential step.Tobi;One possible objection. And I haven't seen this anywhere, but I couldn't really get it out of my mind while I was reading that part of the book is that some will argue that increasing education also increases domestic wages and that is really a problem for industrializing. And, if I recall, one particular point that the anonymous economic historian on Twitter, Pseudoerasmus, made particularly about Asia, is they were able to combine a very high adult literacy rate - a measure which you use is completion of secondary education…Charlie;Yeah.Tobi;With very unusually low domestic wages. What role do wages play in your analysis?Charlie;I think that's the norm actually. It connects to the fertility thing. And I'm not sure if you want to jump there just yet, but what tends to happen when you've educated your population is that the fertility rate drops a lot. And when that happens, the number of people who have to stay at home looking after 5, 6, 7 children goes down a lot too. Women can go into the workforce and of course cause you've got the education, right? Those women are educated so they can join the industrial workforce as well. So very roughly, if we say there's a hundred people in Nigeria, 50 kids and 50 adults, let's say 25 of the adults have to be staying at home to look after 50 kids, you're talking 25% of the population can go out and work of the overall population. You go to Asia today and it's more like 70% adults, say 30% of kids.So you need maybe 15% of adults to stay at home. And you end up with something like 85% of the whole population can go out to work instead of 25%. Now, the consequence of that is a massive rise in the working-age population. And I think that that keeps industrial wages low for a few generations, in fact. Or at least three decades. Probably 40 years, where the education's come through, the fertility rates come down, you've got this huge excess supply of labour, which is then joining the industrial workforce and getting jobs. But because there keeps on being more people joining that workforce, it keeps wages relatively low. Now, what eventually happens then after a few decades is that that big increase in the workforce stops increasing as fast. We've seen this in China in the last 20 years. So, 20 years ago China's per capita GDP was about fifteen hundred dollars, $1,500.Whereas now, now the population has stopped growing. Working age population's shrinking. It's gone up to over $11,500. It's gone up tenfold. So the big reward for industrialization comes later. And we had this in Europe of course in the 19th century, you know, wages were pretty awful and industrial working was pretty awful experience in the 19th century. I mean it paid slightly better than rural subsistence farming, which is why people came to the cities. But London was a horrible place for the vast majority of people. And the industrial workhouses were terrible places as well. And that lasted for generations. It's only when that big population, kind of, boom stories started to shift that labour eventually got any bargaining power. Cause when there was too much labour coming into the market, they had no bargaining power with the factory owners. It wasn't until the 1870s that the trade unions became legal in, say, the United States. Because up till then, you know, "you join a union, I fire you," you know, could be what the factory owner would say in the United States, cause there's always gonna be another person I can employ. But once the workforce starts to gain a bit of bargaining power, cause it's not expanding quite so fast, then finally wages start to pick up. So I think what's happened in Asia is pretty normal and will probably be the experience that we've seen across Africa as well.Tobi;Inevitably this will take us into what it means to be educated, really. Because a lot of countries, I mean it's pretty much standard - they say, Oh yeah, we want invest in education. Um, we know it is important for human capital. We know how important it is to have an educated population and all that. You talked about some data challenges also for some countries in your book. So what I wanna ask here is what exactly does it mean to be educated in the sense that you are talking about in the book?Charlie;Yeah, this is a really fair question. Why am I talking about adult literacy? The definition is can you read and write four sentences in any language? Sentences like "farming is hard work." So it's not a very high threshold and I wouldn't argue, I don't think you would, that it's highly educated. It's just educated enough to put that box of jeans onto the right truck when it's going to America or Europe. But all that's doing then is taking your country's per capita GDP from your per person kind of wealth from say $500 a year, a thousand dollars a year to the kind of two, $3,000 a year level. It doesn't mean you've got the education levels you need to get to the $10,000 per capita GDP level growth or 20 or 50 or even a hundred. Um, to get to the 10,000 level, I think you probably need very good secondary school education as well.And to get to the $20,000 per capital GDP level, you're talking a lot of graduates coming out of university and you need to have that education then spreading throughout the population, both broadening and deeper education as well. And that is a process that takes decades. I mean I focused quite a bit on Korea because it was one of the most successful models and then China came along and did it even faster. But what Korea prioritized in the 1950s was getting that adult literacy rate from 35% or so, too low even to grow sustainably, to about 90% they said by 1960. So in about 10 or 15 years they got it from 35 to 90 and that was enough then to have textile mills do really well in the 1960s and they became a manufacturing country, an industrialized country by the early 1970s.But already then the government said, right, we need more engineers, we need graduates coming out of university to do heavy industry, to do cars, shipbuilding. But Korea had no cars or shipbuilding at the time, nothing significant. So they were changing the university focus from, kind of, the arts or law towards engineering and the sciences before they had the economic sectors that they were trying to promote. And then about 10 to 20 years later, all these graduates were then in the economy and ready to start up companies like Deawoo, Hyundai, Kia, Samsung. And they started small obviously in the 1980s and early nineties. But this kind of sequential thinking about it meant that Korea kept on having the right human capital at every stage of development. So my book's trying to focus on, you know, why hasn't Pakistan got all the textile factories?Why does Bangladesh have them? Why doesn't Nigeria have them? Why does Vietnam have them? And this is saying first you've gotta get that sequencing right of everybody ideally being literate, everybody having had school up to 11 years old and come out with a good standard of education. On the quality issue you just raised, the problem here is a couple of things. So I mean firstly people sometimes just make up the data and say, yes, my population is literate when it's not. But secondly, when you try and kind of shoehorn a hundred kids into one class to say, you know, they're all going to school now, but you've only got one teacher, you are not coming out with a good education at all. You might not even be coming out literate at all. So that, you know, I'm also trying to warn that governments can't do this on the cheap. Or not completely. They have to take it seriously and say, look, we actually need to make sure everyone really is coming out able to read and write. It's not just trying to tick a box to say everyone's at school.Tobi;Hopefully, we'll circle back to policy questions around this later. Let's talk briefly about electricity, which as you say, once you start investigating these factors, then you start teasing out what's what for each country. And the way you introduce that is [that] there are some countries with very high adult literacy rates but still weren't getting the benefits - like [the] Philippines, which was your example in the book. And it turns out what was missing in that particular case was electricity generation. But first I want you to make one distinction for me quite quickly. Cause it's funny, I was reading David Pilling's brief coverage of your book in the FT and he talked about the fertility part being controversial and I wonder that people miss the obvious controversy in electricity, but we'll get to that. So, now, is it really about investment in electricity that is often missing in countries that can't quite manage to get it right or the way their electricity market is structured? I know you are quite familiar with Nigeria and it's really a big, big, big debate that we've been having for, I don't know, like 20 years. So, some people will say you need very large upfront investment, possibly by the government, in generating capacity transmission, machinery and co. We argue, oh no, you really need to restructure the electricity market first. People have to pay for what they use. You need to restructure the tariff system, blah blah blah, blah, blah. What are your thoughts?Charlie;Um, big issues. And there is a debate. There're so many debates about this actually. There's the debate about whether you need a big national grid, big national generation and distribution companies or whether you can have localized electricity. Um, you are getting a couple of points though that I think it's easier to say some answers to. And one of them was to do with getting people to actually pay their bills. Certainly a problem in Nigeria, apparently, you know, discos will say that because there hasn't been good metering and despite privatization that those meters have not been rolled out. I know the government's promising to roll it out to all 10 million account holders now, but because there hasn't been metering, you can't charge necessarily the fair price for the amount of electricity people have used. So then people don't wanna pay. So then the discos are losing money, then they can't pay the generators and this then becomes a problem.And I think there is a case to say that if the generators can sell some power directly to some big companies, that could be one way around part of the problem. So in a place like Lagos, very similar to the Philippines in the 20th century, good educated population just held back by a lack of cheap reliable power. You know, I think if Lagos could have its own electricity story, it would be a phenomenally successful economy. It should be over the next three or four decades. So there is a case about how you structure this. But I found two or three things interesting when I was looking into this issue in 2018. And the first was just clarifying that it really is electricity that people need more than say transport infrastructure. You know, this is a survey the world bank had done and the only countries where they've said transport infrastructure was the bigger problem was countries where there wasn't an electricity problem because there's so much of it.So countries, where there's a load of electricity, say yes we need more transport infrastructure, but everybody else says we have to have the electricity first. So then it's a question of how do you roll that out in a way that makes money and supports development? And there is a... I think, a problem at the moment with well-meaning policies from people like the United Nations or the African Development Bank saying everybody should have access to electricity. But my point in the book is, and Adam Smith said the same thing in the 18th century, you want your infrastructure to be making money not losing money. You need to make sure that if you're going to supply people with a road or a bridge or electricity, that they can pay for it. And if you start building stuff that loses you money because people can't pay their bills, then you'll end up with an uneconomic electricity system which can't function properly and can't give industry what it needs.And what I try to emphasize in this is that every country from America and France in the 1920s to Turkey in the 1960s or seventies to Korea in the 1970s, every country has said, okay, let's make sure we've got electricity for industry first. Profitable, makes money, and then households over time? Yeah, okay, we'll connect them over time, but only when they can start affording to pay for electricity. It's not another subsidy that governments can't afford, we just can't do that. [This] is what every other country's done. But at the moment I do see this pressure for electricity systems to try and roll out universal access and so, in places like Kenya that's putting the whole electricity system under financial pressure because it's hurting their profits. And if you're trying to roll out cheap electricity to households, well how do you pay for that?Well, government subsidies partly, but the other way to pay for it is to make industry pay a high price. But if you're making industry pay a high price industry won't come. They'll go to Asia; where they get a low price for electricity. They're not going to go to somewhere that's got a high price. Cause no company's gonna say, I just wanna subsidize households getting electricity. Companies are coming to build stuff in countries because they'll make a good profit from doing so. So I think you've raised a number of issues there, you know, is localized electricity good, and so on? You know, what should you be prioritizing first - industry or households? And there's a whole host of issues. But I hope I've answered that.Tobi;Actually, that's the controversy I was referring to at the beginning of that question because the background that is, it'll be a very, very tough sell in the current political climate, for example in Nigeria, for any person aspiring to public office to make this argument that you have to power industry first. What it's going to sound like is: you are just trying to prioritize the rich and trying to exclude some people from what, like you said, has come to be framed as a universal basic right. You talk to a lot of small businesses, even individuals, like you mentioned with the World Bank Survey, the importance of electricity is so paramount on everybody's mind that if there's stable electricity, I can start X and Y businesses. I could make money and, I mean, no one needs the government for anything else. Just give us electricity.Charlie;Yeah.Tobi;So my point is practically… thinking about this practically, how do you think a sensible government that is not trying to bankrupt itself prematurely can manage this situation?Charlie;Well, I think it's hard work. Um, how did the Koreans do it in the sixties or the seventies or the eighties? They gave you no right to protest - military government. How did the communists do so well at getting this industry first, households later? How did they get it right in China or Russia? Same thing. You've got no rights to protest. "Your interests don't matter, we're thinking 10 to 20 years ahead how to make our country better off and how to make everyone better off. So you suffer now because we are gonna prioritize business." So that is one model. I'm not recommending it, I'm just saying it is a model that can be done. The other way is to allow it to be done by the private sector. And if you let the private sector roll out electricity, they will not supply electricity to people who won't pay their bills.And that is the story that you saw in western Europe, it's the story you saw in the States, and to some extent you're seeing actually in Kenya. There's quite an interesting company there called M-KOPA. And M-KOPA will sell you, well, they'll lend you, they'll lease you, a solar panel, a little one that you can put on your - actually, a friend of mine was showing it to me the other day in Uganda...they put it on the straw roof of the mud hut and that solar panel, you pay a monthly fee and after about 18 months you've paid for the panel, you've also got energy during that time enough to supply a mobile phone and so on, lights a little bit, and then it's yours and that's effectively privatizing that rural distribution story. But I think the difficulty is that politicians find it really hard to do this.And part of what I'm writing about in the book is how really hard it is for governments in a country with no savings, big population growth, to constantly meet all of the different demands. With huge population growth you're having to build new schools all the time, you have to hire even more teachers all the time. You've got population pressure, maybe, causing clashes over agricultural land like the Fulani herdsman in Central Nigeria, Northern Nigeria as well. And all of these pressures are on you all of the time. And there's constant demand to spend more on bridges, on hospitals, on education, on security. And what you can't afford to be doing is making a loss. And so I think what politicians need to do is say, we've gotta sequence this right. The same thing as with education. It's no good having a million university graduates if a country isn't literate enough to have an industrial base, you've gotta have the literacy first.And equally, it's no good having electricity rolled out to every household when there are no factories for people to go and get the jobs they need to be able to pay the electricity bill. And it's not easy. I, I totally understand it's not an easy situation for anyone to be in. The difficulty is [that] because it's not easy, too many political leaders will take what appears to be the easy option of saying, "I tell you what, let's just go and borrow a load of dollars offshore. Nigeria's going to go and issue a lot of dollar debt and we'll use that to try and sort these problems out." Kenya's done the same, Ghana's done the same, Pakistan's done the same. And the risk then is that you end up in default situations. So that feeds into one of the other chapters in the book as well.But I think it's very difficult. I think realistically governments need to say, what can we do here? And this is how long it's going to take. And it's going to be not a five-year story, it's going be a 20-year story, a 30-year story to get it right. And people, sadly, need to be patient, which is hard; when for generations people have been waiting for things to get much, much better and little progress has been made, relatively little progress has been made compared to Asia and that causes a lot of political frustration. I think.Tobi;I mean, speaking about Asia and I mean your point about taking away the right to protest, I think Africa and Nigeria sort of missed that window when we had military governments everywhere. So, uh, let me give you one experience I've had in trying to discuss your book with friends. So I get two reactions to the fertility section.It's almost automatic, you know, when you discuss fertility being at a certain level and I try to, you know, successfully argue your point, you get two strands of reactions in my experience, one goes immediately to the China issue - the one-child policy; that, "oh, so are you trying to say we should do what China did?" The other slightly more technical objection I get goes to the relationship between population growth and economic growth that is quite pervasive in the growth literature. Did you also experience that while writing the book and debating with colleagues?Charlie;Now I'll take each point in turn. Um, the China one-child policy story helps explain this massive rise in Chinese savings and then their very strong growth. What I'm trying to show in the book, of course, is that every rich country has seen a fertility decline. And what I'm arguing is probably the right sort of level for countries to aim for is about two to three kids on average. I don't care if people have five kids or one kid, it's just as a country the average of two to three kids is consistent with a very high, well, a big jump in the level of sayings. And with those savings, you can then industrialize and grow, and grow fast. Um, China I think actually made a mistake. I think China got it wrong by going for the one-child policy because they kind of turbocharged that story, that story that every rich country has got, of lower fertility, it took a really long time in Europe. I mean it took a really, really long time in Europe and that's why Europe had the slowest growth of any industrial revolution. It was done faster by the communism [they had] in Russia and they did faster growth and we've done even faster in China. But the consequence of this one-child policy and what the Chinese have discovered is it's bloody hard to get the fertility rate back up again once you've had one kid. I was talking to a Chinese professor on a plane back from Asia once and she was saying all of her friends, they can't get married, they can't stay married. They get married and they can't stay married because they're all used to being a one-child kind of princess or prince in the family who gets everything they want and then they try married life and they discover as you might well know, that you never get everything you want in a marriage, and you have to compromise.And it's certainly created a problem now that China can't get the kids, they can't raise the fertility level and it's not just China that's discovered that once you've got a low fertility rate, too low, I think of one, you have a problem raising it. Again, Italy's had the same problem, Iran, uh, Russia. So I think China did it too fast. And you certainly don't need to do it and loads of other countries show you that just aiming for that two to three kids figure really helps your economy and gets you onto the path to being middle-income and then a rich country. So I don't think you need to do the China one child. No. Um, the second issue, the population growth versus economic growth. What I show, what we did in this was we looked back at every country's growth rate since 1960 and I compared the per capita GDP growth, the per personal growth of an economy, it's the best way to measure how well an economy itself is really doing. And I compared that growth rate against the share of adults to kids that I was talking to you about a little earlier.Tobi;Yeah.Charlie;And where it's 50-50 roughly, between adults and kids, per capita GDP grows at 1% and that was the story of Asia in the sixties and seventies. It's still the story for a good number of countries including Nigeria today. So per capita GDP growth is about 1% when half your population can't work because they're kids. But once you get two-thirds of the population being adults, your average per capita growth in lower-income countries by half of America's wealth level, so not even lower-income, lower or middle-income countries, your per capita growth, and it averages three to 5% a year. So the structure of your population tells you what your per capita GDP growth is. So it's just... I can't see that there's any other way to explain this than you've gotta get that fertility rate down first before you can start to get the high per capita GDP growth. Um, and it's connected to the savings, of course; cause once you've got two kids instead of six, you're saving money in the bank, the bank starts to have more cash to lend out. There's more money for lending for investment. The government can borrow more cheaply so it can build infrastructure, roads and rail, electricity and cheap electricity cause interest rates are low cause the savings are high because most families are able to put some money aside at the end of the week. But that doesn't happen when 50% of the population are kids. They're not earning any money, they're not saving anything and the poor parents are trying to manage to feed five, six kids on average. You know, they've got nothing left at the end of the week to put into a bank.So the bank's got no cash. So interest rates are really high cause there's no money in the bank. Um, so money's really expensive. So the government can't afford to invest in infrastructure and if it does build electricity it has to charge a lot of money cause it's having to pay a lot of interest on the debt it's taken on. So to me, I've yet to find someone demolish the argument and uh, you know, it could happen.Tobi;Yeah.Charlie;But so far it seems you've got to get the fertility rate down first if you want to get fast growth. Now if you don't want to grow at three, four, 5% a year, you could do it really slowly like Europe did and you grow at say, one and a half, two, eventually, you get from European farming in 1800 to factories that are producing not great stuff by 1900, a hundred years later. But when I'm looking at Nigeria today, I don't want Nigeria to be waiting a hundred years to be doing what Europe took a hundred years to do. I also don't think the Chinese model of it taking 30 years, 20, 30 years but then having a population problem of being too old, I don't think that's the right solution either. But there's somewhere in between. At the moment though, Nigeria's on that long growth story, it's not yet ready for the faster growth storyTobi;On the China question, um, thinking about your answer there, is extremely low fertility or what they say "fertility below the replacement rate" a feature of the kind of explosive growth 30, 35, 40-year trajectory that we've seen in Asia. Because if you look at Korea, Korea even have worse demographic numbers than China and there was no draconian population policy, but it's kind of gone through this explosive growth phase that is even faster and bigger than China's.Charlie;Well, it's been going on for longer. So what the Koreans got right was they raised their adult literacy rate to, you know, they said about 90% by 1960. China, despite being communist and communists tend to say they really appreciate education, didn't get to over 70% literacy until 1990, sometime in the early 1990s, which is 25, 35 years later than Korea. Uh, so Korea was already booming in 1970 at a time when China was having the catastrophic mistakes of the cultural revolution and really bad growth and people feared mass famine. Well many, many did die in China in the sixties. So what I would argue is that Korea had a slower fertility decline and the growth rates were not as fast as China's but they've been growing for 50, 60 years already. So Korea's two to three times richer than China is today. But as you say, they're so ageing that they're gonna be the oldest country in the world by 2030.And what's gonna get interesting then, and I can't really answer this in the book cause we haven't seen it yet, but what's interesting about Korea and we're going to have to watch it carefully, is that you are going to end up with, not 70% adults and 30% kids, it'll be less and less working-age adults, maybe 60%, I dunno maybe eventually 50% and it'll be 50% kids and old age pensioners who can't work. And my guess is that Korean growth is going to slow back to about the 1% per capita growth that Nigeria's got at the moment because Korea's going to be too old. You know, and that's not something that I think people should be thinking about or worrying about. [People should be thinking about] Pakistan, East Africa, Southern Africa, West Africa at the moment. It's [Korea is] just not a...you know, that's a problem to worry about in 50, 60 years. But it is going to be interesting to watch what does happen to growth in really old countries. Um, can pensioners actually still do work? You know, maybe they end up retiring at 70 or 75 or 80, I dunno. It's gonna be quite interesting to see.Tobi;So I mean the question then is, uh, for countries that have fertility rates that are higher than what you described in the book.Charlie;Yeah.Tobi;It then becomes how do we get it to the point where domestic savings start going up, interest rate for the domestic investment environment then benefits from that virtuous cycle. You talked about access to uh, reproductive interventions like contraception, also education, which takes us to where we started this conversation from, especially the education of women and girls, generally. I was taking a look at David Le Bris recently where he was talking about equality between siblings and inequality between siblings and how it affects the overall capital formation, whether it's physical capital or human capital in the society. So my question then is, do you see individual sort of personalized household decision-making affecting this more or it is sort of a national policy thing?Charlie;When it's something as important as family, you know, the individual decisions matter a huge amount. And as I said earlier, I've got no issues with anyone doing what they choose to do. But that big family story, I was just talking to a former minister, actually, of a... former finance minister of a country and he's got five kids, he's saying that he's been able to help fund them go to university, but he can't afford to help them buy a house cause he just hasn't got the cash. And I thought that was a really interesting example of even in a wealthier country, you know, it still matters how big that family is. You know, when I looked into this on how do you get the fertility rate down and there's been quite a lot written about it. I don't have a magic or a single answer, but the theories are first: girls if they're staying at school until they're 18, versus girls who leave school at 13. If you leave school at 13, perhaps you have your first kid at 14, maybe a second kid at 17, third kid at 20. But if you stay at school until you're 18, perhaps the first kid's at 20. So already you've reduced the fertility rate by two just by keeping girls at school. And the key figure, but just kind of remind, well tell people is the key figure is at about three to four kids per woman on average, the banking system has got deposits cash in it of about 35% of GDP, at four to five kids, it's around 30, 25 to 30. At five to six kids, which is where Nigeria is, it's about 20% of GDP. Um, so 20, 30, you know, these sort of levels. If you get to two to three kids though, if you get it below three kids, it more than doubles to about 60% of GDP.That's when banks suddenly have loads of cash. When banks have got loads of cash, there's loads of lending, suddenly access to finance isn't a problem anymore. So how do you get it below three kids? So you educate girls, there's an incentive when women are educated for them to work cause they can start to make decent money in a textile factory that you can't do unless you've got that literacy. Um, the government just telling people that low fertility is a good thing is shown to have some success. From Indonesia to India, these kinds of government campaigns suggesting lower fertility rates have made a difference. The third thing, which really surprised me cause it's such a strong correlation, is [to] stop kids [from] dying. And I was pretty upset, actually, to see the numbers where, for Nigeria, you've got a 10% chance, just over a 10% chance of dying before the age of five because you're born in Nigeria. And when I was comparing that to Covid - which the world spent, what, trillions trying to fight - with a fatality rate of about one or 2%, you think of those with more than a 10% chance of dying just before the age of five in Nigeria. Anyway, it's kind of shockingly high, but when you have such a high chance of losing a child, you tend to have more children and the correlation is really quite strong. So, if you can try and address infant, [and] young child mortality rates, which doesn't cost that much, you can see countries with Nigeria's wealth level that have a mortality rate of not over 10%, but five or even 3%. And usually, countries with such a low mortality rate then have a much lower fertility rate as well. So, people tend to have less kids when they are more confident that all their kids are going to survive childhood. So, some investment in basic healthcare for children, education of girls, contraception availability, yes it does help, and government information campaigns. You put those things together and then you get a country like Bangladesh. Bangladesh which had the same population as Nigeria about 15 years ago. But today Nigeria's got tens of millions more. But Bangladesh is growing as fast as India. Bangladesh's per capita GDP is over $2,000. And it keeps on growing at six, seven, 8% every year. Because they have on average two kids per woman, they've got savings, they don't have much foreign debt because they don't need to borrow dollars from abroad to fund their growth, because they've got their own savings, because the fertility rate is low. Muslim Bangladesh: tremendous success story over the last two or three decades.Tobi;You sort of made allowances for countries that can't quite get their savings right up to the levels where they can get the desired domestic savings and really positively affect their investment environment in a big way. And you talked about debt in the book, which would be familiar to anybody that's been in the new cycle about Nigeria currently, which is that government revenue has collapsed. Debt servicing is rapidly approaching a hundred percent of what the government can collect. And it's only a matter of time before we are talking about a debt crisis. But, like you said, a debt crisis is, like, unavoidable if you're trying to grow and you don't have to requisite domestic savings to sort of mitigate that. But this inevitably brings in the question of debt restructuring which, again, some would also argue does not help you grow. So, in terms of just the sheer macroeconomics management of this, how do you go about it?Charlie;It's tough. The book's arguing, obviously, that a whole chunk of this stuff is really long term. You got to get the education right. So, you've got to have enough teachers and that takes, well, at best Korea did it in 15, 20 years. But even if you've got the education, then you've got to get the fertility rate down. And that takes at best 10 years to get it down by about two kids per woman. Nigeria's at 5.3 kids or so at the moment. It needs to be below three to have the local savings. So, we're talking at least 15 years, even if every priority was made today to try and improve education, do all this reproductive education and so on. So, the governments then have the choice of what do you do? I mean, if you're going to wait 15 years, you can grow at 1% a year per person. But you'll find the population is getting pretty cross because you've got all these other countries in the world growing at three, four, 5% per person every year. You know, why is my country growing at one [percent]? So, the politicians then...[it] becomes so attractive to go out and borrow and, you know, every country, not every single one, but the vast majority of debt defaults in the second half of the 20th century were in high fertility countries. The fertility rate I think was around, on average, five - five kids per woman was the average fertility rate in countries that defaulted in the second half of the 20th century. Wherever they were in the world. A lot of them were in Latin America in the debt crisis of 1980s. So firstly, debt crises are really common in high fertility countries because governments say I want to speed up my growth and they borrow when the markets let them.And we've certainly seen that in Africa in the last 10 years too. And then they borrow too much and then they go into default and then they can lose maybe a decade. And that is what happened in Latin America in the 1980s. But the alternative is to only grow at 1% a year. And yeah, you can avoid debt default. I'm not saying every high fertility country defaults. I'm saying almost all the countries that have defaulted are high fertility. So, you can settle for the low growth but if you don't want to settle for the low growth, the debt becomes a very attractive way to try and get faster growth. But it causes a problem. I end up finding roughly two other ways that you can try.Tobi;Okay.Charlie;And grow faster. Is it okay to jump on to those?Tobi;Yeah, go ahead please.Charlie;Yeah. First is to try and bring in as much foreign investment as you can. Cause you haven't got enough local savings, you don't want to take on too much debt cause eventually you'll default. So, you can try and make yourself very attractive for foreign investors. Foreign direct investors. The only problem with that model is that those foreign direct investors do also want their cheap electricity and the good infrastructure that unfortunately high fertility countries haven't got the money to pay for. So, it's difficult to get in a lot of foreign direct investment. Foreign direct investment in China, I was just reading a really good book by David Lubin, who's the chief economist of Citi for Emerging Markets and he did a book called Dance of the Trillions. Highly recommend, it's brilliant on emerging markets. And he says FDI suddenly started in China in the 1990s. Now, I know why. My book is explaining why I think, which is you finally had a literate population, 70% literacy and you also had the low fertility rate. So, you had the high savings, you had the good infrastructure. But the FDI didn't come 10 years before into China. It only really picked up in the 1990s. So, the point of then is, I mean yeah, try and get some [FDI] if you can, but the last option that I can see other than to just, perhaps, try to go full Stalinist, kind of communist, take control of every part of the economy. But even that still education and low fertility really helps... Um, the last option which any country can do is to run a current account surplus, I think. Have a currency level that's so cheap that you are running a trade surplus. A current account surplus, which is obviously trade plus services and remittances and so on.If you've got a surplus on that current account, you are bringing dollars into the economy and those dollars help reduce interest rates. And Nigeria saw that actually in 2005, six, seven and eight when the oil price was booming. Nigeria had that flood of dollars coming into the economy. Interest rates were really low below inflation and investment was relatively cheap and easy to finance. Now it's a problem to manage when it's a commodity-driven boom because commodities then bust. So, all that flood of money that came in suddenly disappeared again, you know, once the oil price collapsed there wasn't that current account surplus anymore. But if you run a cheap currency policy to make sure you always run a current account surplus, then that helps give you that supply of savings that you can then use to start investing. So that seems to me one of the few ways that a low-income country that's got not enough local savings, doesn't want to wait forever until its fertility rate's down [and] low enough to build the domestic savings, this is one way that looks sustainable that can bring in some foreign cash to help support growth.Tobi;But one minor aside on FDI and you can really correct me here if I'm wrong, wouldn't that really be a bit unstable? Because if you have loads of FDI, if other indicators are really working in your favour and at the slightest hint of a crisis, all that money then flows out.Charlie;Yeah. Well, I'll just differentiate between foreign direct investment and foreign portfolio investment. And, again, David Lubin's book is very good on this because the Washington consensus, which is this set of policies that were drawn up by policy makers around 1989, 1990, it said countries should welcome foreign direct investment. Building factories that it's pretty hard to move out of the country, that that should be welcomed. But when the original guys who drew up the Washington Consensus wrote down the kind of 10 principles, they weren't that keen on foreign portfolio investment. This is the hot money that will include a lot of my investors who will come in and buy shares in companies in the Nigerian Stock Exchange and might come in and buy bonds. And I think it's fair to say that that money can leave in times of trouble and doesn't really support...isn't necessarily as supportive [of growth] and that money we count on the capital account because it is foreign capital.What I was talking about on the current account surplus was obviously the trade surplus, the remittances, the services and so on. So, I think it's more debatable. I think a number of countries have restricted foreign portfolio flows into equity market or the bond market. And if they've got other things going for them, like a low fertility rate, they can kind of get away with that. Um, what I'm highlighting is that for some countries they just don't have that choice. And when America was short of capital in the 19th century, it was British capital that went over and built their railways, that bought all the shares in their infrastructure companies. The Brits owned America for much of the 19th century and then the French actually owned most of Russia. Uh, the railways and the ports and some of the industry, the coal mines [were] very significantly owned by French investors, portfolio funds, and portfolio guys are there to make money as well. You know, they're there to make profit and if you're making good profit, five, 10% a year or whatever sitting in Nigerian equity market, people will stay, and it won't leave. They'll be happy to stay there for many, many years as people are and have been doing in India, actually, since India's education fertility and electricity numbers have all come together in the last 10 years in a really good way. Foreign portfolio guys are saying, "Hey, we wanna put our money into the Indian stock market too." And Indian shares are pretty expensive right now because of that. But the money doesn't want to leave. It'll leave when policy mistakes are made but fundamentally doesn't want to leave. However, I don't deny that there is a reasonable argument you can make to say we're going to choose foreign direct investment, we're going to be more restrictive on foreign portfolio investment. Because that can be more volatile. It can leave quicker. And I wouldn't argue with that. Well, I mean we could debate it, but I think it's harder to prove that you must have foreign portfolio investments to thrive. I think the current account surplus is a better policy choice because it's in your control. Foreign portfolio investors and what they do, that's not in your control.Tobi;One question that stayed with me throughout your book, which is a bit silent in the book itself, maybe it's implied, you can tell me, is that it's really difficult to find a country at any particular point where all these three factors align at the same time. Where you have the requisite adult literacy rate, electricity and fertility, they rarely align at the same point in time in the history of any one country. Because your book did not really distinguish between any particular political preference or institutional arrangements, which I like that, but what institutional arrangement favours the consistency for all these factors to sort of come together, uh, in the economic history basically of a country. Because we know that political leaders tend to favour what benefits their ambition at any particular point in time, you know? And a lot of these things are investments that do pay off in the long run, you know? Like we talked about on savings, a lot of political leaders would want to borrow a lot of money and then leave the debt crisis to the next administration.Charlie;Yeah. Yeah. Happens a lot.Tobi;Yeah. You know, and so many other things, whether you are investing in electricity or education or whatever, they don't really want to do the hard work. They want to do the easy stuff and just leave it to the next guy.So, what institutional arrangements have you found in your observation and study of this that favours the patient consistent build-up to the alignment of these three factors?Charlie;I think it's really, um, it's kind of interesting actually because in each chapter I try and say which countries are at the right place for industrialization, education, which countries are at the right place for electricity, and which countries are at the right place for fertility. Perhaps I didn't properly bring that together in one chapter at the end to say, "so, who's the fast growth story?" But right now, the countries that have brought them together are Vietnam, India, Philippines, Indonesia, Bangladesh, and I think those five countries, Morocco actually six, um, those six countries should be the countries that will show the really good growth for the next 30 to 40 years. Um it's going to be great. And I'm then trying to highlight who's closest to joining them on a 10 year view. Um, Pakistan and Egypt both got big debt problems right now, but five to 10 years they could be joining that group as well and Ghana and actually Kenya and I would argue southern Nigeria could be, could be there in the 2030s.Um, so I am trying to say when they come together. The question you are asking, though, about institutions or perhaps leadership and so on, I think is a really important one because I guess this book in lots of ways is an argument against Why Nations Fail, which was a really interesting book; and [it] said it is all about institutions and the right institutions and that's why if you walk a kilometre across the US border into Mexico, things are run so very differently. It's got to be the institutions, that book argues, that makes the difference between a country succeeding or not. And what I'm arguing is that I don't think that's true. I think you appear to have the good institutions when everything else is running well and you appear to have the terrible institutions when you don't have the education or you don't have the electricity or you don't have the low fertility or worst of all, you haven't got any of them.So, a country that hasn't got any of them, like Niger, Chad, Somalia, you know, these are countries in a terrible place. But I'm saying that they can't have good institutions cause there's no money in the economy, there are not enough educated people in the economy. There's just no way that you're going to get a good setup in those countries. And actually, even at the beginning when, at the first 10 years or so, when you've got these things all coming together, you still don't think the institutions are good. You know, you go to India today, people don't think, "wow, this is a brilliantly run civil service. It's so uncorrupt[ed]." Such wonderful institutions everywhere. They don't say that. They don't say that about Philippines' Duterte, the president who's been just recently retired, by people who were worried the institutions found it difficult to control his populism. And yet Philippines boomed under Duterte, and India's boomed under Modi and countries like Korea boomed even with a level of corruption that means in the last 10 years we've seen four presidents go to jail for corruption.Um, so I argue that the better institutions come afterwards and that's why four presidents have gone to jail in Korea because they're now getting the institutions better. And I read a really good book about why democracies die by some American academics about three or four years ago now. I recommend it. And they pointed out that Latin America, across Latin America, they just copied the American institutions. They said, look, what's working in the Americas is North America. It's United States, they've got it right. Let's copy their institutions, we'll put them into my country, be it Venezuela, Brazil, Argentina, whoever. And then they discovered that actually if the human capital is not as advanced, people will undermine the institutions. And you arguably saw Trump try it in the United States itself, but the human capital and the rest of the place was good enough to stop him from going too far.This is all debatable stuff, but you know, this is... So, I think the institutions do work when everything else has been working for some time and before then it's very hard to argue that the institutions work or can make a huge difference. I think the fundamental economic reality of are you growing at 1% a year or three to 5% a year per capita? That isn't about the institutions. Having said all of that? I think there's no doubt that you can have, if you're lucky, very lucky, really good leadership. A leader like Lee Kuan Yew in Singapore, who has got vision, understands or is lucky, but he prioritized education and all the rest, who gets it right and takes the country onto a new path. When I think of some of the most obvious successes, a lot of them are small Singapore, Hong Kong, even Taiwan really.And maybe it's just tougher to do it in a country the size of Nigeria with over 200 million people or, or uh, India with over a billion, which is why it took India so long or Brazil. But I remember even the French president, Charles de Gaulle, I think in the sixties or seventies said, "how is it possible to govern a country with 350 types of cheese?".Um, and in India you'd say, "how can you govern a country of over a billion people with that many different dialects, different customs, different local cultures?" Um, and it is hard, but once you get these fundamentals of education, electricity and fertility right, suddenly, it looks like you can govern well. So, I want to think there is a role for good leadership, um, and it can make a difference and it does help. I just think history's telling us over the last 300 years that we can't count on luck and that lucky guy who happens to be the right leader to come in, sometimes woman who can come in, and push reform in the right way. What we can count on is that if you get the education, electricity and fertility numbers right, you will get out of poverty, you will get better off and your kids will have a much, much better future and your grandchildren even more so.So, I think that's probably one area [where] my book differs from many in the last 10, 15 years is saying, "I don't think it is so much about the things that we all like to pay attention to [like] who's going to win the next election and what are their different policies going to be?" And you know, most of the time I'm arguing it doesn't really make as much difference as we'd like to think.Tobi;Now, another point that came in the later chapters in the book, which I found interesting, and which is quite also a bit of a political issue right now, surrounds migration. Uh, a lot of Nigerians are leaving, I mean it's become even a social media trend and meme - "who is...Charlie;The Japa trend.Tobi;Who is leaving next, uh, yeah, yeah, Japa. So, like, who is leaving next, you know? Right. But you argued in the book that as countries grow richer, there will be more migration not less because what you often hear is that the reason why people are living is because the country is so bad and they're looking for a way to make better lives for themselves, which is true anyway. So, and that the way to really stop this migration wave is if you can improve the domestic economy and then suddenly you see a drop, but you are saying no, um, we are actually going to see more migration as countries grow richer. Now, how do you suppose that this can be resolved with the current, should I say, political environment in Europe and to some extent in America that is increasingly seeing migration from poorer countries as a problem, right? Is it a case of as countries grow richer, then the migration demographic just, sort of, changes to more educated people leaving and less tension and political rancour about migration?Charlie;Um, I doubt, I mean, I doubt that these political problems about immigration in Europe and The States are going to disappear. Cause we've seen election results just in the last two, three weeks in Italy with the far right becoming dominant, in Sweden as well. Where they took in a huge amount of, I think, it was Syrian refugees and before that Somalian refugees. Um, and you're trying to integrate people coming from a country with very low adult literacy into, particularly in Somalia's case, into a country like Sweden, which had a hundred percent, nearly a hundred percent adult literacy already by 1900. That's an integration process that takes generations. As America's still struggling 150 years after civil war, still struggling to manage integration. So, I think that political problem is going to carry on, but it is going to get more acute for Europe, um, and eventually United States because Europe is this aging old continent that hasn't got enough people.I was in Germany two weeks ago and there, there was a surprising number of industrialists saying "we must have a much more open border situation." I said, well, you know, that'll be really interesting to see if you do that because the backlash that we're seeing elsewhere says there is a limit to what countries politics seem ready to accept. And, I think, I even think the Brexit vote was about that. It was about the East European migration into the UK, which had the most open approach to east European countries from Poland and Hungary and Czech coming to the UK. Every other country in Europe kept in a border, well, restrictions, but the UK didn't. And I think that backfired on the UK when it had a Brexit vote that said, "oh, we have too many Polish people eating sausage in our supermarkets. And I, I, yeah, I mean really people cared.I don't understand it. I love the variety obviously, but while I don't understand, while I don't feel the same, [some] people do. So, I think that's the political problem. And even educated people who are needed by the economy might find it hard to integrate, say, beyond the bigger urban centres. I was really shocked when I was writing the book and I was looking at what happens when you've got an educated population but a high fertility rate. What happens across history is people leave. Cause there aren't enough jobs at home. Cause the fertility rate's so high, there's thousands, millions of people coming into the workforce. The savings aren't there to help create the jobs. So, they leave and it's the Philippines, you know, in the 20th century, it's Pakistanis now, where a number of people are well educated, not everyone sadly. But 150 years ago, it was Ireland, and it was Norway, and they were sending their excess population to America, and it caused huge controversy.There was, you know, rioting between, kind of, the Italian immigrants and the Irish immigrants in New York. T

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 pinpoint. But anyway, it's good. So 1990, twenty years after independence and also a transition to democratic rule after fifteen years or so of military or quasi military rule. So that's another reason people take that as a counterpoint. But it's a good counterpoint to start discussing these things. Professor Stefan Dercon, whom I think you had on your show recently, who wrote this book Gambling on Development; he has been saying that actually, in some ways, it's a Bangladesh experience which may be more relevant for many developing countries than the East Asian [experience]. And one of the reasons he mentions is, I think, what you just alluded to - that there is a certain messiness, and yet Bangladesh developed. So countries which think that they are also in a somewhat messy situation, or whatever dimensions, say in governance or other dimensions - whether it's possible for them to develop. And that's why the Bangladesh example may be more relevant and encouraging than the East Asian, where one common characteristic has been the strong capabilities of the state. In China, it has been there for hundreds or more,  thousands of years. In East Asia, yes, I'm sure they also have that but they certainly acquired that quite fast. So how do you develop in a country context where the state capacity, the governance quality are not that great, and then you have many other problems as well. So you're right. In that sense, Bangladesh may be very relevant. I think I'd like to first start with, um, even deeper history, because if you look at the region which now constitutes Bangladesh, it used to be part of a province in British India. So it was East Bengal, and then you had West Bengal and then together it was Bengal. Now there was a time in history when Bengal including East Bengal was supposed to be reasonably rich, perhaps the richest province in [the] whole of India before the British came. But if we go back to the beginning of the twentieth century, East Bengal was actually quite backward economically and in many other ways. And if you look at the political discourse in the first half of the twentieth century, before the British left, the political and intellectual discourse in what is now Bangladesh, you'll see there's a lot of talk about peasants being exploited. We were a very peasant dominated economy and society. In many ways we still are, although there has been a lot of urbanisation and industrial activity. At that time it was very much peasant dominated, and the theme which dominated the discourse was exploitation of the peasants. And the aspiration that the leaders whether political or intellectual had is how can we improve the conditions of the poor people. And that sort of got ingrained in the minds of the leaders, and that continued during the time when we were a part of Pakistan. Because you may have heard that there was a lot of disparity and there was a lot of discriminatory treatment by the Pakistani establishment. So that theme was there. When we became independent in ‘71, you could think of the political leadership, you could think of the professional leadership, the bureaucracy, the intellectuals, the media, this theme of doing something for the poor, was actually very strong. So right at the beginning, and, I heard somewhere that our first prime minister, Sheikh Mujibur Rahman, was asked by a foreign journalist: what is the number one problem of your country? And he said, I actually have two number one problems. One is food security, and one is population. And we need to take care of that. So right from the beginning, even in the midst of all the turmoil in the first few years, and all the challenges of relief and rehabilitation, work had started on ensuring agricultural growth and food security. And we were fortunate that the HYV rice, the high yielding variety of rice, had been introduced just before independence, so we had something to work with. So that was very important. And there was a strong program to bring down the rate of growth of [the] population and we succeeded on both counts. So by the time we come to 1990, agriculture is taking off. Rice production had taken off significantly, farmers were diversifying into other crops. And we had started to see the beginnings of a rural non farm sector. So agriculture and non agriculture together. And, Bangladeshis had been going out as migrants, and they're sending back remittances, most of it going into the rural areas. So there was a vibrancy in the rural area by the time you come to 1990. Secondly, sometime in the late 70s, the government decided that not only should we move away from the early talk about socialism, [but] towards a more private sector-oriented or market-oriented economy. They also understood that industry has to grow to absorb the surplus labour in agriculture, and export orientation has to grow, because the market in Bangladesh is simply not large enough. So there was an early emphasis on exports. And of course, fortuitously, you know, the South Koreans were running out of their garment quota, so they wanted to relocate some of the production to Bangladesh, but we were ready to take advantage because by then the government and let's say the elite of the class had decided that we need to industrialise and the major driver of industrialization is going to be exports. And then throughout the 80s, we saw the takeoff of the garment industry. The third thing which happened was the liberalisation of policies, mostly in the 80s. So, privatisation was done, the banking sector was open to the private sector. The agricultural input market, which was previously dominated by the government, was gradually liberalised and towards the late 80s, there was a significant liberalisation of that. And finally, as remittances started coming in, our foreign exchange constraint was relaxed. So that also gave government some comfort that we can decontrol certain things. And we can allow industry to move ahead without too many controls. So all these things coming together sort of created the context in which we entered the 1990s. So a lot of the preconditions - the population growth rate had fallen significantly by the time it came to the 1990s, agricultural growth had taken off, industry was taking off, especially the labour intensive garments, which is export-oriented, that industry was taking off.Tobi;That was such a loaded answer, which has preempted some of my further questions. But let me quickly make one digression on agriculture, because over the past seven years or so, in Nigeria, there's been this debate. There's been a huge debate about agriculture, the current administration sort of prioritised agriculture and a lot of resources (capital) was allocated to that sector. And there's been challenges and there's been critics, sometimes I've found myself on the critic's side of things. Now, what I want to know from you is that,the link between agriculture, especially investment and the agricultural productivity that is necessary for the vibrance of that particular sector, how was the Bangladeshi experience? How did Bangladesh achieve food security, especially in terms of improving yield and productivity?Akhtar;Right, so a few things. Firstly, as I said, the high yielding variety of rice had been introduced in the late 60s, and then just after independence, government continued, but more vigorously with a model of… it was more [of a] public sector driven model, where the public sector would import the major inputs. One is irrigation equipment, because this rice needed irrigation, and the other was fertiliser. So, they're imported by the public sector, then they're distributed by the public sector going all the way to the farmers. Maybe at the last mile, there were some private traders who act as dealers on behalf of the government. So, the government took that responsibility. Later on, as I said, in the 80s, they started liberalising it. We'll come to that later. Second is, there's been quite a bit of investment in agricultural research. Now the HYV rice came from abroad, but as it was being applied in Bangladeshi farms, in many cases, we realised that there was some adaptation needed, because the conditions were not always well suited for this variety. The crop conditions varied even within Bangladesh, even though it's a small country, lots of variation. Later on, for example, salinity became a problem, because a lot of water was coming from the Bay of Bengal into Bangladesh. So there are all kinds of problems - there's flooding also. There were many areas where after floods, the waters don't recede that fast, so they remain underwater for a long time. So the agricultural scientists in Bangladesh, and they were all in the public sector, they came up with innovations to come up with rice varieties and later other varieties like maize varieties or vegetables, which are better suited to the conditions in Bangladesh. And then the public sector effort was also complemented, supplemented by NGO efforts. You may have heard about BRAC [Bangladesh Rural Advancement Committee], which is the largest NGO in the world, and we often talk about their activities in the health sector, in education, in microfinance. They were actually doing a lot of work in the economic sphere as well. R&D in agriculture was one of the things that we're doing, in collaboration with the government often, so there was R&D. Another thing happened, which I forgot to mention, when I mentioned sort of the run up to the 90s. In the 80s, the government started a massive program to build rural roads, connecting the rural areas to the small towns and the small towns to the bigger towns. So,a huge rural road network was built starting from the late 80s. And it continued into the 90s, which broadened the markets of the farmers. So in all of this, the core player was the small farmer. As I said, Bangladesh is a peasant, small farmer dominated economy, so it is remarkable that these farmers were willing to innovate, they were willing to move away from what their parents and grandparents had done for many, many years, and adopt these new varieties. So the combination of the government with some NGOs and the farmers, I think that created the basis for productivity improvements in agriculture. And that was sustained because the market was sustained. There were lots of public policies. And at some point, when the government thought the public sector delivery model was not working that well, they allowed the private sector to come in.Tobi;I don't want to infer anything, but from your answer, I can tell what Nigeria is doing wrong, but maybe we'll get to that later. So let's talk about the conditions, which you've also sort of answered for me but I want to know if there is more. Dercon in his book, I'm talking about Professor Stefan Dercon, talked about elite consensus that sort of becomes the bedrock of deciding to pursue economic development. So this broad consensus amongst the Bangladeshi political elites to improve the conditions of the poor, and, which, I'm speculating sort of enabled an ecosystem of policy consistency, even if there are deviations at the margins, how did it emerge? And how was it sustained?Akhtar;Okay, as I had mentioned to Professor Dercon ‘cause I also had a conversation with him for our Bangladeshi group. And I said that – and, he agreed that, it's really difficult to define if there was an elite consensus because it's not that the elite are sitting in a room discussing and bargaining and one day they come out and say, okay, here is an agreement, we have agreed on these three things, it doesn't happen. And there is a bit of tautology in his book as well. And he agreed with that, that in his country chapters, he says, these countries had an elite bargain. And then he says, Okay, this is how the countries grew. And if they have grown, therefore, they must have had a bargain. So there's a bit of tautology there. But coming back to this, I think, I started giving you a flavour of that when I brought in history, even before the British left and how in East Bengal, there was this deeply ingrained feeling that something has to be done for the poor people. And then just after independence in ‘74, we had a big famine. And that sort of strengthened this feeling amongst Bangladeshis. And you know, you mentioned the word elite and it's a bit difficult to define the elite. I would say that it's a broader… I'm talking about people who can influence policy, both the formulation and the quality of implementation. There are a lot of people in the bureaucracy who may not, in that sense, be called part of the elite, but they do have some authority. Now, most of these people, they actually are not too far away from the poor people of Bangladesh. Many of them still have very strong connections with their villages. They go back regularly. They know what the conditions are there. And in a densely populated country like Bangladesh, you see poverty all around you. So all these things, I think, have ingrained in the minds of the elite, however you define it, this commitment to doing something to safeguard the interests of the poor, but that is the security side - food security, [to] address the vulnerability. But somewhere down the line, people started recognizing that Bangladeshis also have an entrepreneurial potential. And there was a feeling that we should try and help unleash that potential. So, as I said, it's difficult to pinpoint a particular period where there has been a consensus but in a subtle way, there has been this consensus that to achieve food security, to help take advantage of the latent entrepreneurship of Bangladeshis, we should be focusing a lot on growth and more generally on development. And that has survived the transitions in administrations, from one government to another, that common element has been there.Tobi;It's not exactly a push back, and I should note that there is a lot more; there's vastly a lot more to Bangladesh than Dercon's book. So, and I don't want to be caught in debating his book. But, why I find that particular line of thought relevant is that, from what you have described, it's amazing to me, so maybe you can help me understand the difference. Now, how a country can set out to do some of these things; invest in agriculture, agricultural R&D, and all these other support programs with big macro effects. Whereas a Nigeria can set out to do those same things and then you find divergent outcomes in their implementation, particularly the inability to execute. You know? There's always a plan. We want to improve the lot of the poor. We want to invest in agriculture. We want to improve productivity. We want to build infrastructure, you know, this, that, they are always so nice and interesting. But the difference is always at the end of the day, countries often don't do these things, right, they never stay true to these things. And of course, we can talk about various reasons why it fell astray - corruption, state capacity, and all that. But what I… which you mentioned in your last sentence [is] how policies survive, even though there are political transitions, election cycles come and go, the particular direction that policy goes, survives this transition, I think that's really what I'm trying to get at.Akhtar;Okay, so I don't know that much about Nigeria. Now, people say that the fact that you have natural resources may have been in some ways a curse, I don't know if it's true or not, but certainly, that sometimes gives governments a sense of complacency and therefore, even if they start on a certain course, they may not have the discipline to stay that course. Now Bangladesh, we never had the advantage of having natural resources. Nowadays, certain things have improved, you know, foreign exchange reserves have been at comfortable levels for several years. So, that may induce a certain degree of complacency, but for a long time, the government knew that we were operating with very narrow degrees of freedom. So that was the context in which Bangladesh had to operate. Which also meant that we were somewhat dependent on donors and that certainly imposed an additional set of disciplines on Bangladesh. But later on, I may come and comment on exactly the kind of relationships I think existed between donors and Bangladesh. But maybe the best way to answer your question would be to say a little bit about the way in which policies have evolved in Bangladesh. And in a sense, it's a bit of a “muddling through” process. And I wrote a blog for the Brookings Institute a year ago, where I said that Bangladesh did it, alluding to that famous song of Frank Sinatra - “I did it my way.” So what was that “my way?” We all know that the Bangladeshi Government has never been tremendously competent, there's always been corruption problems as well. So the way it has happened is the following. Things happened in the economy, let's say agricultural productivity is improving. But then it hits certain constraints, and the economic actors, or people acting on behalf of the actors; like academics, donors, journalists, will bring up those issues. And they will probably say that, “here are ten things which need to be done.” Now what the governments in Bangladesh have done, successive governments, [is] they have responded to that, not by doing all the ten things. No. They may have picked up two or three things. And they may have done a little bit. Why a little bit? Because they were risk averse. They wanted to test out what would happen in the market, how the market players respond. [As the government], if I do just three or four things and not everything, and then see the response…and here comes the entrepreneurial side - the response was usually quite good, and when the response was good, the government felt encouraged. And then the government said “okay, let's do a few more of the things that were demanded.” The other thing which happened was, as the response came, newer constraints were revealed, or constraints which were not binding before became binding. For example, initially when the agricultural growth was not that great, when production wasn't that huge, the fact that we did not have a good rural road network connecting the rural areas to broader markets wasn't that big a constraint, because you're not producing enough to go out in a big market. When you started producing a lot of marketable surplus, you needed a broader market. And that's when you started feeling the constraint. And people started talking about the need to build up the rural road network. And to the credit of the government, they responded. So, this is what I call the sort of back and forth, policy dynamics - things happen in the economy, government notices it or it is brought to their notice, they react not in a grand way, just doing a little bit here and there;nd then the market responds, may be much more than in many other countries, because of the entrepreneurial spirit, and then the government responds. And that process has gone on uninterrupted throughout the last fifty years. And so, once you accumulate, even if these are modest steps, once you accumulate all of that, you'll see a tremendous result. And that's what we're seeing here. So, what it means is countries – the governments don't have to be very competent, they just have to pick the signals. So, you know, you have this phrase called “picking the winners” and a lot of people say, no, governments should not be in the business of picking winners. I say, in Bangladesh, that what the government just does is pick signals. They've picked signals from the private sector, from the farmers, and they have acted accordingly. And I think the accumulation of all these, the synergies created by all these is, I think, what has made the difference.Tobi;That's interesting. So, generally, the usual story with development is structural transformation. That is, for you to grow rich, the economy has to transform from a largely agrarian, low productivity economy to preferably an industrial high productivity economy. And, I mean, to an extent, we've seen the same process also in Bangladesh. Manufacturing, particularly the garment industry, is eighty or so percent of exports and employment is largely created also in that industry. Now, what I want to ask you is, the role of foreign direct investments in that cannot be understated. You talked about South Korea earlier, and how it played a role in that. For South Korea, so many other scholars would cite the role of Japan in kickstarting the South Korean garment industry; garment and textile industry itself. So, my question then is, is there a link here? I mean, also in your columns, I've read about the role of Samsung, and the electronics industry in Vietnam. Right. So the role of FDI in development, and especially getting industrialization started, what are the favourable conditions? To what degree is it external and internal? I guess that would be my question.Akhtar;Okay. Well, you use the term kickstarting, because in Bangladesh, in the garment industry, a foreign investor helped kickstart that industry, but didn't do much beyond that. So, Bangladesh's Government has been largely domestic…[it is] a case of domestic entrepreneurship leading the sector to the heights that it has achieved now. Yes, we have some Export Processing Zones where we have a number of foreign invested garment factories, but the bulk of it is domestic entrepreneurship. But you're right. The initial thrust came from this partnership with Daewoothe IU. It was a five year partnership. Daewoo trained Bangladeshis, (they) took them to their plants in Korea, trained them. They obviously had the market connections and market knowledge, all that was very useful. But what many people don't know is that the Bangladeshi partner actually quit that agreement just one year into that five year period. So after one year, he thought that he had learned everything that needed to be learned. Now, if he hadn't done that, I believe Daewoo had other plans of coming into other sectors, which we may have lost. But then we did end up with this vibrant mostly domestic-owned garment industry. But foreign investment had a role in jumpstarting that. If you go a little beyond industry, think about sectors which facilitate industry. The entire mobile phone development in Bangladesh, which is also remarkable, was foreign investment led. So, foreign investment played a major role there. So, I agree that foreign investment can play an important role in kickstarting industries, and that is something very important now that we want to diversify our exports, make them more sophisticated, we can come to that subject later. Now, you asked me about what are the conditions which are conducive for foreign investment. And this is where I would say that in Bangladesh, the conditions are still not that conducive. In the case of garments in the late 70s, it was the exhaustion of the South Korean quota of garments, which was the major inducement for them to come in. But also, as I said, the new government, which came into power in ‘75 was talking a lot about export promotion. So, that was there. But the most important constraint that Bangladesh faces, and it's true of many other countries, is policy and regulatory uncertainty. So, Bangladesh often says that we have got a policy regime which is very friendly to foreign investors. And that may well be true. But the execution has problems. And there are a lot of case by case decisions which are taken, which affect the foreign investors adversely. And that creates uncertainty. And those stories are told to other prospective investors. And when they hear those stories, they get discouraged. And the World Bank where I used to work, in fact, the last unit that I worked on, they did a survey of CEOs of multinational corporations just a few years ago, asking them about what are the factors which are very important for you when you decide to invest or not invest in a country, and policy and regulatory uncertainty was top of the list. So that is where Bangladesh still has got a lot of work to do. It is attractive in many other ways - very large domestic market, relatively cheap labour, the labour is quite fast at learning, a lot of good things there. But I think the policy environment, particularly the implementation, the certainty, that has to be ensured.Tobi;I have a further question, particularly on that point, and referencing another one of your columns, I think I'll just stick to your columns today for all my questions. For example, in Nigeria, I'll give you an example. In Nigeria, recently, foreign airlines are threatening to quit. Over the past three, four years, foreign investment (FDI) has plummeted. It's barely a billion dollars, currently, one of the lowest even in Africa. And of course, a lot of these things you mentioned are the problems that investors and business people talk about - policy uncertainty, especially around the control of the exchange rates and inability of companies to repatriate their capital, and to fund their operating expenses, and so forth. So, I mean, that's one constraint. But one distinction you made is like the types of FDI. There are different categories of FDI; market-seeking FDI, natural resource-seeking, efficiency-seeking [FDI]. And the reason I'm asking this is that there seems to be one problem, which, to my mind, Bangladesh has solved, it's not perfect, that Nigeria is struggling with, which is this inertia to get things started, you know, once you start on a journey, you can muddle through, but the inertia to get that process going is still something that Nigeria struggles with, in my opinion. So, now talking about FDI, if I were a policymaker today talking to you; advise me, what kind of FDI should I prioritise in trying to lure investors into my country, for them to create jobs and [create] a nest of high productivity manufacturing industry? So is it market seeking? Is it natural resources seeking? Is it efficiency seeking? Which one is the best in terms of the necessary incentives for sustainability?Akhtar;Okay, so one of the articles, not as part of the regular column, I think, but I wrote for the same newspaper a few years ago, was titled “investment for what?” So that's a question the governments have to ask. Because everyone talks about attracting FDI. It's a mantra all over the developing world. But governments need to ask why exactly do we want FDI? How is it aligned with our development aspirations and development programs? I wanted to just emphasise that because often governments just go blindly trying to attract foreign investors. And whoever comes in, we welcome that. That's not necessarily a good strategy always. For example, in Bangladesh, if we now have a lot of foreign investors coming in, to make jeans and T-shirts, using the same technology as before, we don't really need that, we can't afford to give our scarce land and utility and other things to do things which our domestic entrepreneurs have become reasonably good at doing. So it has to be something new that comes in. Now, at the same time, we also have to recognize that the foreign investors also have their own interest and their own calculations. So we have to come to a balance between the two as well. Now, it's difficult to say a priori that we prefer market-seeking or efficiency-seeking. On a natural resource, it's a slightly different issue if you have natural resources, and if you don't have the capacity to develop them yourself, you may need foreign investors. And obviously, we all know why foreign investors are often very attracted to that. But let me confine my answer to the choice between market-seeking and efficiency-seeking. Now, let's take the case of Bangladesh. We are now talking about diversifying our exports. And we are talking about going into more sophisticated products like electronics. If that is our objective, we may want to target some people who come and make electronics. Now they may come for two reasons. Bangladesh has a huge market, our per capita income may not be that high, but our total economy size is actually pretty large. We are amongst the top 40 economies in the world. And if you look at the size in the purchasing power parity terms, we're actually in the top 30. That's a very large economy. So, naturally foreign investors would come in looking at the market as well. But if our objective in this sector is to make a breakthrough in the global value chains, and not just serve the domestic market, then we'd like to have foreign investors come in with an efficiency-seeking objective that, in Bangladesh, we can make these things more efficiently, at lower cost, than in other places. So that Bangladesh then can ride on the backs of the foreign investors, who know the markets, who have the brand recognition and show the world that things can be made efficiently in Bangladesh. And, then once we have shown that with the help of foreign investors, maybe Bangladeshi entrepreneurs can also start doing it. So here you see I give you an example, where you have a strategic objective, and you attract foreign investors of a particular type. Now, there are also many needs in the domestic market. Bangladesh needs to develop a very good logistics system. And we may need foreign investors to come in and invest there, but will be more market-seeking. I mentioned the case of mobile telephones, that was not an export-oriented industry, although it may have facilitated exports, that was domestic market-oriented. And we encouraged foreign investors to come in, who were obviously coming in as market-seeking investors. So the answer would vary depending on the sector or the activity. But that brings me back to my first point, the government should have a clearer idea of what is the role of foreign investment in implementing the various dimensions of your development strategy. And accordingly, you're going to target efficiency-seeking investors in some cases, and market-oriented investors in other cases.Tobi;So, now, from a policy perspective, because really, that's what's sort of dominating this conversation. One thing that keeps coming up is the role of government, the strategy it pursues, you know, this, that. But inevitably, that leads to the question of what… in terms of economic development, what role does the government play by itself? Now, China, and, of course, other East Asian economies are very, very popular in the development discourse and these are largely autocratic governance. Right. And, to an extent the gospel of state-led development has travelled far and wide, sometimes in contrast to what is generally called the neoliberal or the Washington Consensus-type policies. But at the same time, at the nexus of all this is the role of markets, how the economy is regulated, liberalisation. How does a government approach regulation and policymaking generally, with the right incentives for the government to take the lead in areas where, maybe because of access to market or not seeing the prospect of returns, private actors are reluctant? And also at the other end, this sort of control, excessive control, that you see in so many developing countries, like Nigeria, and so many others in Africa, where government sees itself as the primary player in the economy, right? What is the balance? What is the heuristic generally, in trying to, [or] should I say, make policy and regulations to encourage economic development, and, of course, your Bangladeshi experience of that?Akhtar;Okay. So, when you say state-led, there are many ways you can define that. One is the direct participation of the state in productive activities. And in China, that is still pronounced, there are different models of state-owned enterprises, including public private partnerships, but the state plays a dominant, or at least an important direct role in the production of activities. That's one thing. The other is playing a direct role, not in production, but in things that facilitate production. So I had mentioned the case of research and development in the agricultural sector of Bangladesh, which was there right from the beginning. It was largely a private sector activity, but that was meant to facilitate productive activities by the private sector, in this case, thousands and thousands of farmers. So, the whole spectrum of things that the government does and, of course, there is the whole regulatory function of the government. And I think in choosing the balance, and the balance itself may shift over time as the economy develops. And I give an example of that, again, from the agricultural sector of Bangladesh, how the government moved away from the direct import and distribution of agricultural inputs, giving more and more space to the private sector over time. So initially, in the 70s, maybe that was the right thing to do. And then later on, the right thing to do was to withdraw and create space for the private sector. So the balance, (a) has to be thought of carefully, in terms of the capacity of the government, that's very important. And, again, if I [could] mention Stefan Dercon, he talks about the self awareness of [the] government. Are governments aware of what they can do and what they cannot do? And that answer would vary by country. Often governments make the mistake of thinking that they can do a lot of things, and therefore they; (a) go into productive activities themselves directly, and (b) also controlling too much the activities of the private sector. Controlling is not that easy. It requires a lot of skills, and many governments actually don't have the skills of doing that. The thing that may have happened in Bangladesh is the government has been more or less self aware, not always, but more or less self aware of what they can do and what they cannot do. And that has led to a certain division of labour between the government and the private sector, and the NGOs. With that division of labour also changing over time. That's very important. So the government needs to be aware of where its capacities are, and they need to also have some faith that the private sector, if given the opportunity, can come and do certain things. Because governments often say, okay, but if we don't intervene, the private sector is not going to come in. Or we have a big factory, if we close it down, then a lot of people will lose their jobs, and the private sector will not be forthcoming to create jobs for them. If you want, I can give you a good example of that kind of thinking. In Bangladesh, we had the world's largest jute mill called the Adamjee Jute Mill, and it was bleeding like hell, and every year the government had to subsidise. So there was lots of debate on whether the factory should be (a) privatised, and there was no taker, then the question is whether it should be closed down. Then, about 20 years ago, exactly 20 years ago, a very bold decision was taken to actually close down the factory. It was a controversial decision. About 26,000 workers lost their jobs. Some of them were ghost workers, maybe 20,000. Now the story of what happened after that is very interesting. That land was converted into an export processing zone. And now the latest figures are that about 65 to 70,000 jobs have been created there. So you had lost about 20 [thousand jobs] and you have created so many. These are all private sector firms, they're all export oriented firms, the government doesn't need to subsidise them. So you can see once given the opportunity what the private sector can come and do. So you don't have to hold on to a loss making enterprise just because you're worried about job losses.Tobi;Let me sort of ask you a big picture question on this particular point, which is the role of democracy in development, generally. Democracies have been taking a beating recently, so maybe you can speak up for it, somewhat. Do you think democracy has some kind of unique weakness in terms of trying to engineer economic development, particularly because of elections? I mean, to cite the example of the jute mill you mentioned, some regime that is sensitive, maybe in an election year, or maybe that wants to appeal to a particular constituency, or, maybe workers Union or something might actually kick the can down the road. An example is (fuel) petrol subsidy in Nigeria, which the bill keeps increasing, but I mean, each government promises to remove it or reduce it, and then kicks it to the next government because nobody wants to annoy the workers union, nobody wants to lose votes, the party wants to remain in power, you know, and these incentives that are common in democracies. So, do you think this makes democracies weak in a way, in trying to develop the national economy? Because a lot of people will say that's why China has developed much faster than India, for example. What's your take?Akhtar;Okay, let me start by giving you an anecdote. So this is from about I think it was 2008 or so, 2007 maybe. Bangladesh then had a quasi military government, it was called a caretaker government, whose major responsibility was to conduct free and fair elections. So they were in power for about two years. And I was actually working in Bangladesh at that time. And we had, I think we had a natural disaster, or maybe we had floods. So conditions were pretty bad. And one of the… well, they were called advisors, but they were de facto ministers, who was having to deal with this problem of getting food to poor people, dealing with rising prices [and] all that; he said to me, “I can feel a certain handicap being part of this kind of government.” What is the handicap? Right now what I need a lot is information from the grassroots, I need to know what is happening in different parts of the country, and I need that information very fast. I need it right now, about what's happening earlier today, or what has happened yesterday. Fortunately, I have some connections in the NGO world, this gentleman was an academic. I'm getting some information. But if this was a political campaign, I would rely on my political network, my workers, my small town leaders, and within a few hours, I'll be getting information from all over the country on what the conditions are. Now, why do I mention this anecdote? Because in a democratic system, your feedback mechanisms may work very well. Yes, there can also be a lot of noise. But otherwise, the feedback which is very, very important for government, they need to know what's going on throughout the country with different groups of people, with different localities etc. That is something that autocratic governments lack. Yes, information flows, flows from lower level bureaucrats, but I'm sure they are modified on their way. Because, the boss often doesn't want to hear certain things. It may happen in political democratic setups, but generally, the flow of information is much better for politicians. Now, how they act upon that information is another issue, but that's very important. Secondly, politicians operating within a democratic setup, (a) they develop a lot of empathy, because of their interactions with people, [b] they also get a good idea of what the trade-offs can be. And these are very, very important in decision making. So those are the good sides of democracy. Now, yes, in democracy, you also need to cater to your political constituencies, and that may lead to certain decisions, which technocrats may feel are sub optimal. But that is the price you pay for democracy. Compared to the gains for having a democratic system, that is sometimes a small price to pay, although sometimes that can get out of hand. But if it gets out of hand, it's usually where you may in name have a democracy system, but in practice, you don't. So the kinds of disciplines that democracy imposes on the government are lacking there. So that is my answer. Now, as you can see, implicit in my answer was some definition of democracy. It's not just about electoral politics. It's not just about having regular elections and free and fair elections. It is the monitoring mechanism. Are governments picking the signals, are they getting the information? How wide is the information that they're getting? That's a very important characteristic of development.Tobi;So another one of my sort of big picture questions to you, and in this case, using the Bangladeshi experience and example, is, in the last couple of years, there has been this big debate in development over, oh, do you prioritise the big things or the small things you can measure? You were with the World Bank, I'm sure you have some familiarity with the so-called empirical revolution and how it has sort of taken over the field of development economics where, yeah, there is a lot more preference in terms of international aid funding for interventions, things that you can measure. So, the RCTs, or, whether it is conditional cash transfers, and all these things – and the atmosphere with which this debate happens sometimes, personally, I find it frustrating because it makes it seem like a zero-sum kind of thing. Like, you can either have one or the other. You either pursue growth, or you forego that and choose to do all these small scale, local and domestic interventions. But Bangladesh, like you mentioned, the issue of BRAC and also people like Naomi and co. have written about – Naomi Hussein [that] Bangladesh managed both. There was a sort of productive combination of both frameworks, that is, the role of non governmental organisations who were able to provide some support for the rural communities. And of course, there was the big macro policies that were explicitly designed to pursue economic growth, get businesses going, create jobs, you know, and all the other things that happen in the private sector. So, my question would be, how did that sort of synergy happen in Bangladesh? How was that cooperation, so to speak… I mean, you talked about the role of BRAC in R&D and agriculture, you know, how did that happen? How did, perhaps, it wasn't intended, but in practice, how does it work?Akhtar;Okay. Let me start by recounting something I heard Abhijit Banerjee, the Nobel laureate, who got a Nobel prize for his work on RCTs, said something about the rationale for going into RCTs. And he's saying that the kinds of interventions that we talk about in the context of RCTs, they're not the only interventions that bring about development. In fact, the most profound development impact may come from other kinds of interventions and policies, and other factors. But his point was that, let's say, as a development practitioner, we are not able to influence these big things. So I'm going to focus on the things that we can influence. So I'm doing a project here, a project there, and we can change the parameters of the project in certain ways that we achieve the most significant impact. And how do we change the parameters or what parameters we choose or how do we design the project? That's where randomised control trials can give us very useful insights. And we can get more bang for the buck from the development expenditures in those kinds of projects. Now, he never said that that's all about development. There are many other things that need to be done. And governments, in their collective wisdom, may have a better idea of what those things can be. And that's different from a particular project team trying to do a project. They won't have all that knowledge, which can lead them to think about much bigger things, but governments can; not perfectly, but governments can. Or large organisations like BRAC can within certain spheres of operation. So, yes, I agree with you that this is a false dichotomy, that you either completely forget about RCTs or you get completely immersed into RCTs. So, one has to find the right places where the randomised control trials, which are after all an instrument, one of the tools in your toolbox… which is the best time and place to deploy it. I would say in Bangladesh, yes, the scope for applying them is more than the actual application so far, which means that we have a scope to improve the efficiency and effectiveness of public spending by using these techniques judiciously in certain areas. Now, coming back to, I think you mentioned the question of BRAC in the context of R&D, but also BRAC has played an important role in market development through their social enterprise world. So, as I said before that the part of BRAC's work which is not discussed much is the work on the economic sphere. So what happened there? I'll just give one or two examples. I think giving concrete examples is the best way to illustrate this. So, they got into, let's say, they got into dairy [farming]. Actually, the way BRAC started most of these activities was from a livelihood concern. They wanted to create livelihood opportunities for the poor people in the rural areas of Bangladesh. So they said, okay, we have dairy farmers whose incomes are limited, we want to do something to help enhance their inputs [output]. So they came up with certain small interventions, which helped improve the productivity of their dairy farming, and they ended up with more production, then they had a problem. Now, milk is not something that you can preserve for a long time, you need to have some cold storage facilities, some refrigeration facilities, and that was lacking. So a lot of these increased output was actually being wasted. That led BRAC to start thinking about what else it needs to do. So then it went into refrigeration plants. So, they set up refrigeration plants, where the dairy farmers would come from adjoining villages and store their milk. And that led to other things also down the road. So there are many examples of BRAC where they went into a certain activity, they went into poultry, for example, and then discovered that there isn't a good supply of day old chicks, which is an important ingredient in poultry. So they went into that. And the interesting thing is, in many cases, BRAC was the first one to go into that, later the private sector came in and came in in a big way. And when they did, BRAC withdrew. Because BRAC thought, okay, we have played the role of a pioneer, we have catalysed the entry of private enterprises, we can now withdraw and attend to certain other things. So what's going on here? What's going on here is, you have value chains, which are underdeveloped - there are gaps in the value chain. And one aspect of development is to make the value chains more complete. And here you have an actor, BRAC, which has entered the market… [enters] one part of the market, trying to do something, discovering that there is not much it can do unless it intervenes in other parts of the value chain. Well, it can do something but the impact will not be that great, so then it intervenes. But at one point, it realises that other players who are better at scaling this up have entered the field so let me withdraw. So judicious entry, and judicious withdrawal. And that is also true of the government. It's also true of BRAC. I think that's the kind of dynamics of development which is very important. And somewhere there, yes, you may have some trials, which may be randomised control trials, it may be just informally observing from your own experience of what is working, what is not working, but this idea of learning by doing, learning by doing, the government has done it in Bangladesh, BRAC and other BRAC-type institutions have done it. The private sector is also doing it.Tobi;The last of my big-picture questions to you is– Another dichotomy that I have observed is the business cycle concerns of an economy and policy and these sorts of other long-run development growth policies. For example, in Nigeria, it's a common refrain that we had growth in some years, but we never really had development. Income didn't grow as fast as GDP, and growth has been cyclical, it's not sustained. And some of the issues that really plague governments and policymakers is that even in trying to make policies that are tolerant and favourable to long-run growth, there are short term issues that you have to deal with [like] foreign exchange policy, inflation, and sometimes I've heard people say that, Oh, as a developing country, you have a lot more tolerance for inflation than developed economies. I think you'll have to tell me whether that's true or not. Because inflation does not happen in a vacuum, it affects the purchasing power of people, poor people even more so. Right. So how do policymakers in growing countries manage these tensions in terms of – and, I'm working my way through your book with Gustav Ranis on this – how policymakers mine through these everyday concerns of the economy, versus the long-term prospects and the projects you are trying to put forth as a government?Akhtar;Okay. Well, since you alluded to that book, I will first briefly mention the main theme of the book, and then come to this specific [question]. The main theme of the book, which we illustrated through a comparative study of East Asian countries and Latin American countries, [was that] we talked about the East Asian pattern of government behaviour and the Latin American pattern of government behaviour. And the period covered was from the mid 60s to the mid 80s so things may have changed after that. And in any case, it's difficult to talk about (a) East Asian pattern, and (b) Latin American pattern. But what we were talking about is that during the course of a business cycle, or terms of trade cycle, as your terms of trade improve, your foreign exchange reserves go on increasing, obviously, growth accelerates. The question is what does a government do when things are good? Do they let growth accelerate according to some normal – “normal trajectory”, or they get excited, and they try to push growth beyond the “normal trajectory”-- making it higher than what the good times normally would make it? So, in the “Latin American” scenario, when things were good, growth was happening, government wanted to have more of it. So they went for expansionary fiscal policies, expansionary monetary policies to push growth beyond what the natural trajectory is. And then inevitably, because we are talking of cycles, inevitably a time came, where things started going down. And conditions were not as conducive as before. At that time, what the East Asian countries did– but first– they never tried to artificially push growth above the natural level. When the downturn came, they allowed the growth to fall. So they went for contractionary policies, they allowed the growth to fall. But in the Latin American scenario, having pushed growth beyond the natural path, it's almost like being intoxicated, you could not get rid of that habit. So, you try to artificially maintain growth even though the signs were all pointing downwards. And then the time came when things just crashed. And you fell into a deep crisis. Whereas the East Asians, they had their ups and downs, but they didn't have a serious crisis at that time. They had later, but not at that time. So that was the main thing about how you conduct your policies during the upturn, and then also during the downturn. Now, coming back to the specific situation like the one we observe now, when there are many economic challenges facing countries, and what can governments do to ensure that the course on which they had been before the crisis started, or the challenges started, and hopefully it was a course of development, how can they stay on that course as best as they can? First is, governments should look for existing inefficiencies. For example, in your public expenditures, there may be a lot of inefficiencies, and if you can identify those and get rid of those [inefficiencies], then you can bring things under control in the context of the challenges without sacrificing growth. Most developing countries, including Bangladesh, do have inefficiencies in their public expenditures. So the question is, do you target those inefficiencies and curtail them? Or, do you target those parts of expenditures which are actually very useful? So that's number one. And that's why we often have this phrase, “don't let a crisis go to waste.” Because a crisis can often focus attention better than good times can. And a crisis can also create the political and social consensus to take some tough decisions. So that's one thing. Second is the importance of social protection. And we must remember that for people at the margin, and in our kind of countries, Nigeria, Bangladesh, a lot of people are still at the margin. Even a small shock which takes them below the threshold is not a temporary damage that after some time they can come back [from], often it's a permanent damage. They have to sell off their productive assets, which means even when things start improving, their conditions won't improve. So that's why it's very, very important to have good social protection systems in place.Third, coming back to a point I made earlier, it's very important to have good monitoring systems. ‘Cause we really want to know what's going on, how the lives of different people across the country is being affected by the tough conditions in which you are, without that your policies will be suboptimal. So that monitoring is very, very important. And it's very important to engage different stakeholders in society. And for two reasons. One is part of the monitoring, because economists, business people, journalists, and others, would know a lot beyond what the government knows and it's important to tap into that knowledge, but also to build consensus about some of the tough decisions that need to be taken. So, at the end of the day, it is a lot about governance. It's a governance challenge that countries face when they're facing an economic challenge.Tobi;My final question to you, I have a couple of other questions, but… from a policy-making perspective, how do you then make knowledge count? Because from everything you have talked about, the role of knowledge… which takes me back to where we started, you know, talking about agriculture. The role of knowledge is actually very important. But you have situations where you can have knowledgeable people in government, world class economists, and the government itself might be making policies that are clearly wrong, which means there's a disconnect somewhere. And I mean, in Bangladesh, it's often talked about how there is a policy knowledge ecosystem that informs the public and shapes their accountability and expectations, and also informs policymakers at the other end of that spectrum. How does a country build and nurture that? Especially, how does knowledge of, whether it is knowledge of economics, whether it is knowledge of society and other programs, how it transmits to the key decision makers, and influence some of the actions or policies, or regulations, that are taken? How does that happen?Akhtar;Okay, so you mentioned the sort of the ecosystem linking policy and knowledge in Bangladesh. We have an ecosystem, I wouldn't say it always functions very well. And we do have many instances where people in government feel that the

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 about education. It's about human capital accumulation. But I'm with you on that, the firm-level upgrading is totally crucial. You know, the question of like, why isn't it happening? Or how could you promote upgrading? That's a very difficult question. There are lots of papers that are sort of speaking to that subject. And this review article I was trying to write was basically all about that. So Alexander Gerschenkron way back in 1962, is a historian writing about late industrialization had this phrase, not very politically correct phrase, but basically, advantages of backwardness. So in principle, if you're a developing country, you should benefit from the fact that technologies have been developed in rich countries, and you should be able to go and adopt them off the shelf. But for some reason, that's difficult, right? It's hard to do. Partly, it's difficult because of, you know, know-how reasons. So I'd say that often, much of the knowledge that you need in order to implement these technologies is not written down anywhere, it's not really in the manual, right? You have to kind of talk to people who know it, rather than just downloading the instruction sheet. That's one reason. It's also true that many times, machines or processes, actually, may be context specific. So like the picker machine, in a very humid environment, they operate differently than in a non-humid environment. And so, you know, there are things that you need to learn. So I'd say that kind of like gaining the know-how is an important kind of constraint on upgrading. And partly that happens through networks or through... there's a ... Juan Carlos Hallak, who's in Buenos Aires (who would be a good person for you to have on your show, actually, I think that he'd be an interesting person to interview) as a very interesting paper. It's basically on like Argentina, looking at industries that have done well, they've been able to upgrade essentially and looking at what was it about them that made it possible, and especially the leading firms, what were the leading firms doing? And what we're basically finding is that often the key person in the firm, like, had been embedded in markets in rich countries, maybe in the US or in Europe or someplace. So they understood very much how those markets work and what consumers want. So one was like making boats, sailboats, or motorboats right, that was one of the interesting things he focused on. But knowing sort of what the people who are buying those boats really want to see in their boats ended up being important for what they're doing. And so that's an important part of the know-how. It's like, yeah, understanding the customer understanding also how if there are firms that are producing there, understand what the competition is. And so that's know-how that often has to be sort of gained in person rather than, you know, just reading a book or talking to somebody on the phone. And so when I think about... I don't know Nigeria very well, but when I imagine, you know, Nigerian producers, I think, partly what might be holding back is, sort of, maybe not having the understanding of what are the requirements, what are the expectations of consumers in the export markets, right, in the rich countries that they may be selling to?We've talked about the barrier, we can talk about the driver of upgrading. So then, like, gaining know-how would be a driver. So that's one. I think, and part of a lot of my work has been about quality upgrading, you know, producing higher quality. And I think that's in part driven by who you're selling to, right? So Mexican firms, you know, if they're selling to Mexican consumers, they produce different products than if they're selling to us consumers, which is their main export market, right? And so, you know, and if you're selling to Mexican consumers who have a certain willingness to pay for quality, we would say, right, they have a certain level of, you know, demand for certain characteristics, the optimal thing to do is keep producing that kind of lower quality stuff, right, rather than producing the higher quality. So I had this famous example of a big Volkswagen factory in Puebla, Mexico, which for a long time, it stopped in 2003, but for a long time been producing the old beetle. The old beetle that had first been produced in 1940, or certainly the 1950s. But for a long time, in the Mexican market, that was the main car that people were buying, and they were happy with that because it was cheaper. It was like, you know, it's very reliable. But that same factory started producing the New Beetle, basically, for the US market, right, for the US and European market, which is much more sophisticated, but also much more expensive. So it depends a little bit on which market you're selling into and whether you're going to upgrade or not. And so accessing export market can, in some sense, like pull the upgrading process, you know, once they access these export markets, they'll start producing higher quality stuff for these consumers. And that I think, actually, generates some learning, and I can talk about one paper that shows that a bit. But it seems to be that by gaining access to markets and producing high quality, then firms learn how to do stuff better. And so that can be an important driver of upgrading. And conversely, not having access to export markets or having a hard time breaking into export [markets] can be a reason why firms failed to upgrade. Let me tell you about one paper that, you know, demand effects can drive learning. Tobi; Yeah. Go ahead.Eric; Okay. It's a paper by David Atkin, Amit Khandelwal and Adam Osman. It's in Egypt. Okay, it's an RCT experiment, a randomized controlled trial. And it's among rug producers, producing rugs. What they did is they randomly allocated initial export contracts, right? So if they work with an intermediary, like a buyer of rugs, you know, among several hundred rug producers, they say, Okay, some guys are gonna get an initial contract, and some guys not. And so that was a way, this is a way of investigating basically what's the effect of exporting on the decisions and in a very clean way, and they found a couple of things. So one is those guys who had the export contracts and started producing higher quality stuff. So that's sort of consistent with my Volkswagen story, too, right? So increasingly, export markets produce higher quality and they did lots of measures of, you know, how thickly packed the rugs were and how straight the edges were - the very dimensions of quality of rugs. That was one thing. And then the other thing that they found which is very interesting is that you know, these weavers of rugs got to be better at producing rugs, basically. So then, when they took them into a laboratory, and they say, okay, produce this identical rug to a whole bunch of producers, both in their treatment group, and in their control group to produce this identical rug, and they found that the guys who had gotten the export contracts were better at producing that rug, they produce sort of higher quality rugs than the other guys. This suggests that demand can drive upgrading, right, in the sense that it induces firms to produce higher quality, but there's also learning involved in that process. These Egyptian rug producers became more productive as a result of having access to these export countries. Tobi; Yeah, I mean, listening to you, I can think of a few things that click in place. When I look at, say, a country like Nigeria, I think about the way the central bank has been running the exchange rate policy, which is messing seriously with the way firms actually source inputs. Some firms actually don't have access to the foreign exchange quota to actually source quality inputs. I mean, from manufacturing firms to agribusinesses who want to buy high-quality seeds overseas, I see how that can be a constraint. But two things I want to get at. Also, if you look at Nigeria whose industrial policy is really about domestic self-sufficiency, you could see that there isn't really an incentive for upgrading, and therein lies my question. If we talk about upgrading and how important it is, even though it's not really discussed as it should, what role do you think industrial or state-directed policies can play in this? Why because industrial policy is back in fashion, you know, it's being discussed everywhere... but usually, at least in my experience and in my opinion, what most scholars and advocates are focused on are [things like] state investments, you know, how the state can put money in one sector or the other. There really isn't so much focus on this sort of micro-level detail and what happens at firms, which your work is about. So for practical purposes, do you see industrial policy as something that can really, really, play a role and incentivize domestic firms to upgrade? For example, something like export quotas, you know, for firms?Eric; I mean, in terms of your question, do I think industrial policy can be helpful? I do. I do think that industrial policy can be helpful. Basically, I think that learning generates spillovers that firms themselves can't fully capture. And so I think there is a role for government to promote learning, basically, in a way. To subsidise learning such that - the socially optimal, or - the best sort of amount of investment in learning for society is more than individual firms to do on their own. And so there's a role for industrial policy. But I agree that it's got to be smart industrial policy, it's not just any old industrial policy. And so many countries have this idea...it's a little bit of nostalgia for import substitute industrialization, or it's very much like inwardly focused industrial policy. We're going to try and guarantee a domestic market for our producers, something like that, right? I'm not a fan. I'm not a fan of imports substitute industrialization or these very inward-focused strategies because then you get to the point where there's just not a lot of pressure on domestic firms to be more productive. They become kind of in a comfortable situation where they have kind of protected markets, not very competitive, they have a lot of market power in that market, and so that is a recipe for stagnation over the long term. So I think the crucial thing is that the targets for industrial policy be export-oriented, you know, outwardly oriented. You want your firms to be successful in world markets, right? I think that should be the key, rather than domestic self-sufficiency. Or rather than just the government investing in well, okay, so I don't have a problem with the government investing in infrastructure, investing in things as long as the aim is always ''what's going to facilitate our firms being successful in world markets'', right, I think that's a good target. Because those world markets are competitive [and] for firms to be able to be successful there, they're going to have to up their game and be more productive and be more innovative, subject to the measurement constraints we talked about, right and to upgrade. And so I think that the smart industrial policies are going to be things that sort of push firms to learn and to be more innovative and to be successful as exporters. Now, the other thing we have to keep in mind in thinking about industrial policy, is that [for] the governments, it's just very hard to [know] in the future what are the sectors that are going to be successful. What are the activities that are likely to have a future? It's just very hard, it's very hard for people who are, you know, private equity firms embedded in the sector... it's very hard to know, it's gonna be even harder for a government official or someone making government policy to do that. So I think we need to think about policies that have this effect of promoting learning or subsidizing innovative activities, but that, you know, don't require too much knowledge and understanding of the future on the part of the people setting the policy. Right. So things like collaborations between universities and firms for, you know, how to train workers to have the skills that the higher tech firms in your country need. That's something that seems like a good idea that's probably going to promote upgrading without having to pick and say, I think this product or this sector is the future of the Nigerian economy and therefore we're going to subsidize that thing. And you also want policies that are somewhat flexible, right, so that if something happens... so I'm working on a project in Tunisia, where the Tunisian Government was trying to promote exports. But the issue that they've had, and it's a matching grant program where sort of half of the costs of exporting of a certain category of costs of exporting will be paid by the government. The problem with that program, though, has been that it was somewhat inflexible. So basically, if something happened, you know, there's a big shock, and in fact, COVID shock, you know, and that changes what firms want to do. And it's very hard for them to switch gears and say, now I want to spend money on something else, can you please subsidize this other thing, and there were a lot of frictions in the program. And so that's often the case for government programs. The government sets a policy and then the world changes, firms want to do something else, but the policy is still stuck, you know, in the old world. So we need to think about how to build in, you know, flexibility into the programs so that if firms decide, actually, the market is moving in this direction, rather than this direction that we were expecting, that the support that they receive could move in the same direction.Tobi; Yeah, I agree. And I don't mean export quotas as hard targets. So I'll give you an example. Nigeria has this policy that we've been running for about six to seven years now, where there are multiple exchange rate windows for different parts of the economy or sectors that the government deems should have priority, you know, to import. And I recall a paper where Korea had a similar arrangement, but it was focused on firms that export. Firms that export to world markets sort of get priorities so that they can source inputs at a very low cost and seamlessly, you know, but it's not just something that we really think about in Nigeria, because we are so focused on the domestic market and how large the population is not minding, you know, how much of that population is poor.Eric; Yes, no, absolutely. So, certainly, Korea did this. But the Korean model, a key part of it, and they definitely picked sectors in a way that, you know, it's, there's a little bit of tension with what I just said about, you know, the government officials are not going to be very knowledgeable, there they seem to have done a good job of picking sectors to advance. But the key part was it really was oriented towards success in export markets. And the industries that were not successful on the export markets, they pulled the plug, they removed the, you know, they removed the support, which is politically hard to do, you need a fairly insulated, like, secure government in order to be able to do that. Because, otherwise, you start providing support, and then the industry lobbies a lot to maintain that support, you know, and so then it becomes politically very difficult to remove it. But I think if the government is committed to ''if these industries are not successful, we're gonna pull the plug on the support'', then this can work. Right. But you're absolutely right, in the Korean model, the key thing is the export orientation rather than the import orientation. And what you mentioned about exchange rates, I didn't comment on that. But I think it is an issue, you know, especially for a resource-rich economy, that the exchange rate can be, you know, highly valued, arguably overvalued, which makes it hard to develop the domestic industry. And so I think that's a real issue that, you know, some countries seem to be able to handle that, you know, ''what do we do with the natural resource wealth a little better than others'', if you just let it accumulate and people are going to spend and that leads to devalues your currency to increase that's going to make it harder to achieve export success in export markets for manufacturing goods or other exporting services. And so that is something that needs to be a focus of thinking about how to upgrade.Tobi; Yeah, I want to talk about technology for a bit. You had this very, very, an interesting paper on the soccer ball, we call it football, the soccer ball producers in Pakistan. And in a bit, you're going to tell me some of the interesting things you learned about that study. But first, Dani Rodrik and Margaret McMillan had this interesting paper about industrialization in Africa, and how domestic manufacturing firms are now shifting more towards capital-intensive technology. So hence, manufacturing firms are not creating jobs as much as historical patterns should suggest, do you see this as sort of a problem? I know so many other people have this worry about automation and how this technology can be exported everywhere, which is really a concern for maybe a continent like Africa with a large, jobless, and young population. So do you see this as a trend that we should worry about, you know, more capital-intensive technologies, or are there opportunities?Eric; Yeah. So I do see it as a trend. I do think it is something to be worried about. You know, Dani Rodrik recently organized a panel with the International Economics Association I participated in, along with Daron Acemoglu and Fabrizio Zilibotti and Francis Stewart from Oxford. And I sort of had two points there. One point was, yes, I think this diagnosis is correct. Basically, economists refer to it as appropriate technology. But the idea is that many technologies are developed in rich countries, you know, given factor proportions, we would say in those rich countries, so basically, skilled workers are more abundant, unskilled workers are less abundant, and so people develop machines that kind of conserve on unskilled workers. That's, in part, the background to the story that Dani Rodrik and Margaret McMillan are saying that in Africa, many firms are using this technology that's been developed in rich countries, that's very skill intensive, but it's not generating a lot of them. Right. So I think the diagnosis there is correct that that happens, right? And so the technology often is inappropriate for poor countries given, you know, their supply of unskilled labour, given how many workers they have that could use employment. On the other hand, the other question, though, was, what do you do about it? And so I was less convinced. So my worry about that. There are two versions of that concern about what you do about it. One is, given the set of existing technologies, you could try to encourage firms to use more labour-intensive technologies. Okay. But the problem is that you may encourage them to be less productive. Maybe they might generate more employment, but they'll be less productive, right? There was an interesting paper that I cited in Brazil by Gustavo D'Souza, which was sort of saying the Brazilian government basically put a tax on international technology licensing. And he shows that sure enough, firms were less likely to use International Technology. They're more like to use domestic technology. They actually generated employment, but they were less productive. Right, and they overall did worse. So there's a worry that you're gonna make firms less productive in an immediate sense. The other worry is that, like, if the Nigerian government starts encouraging Nigerian firms to develop new technologies, which are more labour intensitive, you know, then they'll generate more employment, the worries that you're gonna get sort of fall behind the world technology trajectory, I'll call it that. Like, you can think about the world frontiers moving in whatever, pick an industry, and the world frontier is moving at a particular place, and then, you know, firms are competing with each other and they're, you know, someone gets a patent, someone comes up with a new idea and sort of technology moves in a certain direction. And then Nigeria says, no, no, we want to be on a different trajectory that generates more employment, right? The problem is, you're going to be permanently behind where the technology curve is, right? Where the world frontier is. And I feel like that's worrisome, right, you're likely to have less learning, right, there's gonna be a gap between where the Nigerian firms are and where, you know, the world frontier is that it's gonna be hard for them to catch up afterwards. So in the short term, you might generate more employment, but you're gonna have a less dynamic industry as a result. And so I think, my own view, and this is, it's a feeling rather than something that's very research based at this point. But my own view is, even though it means that firms are not going to generate that much employment, they have to try and stick as close to the technology frontier as possible, or, you know, catch up as quickly as possible to where the world technology frontier is.Tobi; And so talk to me a bit about lessons from your walk with the Pakistani soccer ball manufacturers. What did you learn from that particular experiment, especially on the role of appropriate technology and technology use and the incentives that surround it for firms and investors? Eric; Yeah, so it was a study of technology adoption, what are the factors that encourage technology adoption? And what made it possible was that the football producers, I'll use that word football instead of the soccer ball, these football producers, there are a lot of producers using the same simple technology, right? And this football design is, you know, 85 or 90% are just these hexagons and pentagons. If you can imagine a, you know, a football, it's got hexagons and pentagons. And so the simple technology involves cutting out hexagons and pentagons and then stitching them together. And there were a lot of those and what made the project possible is we came up with a new improved technology, which is basically a way of cutting pentagons from these sheets. The main costs, you know, 50% of the cost are the sheets, they call it rexine. It's like artificial leather, that's the exterior of the ball. But they were cutting pentagons in a way that was wasting some material. Wasting more than they need to and so the new technology is a way of cutting these pentagons so that you can fit more into a given sheet so that you can get basically 8% more pentagons which ended up being about a 1% reduction in total costs. Which wasn't enormous but on the other hand, it's a pretty competitive industry, profit margins are about 8% so we felt like they shouldn't have been paying the 1%. And actually, when we started out, we thought we were gonna be studying technology diffusion, right, which is, you know, one person adopts, then is that their neighbours who adopt or is it their cousins? Or is it the, you know, people who share suppliers, and what are the channels of diffusion, right, and we're trying to keep everything secret, and we thought, okay, when we let it out, it's obviously the people we give it to who are gonna adopt right away, and then it's gonna spread. And so then we gave out this technology, for free, we gave it to 135 firms. And then, you know, we had a few firms adopt, and they started using it, and including one big firm that was producing - I can tell you the name later, but basically had like 2000 employees and is producing for Nike, and as a big producer adopted this technology, and, you know, is basically cutting all of its pentagons using our design and our die for cutting rather than the old one. So after, you know, 15 months, there were six total firms that had adopted. And that was puzzling and thought, you know, why is that? So then we started asking firms, we started talking to people and basically, it was revealed that the reason was that the guys doing the cutting... so the cutters are basically paid piece rates, they're paid per pentagon or per hexagon, or essentially per ball like, which is, you know, 20 hexagons and 12 pentagons they're paid. That was what their salaries were based on. And they didn't have the incentive to reduce waste, like, they weren't penalized if they wasted the material, right? And so they just wanted to go fast. And our die was slowing them down, right, made them go more slowly because they had to be more careful how they placed it and also, it was a different design, it was the design that they were used to. Now, it turns out that within about a month, they could get back up to speed, to the speed they were at before but they didn't know that, and in any case, for that month, their salaries would be way down, they'd just be slower and knowing that if the firm didn't change the contracts, their salaries would be lower. And the workers were figuring this out, the cutters are figuring this out, they said, this is not good for me, right, that my salary is gonna go down if I use this thing, I have no incentive to use this new technology. And so then they started telling their firms, you know, this is bad, bad technology, it doesn't work, it's dangerous, it has all these issues. Okay, so then we realized that this was happening and we said that we were going to do a second experiment. So, you know, half of the people we originally gave the technology to who hadn't yet adopted, we did a second experiment where we said to workers, we're gonna give you a month's bonus, which is not very much it is about $150 US dollar. So these guys are not paid very much we said ''a month's bonus if you can demonstrate to us and the owner of the factory that the technology works.'' And actually, that was enough. The workers were excited about that, you know, they got paid for doing this. Everybody who did it then subsequently passed the tests. So they demonstrated that the technology is working, and then a statistically significant share of the firms that they worked at ended up adopting the technology as a result. So those were the two experiments, those were the facts. What are we learning from that? I think we're learning that, basically, the lack of information flow from workers to their owners, to their managers, was what was getting in the way of technology adoption in this case. Like, the workers knew that the technology was working, but the owners didn't know because they sort of delegated the process of cutting the pentagons to the workers, and given the contracts, the workers didn't have the incentive to share the information. Right. So I think those sorts of, like, information flows or barriers to information flows are actually very important in the learning process. And kind of what our second experiment did when we did this bonus of a month's pay, which induced the workers to share the information and that was sufficient to make the technology be adopted. And so I think the punch line or the one-sentence version of this is, workers need to see that they're going to benefit from the adoption of new technology or from upgrading generally in order for the process to work well. They have to buy into the process. And they have to see that they have the incentive to do so. One recommendation coming out of that would be some sort of profit sharing, or some sort of gain sharing between workers and firms would actually be very useful. And will it help there be more innovation?Tobi; It brings me in a way to another very interesting paper of yours which [they] also had a summary essay about, I think, in VOX or something, which is about wages in poor countries. And I mean, thinking about the soccer ball story and the lesson. One issue and this has generated quite a number of debates between I think Rodrik and a bunch of other scholars who are thinking about Africa, is that the reason Africa is not really industrializing, or firms are not creating jobs is because wages are too high relative to the level of income. But what I learned from your paper, and you can correct me if I'm wrong, is that paying higher wages in poorer countries is not really a disincentive to creating employment and even generating productivity and profit. Tell me a little bit about how that works. Because, usually, we've gotten familiar with this logic that for you to be able to industrialize, if you think about China, and so many other countries, you need to have access to low-wage workers, you know, you need to be able to do very cheaply, and labour is where you can really cut a lot of your costs. And then it becomes a problem if your domestic wages are too high for the level of your income or what firms and investors are willing to pay. So tell me this high-wage, low-wage dynamics, especially... I remember the famous Paul Krugman was it article defending sweatshops in Bangladesh, where if you force firms who are outsourcing to pay higher wages or impose certain conditions, poor people in those countries will lose jobs, and they will lose their livelihoods. And so you should not mess with that process. What are your thoughts on these [issues]?Eric; Yeah, very interesting. So I think the article you were thinking of, it's related to the specific case of the football producers and seal coats. In Pakistan. Tobi; Yeah. Eric; There was a very interesting thing that happened. I mentioned that one firm adopted this new technology. And you know, one very large firm and it was producing for Nike, it's called Silver Star. The interesting thing about that firm is that because they're producing for Nike, which had had sweatshop scandals in the past, Nike required them to do a bunch of things, basically, so that Nike wouldn't be vulnerable to a further scandal, right? And among the things that they had to do was make sure they were paying the minimum wage in Pakistan. And the only way this firm could guarantee that they were paying the minimum wage in Pakistan, which many firms were violating basically, the only way they could is to say, we're not going to pay a piece rate, we're going to pay a fixed wage. Right. So this firm was paying a fixed wage rather than a piece rate. And actually, we talked to them about when they first won the Nike contract. They said their labour costs went up 20 to 30%. So they did a bunch of things. They had this fixed wage, there was a medical clinic on the factory grounds. They had sickness pay, they had some retirement benefits. So a bunch of things, they did raise wages. But the advantage of that was that the workers were much less likely to block the adoption of this new technology. Because in a specific way, they did not have a disincentive, you know, their wage was going to be their wage no matter what happened, rather than in other firms [where] what was happening is that the worker can see if they adopt this technology, their wage would go down. And so we believe, and I wrote this in an article that you saw in the Harvard Business Review, I think that's where it was, that those wages, you know, higher wage payments and fixed wage payments, which were imposed by Nike actually contributed to the process of innovation. The title of the article is how labour standards can be good for growth, and also in the process of upgrading. So that's an example of how having higher wages can actually be good for this upgrading process. Now, there are factors going in both directions, right? On the one hand, you know, the 20 or 30% higher labour costs, I think they did contribute to innovation. On the other hand, 20 or 30% higher labour costs may mean that firms will hire fewer workers or that the industry will be less competitive. So it's not that, you know, this innovation effect is all powerful and it's going to overwhelm anything that's about labour costs. But I think it is something that we need to take into account. And so, you know, labour market institutions that, you know, maybe promote profit sharing with workers, that promote longer-term employment so you have people who are around for longer, that have some job security, the sorts of things that often labour unions want to negotiate, can actually be good for this innovation process. And that's one factor that should be weighed against this issue of, you know, how higher labour costs and how competitive is the sector going to be. You often hear, like, the World Bank or the USAID, the development agencies will often say, you just have to be cheap. Like, you know, the competitive advantage of Nigeria is cheap labour and therefore, you should be focusing on having low wages and producing, you know, garments and textiles and toys and low-end manufacturing. But I think that's kind of a low-road model. You know, and I think that there are viable high road models, which would involve somewhat higher wages, some sort of gain sharing or profit sharing, and being more innovative at the same time. I can't tell you I have it all worked out exactly what that model would look like, I think it's going to vary by country. But I think we need to try to think about and push in that direction of where you can have, it may not be high wage, but it's gonna be higher wage than the market by itself maybe would bring about. So I am optimistic that that can happen. But again, the devil's in the details, you know. So Nigeria needs to think about what are we relatively good at doing right now and let's think about how can we be more innovative and move up to the quality ladder, the technology ladder in those industries. And then how can we get our workers on board to the process of moving up that ladder? And that will probably involve paying those workers more, rather than just trying to cut wages to the extent possible.Tobi; Before I let you go, let me... I know you're a relatively quiet person so let me draw you in a little bit... yeah, I know you're not active on Twitter or anything like that. Let me draw you into a little bit of professional controversy. And one of the things that I admire most about your work, I should confess, is that it's methodologically diverse. You know, you do structural econometrics, you do RCT, you do regular modelling and so many things. So there's this huge debate currently that I think, a lot of my colleagues may not think so but I think has important consequences for the policymaking process on development, which is that - is development research right now focused on the right things? You know, RCTs are like the standard tool for the investigation of development questions. Empirics have sort of taken over the field. But on the other hand, you have folks like Lant Pritchett who are constantly pushing back that this is encouraging researchers to think too small, they are researching cash transfers, and so many other key interventions, whereas we really should be focused on the big questions. And in my experience, these have real-life implications, especially in poor countries where they have budgetary constraints. We might say this is due to corruption, and that will be true, but sometimes they have a real balance of payment crisis, because a lot of these countries are resource-dependent, and it's often cyclical. So a policymaker may really want to know where to spend the most resources to have the maximum benefit for the citizen. So I find these questions very important. What do you think about this debate? As someone who transverses the field very often in your work, how have you been able to navigate this debate? And what do you think is the, maybe right is not the right word here...what do you think is the useful approach going forward?Eric; Yeah, good question. Yeah, in my own work, I've been very question driven rather than methods driven. Right. So I've always thought, you know, I'm interested in this question of from upgrading, what are the barriers to upgrading? What drives upgrading? How can we, you know, learn about that, and if we can learn about that using an experiment, that's great. If we're in about that using other methods, that's great, too. So I, sort of, don't have a dog in the hunt, as Bill Clinton would say about, you know, the methodology. And I'm kind of in the middle of the road, I think, in terms of this debate between, you know, J-PAL and Esther Duflo and Abhijit Banerjee and Lant Pritchett or others on the other side. I think, you know, in situations where you can run an experiment, I think that is the most credible source of information. Okay, so I'd rather have a randomized experiment than do a correlation and put some causal interpretation on a correlation. At the same time, I do think that there are many questions, either that can't be answered with an experiment, or that are just very, very costly to answer with an experiment, right? And so it's very hard to run, you know, it's running experiments on firms. I've tried to do it, but it takes a long time. It can be very costly. You have to give much bigger shocks to firms to get them to react, etc. And so, I've heard Abhijit Banerjee articulate that, like, we should never do a policy that hasn't first been evaluated by random experiment, I think that's too strong. Because we're gonna be waiting years and years and years to get the experiments and with a huge investment of resources in order to get the experiments that would then inform the policy. So we're going to have to make policy and, you know, make decisions based on other sorts of information. And so there, I do think we need to be like small ''c'' Catholic, allow for lots of different types of methods, quasi-experimental methods, you know, even structural methods, and then also experiments. There's this famous joke about the drunk guy with a streetlight, you know, he's looking for his keys, and he's looking under the streetlight, because that's where the light is, maybe not where the keys have been lost. And so I take that point, like, maybe we really care about these big questions about, you know, what's going to drive growth, then in that sense, I'm sympathetic to the sort of the Lant Pritchett view. On the other hand, under the lamppost, we actually are learning stuff, right, I feel like we're more confident that we're making progress by looking under the lamppost. And so I think the, you know, the trick, the art here is to sort of stay near the edge of the lights and we're getting closer to the big questions, but in a way that's still credible, and that we're still, you know, we can believe the answers that we're actually given. To sort of counter the Lant Pritchett view, you can post these big questions, and you can, you know, think big thoughts. But at the end of the day, you have to be able to convince, you know, you have to show us the data, right, you have to show that this is really correct. And that's just very hard to do for many of these big questions. So we need to incrementally build up based on this work. That's why I kind of like this work on firms, we're getting towards these big questions about growth, but in a way that you can actually have some confidence that you understand what's going on.Tobi; In your experience doing this work, what are misconceptions that you have encountered in the field that either the professional development industry, so I'm talking about aid and the think-tank and all the other folks, or it may even be your academic colleagues, what are the common misconceptions that you have encountered? Eric; Yeah. I mean, so one big thought [is] I think that the of field development agencies, right, it's like, how are we going to spend aid dollars in a way that's going to have a positive effect? And I think there's value to that. All right. I'm all in favour of spending, you know, aid dollars, in the most effective way. But I think that you know, a set of questions does limit to some extent the impact of the field of development on the development process. So I actually think we could spend every aid dollar in an optimal way, and would it have a meaningful effect on the material standard of living of people in poor countries? I'm not sure. I mean, maybe a little bit, maybe marginal, right? I think what's really going to matter is, do these countries start getting industrialization happening? Are they getting upgrading? Are they growing? And so in that sense, I sometimes get a little bit frustrated with the development discussions, it's all about this, you know, how do we spend aid dollars, and let's do RCTs to figure out how to spend the aid dollars, rather than these bigger questions, which are going to have a longer-term effect on people's living standards. You know, that's changing a little bit. I'm encouraged. There are more and more people talking about firms, there are more and more people taking sort of industrial policy ideas seriously. They're talking about bigger-picture questions in a kind of micro-founded way. So there are some encouraging signs. But I think a lot of development is still about that issue of like, what's the right way to do social policy? What's the right way to do, you know, aid spending, rather than trying to understand deeply why is it that Korea was able to make this transition from a poor country to a rich country, essentially, in a generation? And why is it that many countries in Africa are not? What is it that's actually getting in the way? And for that, that's not really like how to spend aid dollars question that's more about how firms behave. What are the factors that constrain them? And those sorts of things.Tobi; This is a show about ideas. So I want to ask you, what's the one idea? Just one. One idea that you think everybody should think about and adopt, that you would like to see spread everywhere. What's that idea? It may be from your work, or it may be from other things that inspire you. What's that one idea?Eric; I think the one idea I would choose is, uh, workers have a brain. This goes back to the soccer ball study, that there's knowledge and information that, like, workers have or people who are lower down in the hierarchy have, which is not being taken advantage of. Right, the soccer ball thing was an example. The workers were understanding the technology, but because of the way they were paid, and because of the, you know, institutional arrangements, they didn't have the incentive to share that. And I think the world, including the economics profession, tends to undervalue the intelligence that people have. Even the people who are actually, you know, on the frontlines doing the work. And if we can figure out ways to harness that knowledge and give people incentives to share it and give people incentives to develop their own intellectual thinking about whatever it is they're doing, I think that'll have a big payoff. And so I'm interested in sort of investigating what are the sorts of arrangements, what are the sorts of policies that can lead that to happen more?Tobi; Yeah. Thank you so much, Eric. I mean, tell me a little bit about what you're working on right now.Eric; What am I working on right now? I mean, so one thing related to what we've been talking about that I'm excited about is, again, a paper on technology adoption. This is in Bangladesh, with an energy-efficient motor like sewing machines. They're different sorts of motors that the traditional ones they're kind of spinning all the time. And then people have the foot pedal they like to press the foot pedal and then the needle comes down and stitches right but they're actually wasting a lot of energy because these motors are spinning all the time. And so there's a new type of motor called a servo motor which spins Only when the needle is moving, right, so it's energy efficient, energy efficient motor, but it can just replace the old motor, you don't have to change anything else about the machine, you just put this new servo motor to replace the old clutch motor. And we're studying when new managers or when new owners, when do they make those decisions. And so we're trying to track we're giving them information in different intensities, like including installing the machines in their factory one is just showing a video when it's just providing information, but one is actually installing their machines. And we're seeing how they react to that information. So I think that's a big topic. It's like what's getting in the way of the adoption of energy-efficient technology? These are the people who are making mistakes, or they just don't have good information. Or that basically, maybe if they have the right information, they actually will adapt very quickly. So that's one thing I'm thinking about.Tobi; It's been fascinating talking to you, Eric. I enjoyed it so much.Eric; Thank you, Tobi. Good questions. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.ideasuntrapped.com/subscribe

My guest on this episode is Stefan Dercon - author of the recently published and most excellent book ‘Gambling on Development: Why Some Countries Win and Others Lose'. Development scholars have produced many explanations for why some countries did better than others after the Second World War. Factors like geography, quality or type of institutions, foreign aid, and protective trade policies, have been argued as what explains this divergence in national prosperity between countries. Dercon's contribution will no doubt be plugged into this long-running debate - and in my opinion, he comes closest to having a ‘‘first principles'' explanation than anyone I have read on the subject. Other theories leave you with nagging questions - Where do good institutions come from? Are countries condemned by their histories? Why do some countries use foreign aid better? Why are some countries with rich geographic endowments doing worse? Why does protective trade lead some countries toward becoming industrial exporting giants, and some others into a macroeconomic crisis?Dercon argues that countries that have done better do so by working out a ‘development bargain'. This comes about when the people with power and influence (elites) in a country find a cooperative agreement (bargain) to consciously pursue economic development and national enrichment. Development bargains are not simple, they are often messy. And elites are not a bunch of altruistic do-gooders. Rather, through many complicated networks of intra-elite competitions and cooperation, they decide to gamble on the future by betting that economic development will deliver the biggest win. Dercon does not claim to have found the holy grail of development - and there are still many questions to be answered. But his argument does lead to one inevitable conclusion. Countries and their people will have to figure out what works for them and how that delivers prosperity.Stefan Dercon is Professor of Economic Policy at the Blavatnik School of Government at Oxford University. He was the Chief Economist of the UK's Department of International Development (DFID).TranscriptTobi; Was your experience really what inspired you to write the book?Stefan; Well, you know, what inspired me definitely is just the contrast that I've had in terms of things I do. Because I've been an academic for a long time, I have more than 30 years writing and studying and, you know, I was one of these academics who like to, as one sometimes puts it, you know, like, likes to get mud on their feet, you know, mud on their boots. I used to work mostly on rural households and in most countries, these are amongst the poorest people, and you just get to know what's going on there. I have a policy interest, and I was just lucky 10 years ago, a bit more than that, I got a job as a Chief Economist in the UK aid agency, and it's just that contrast of having had the chance and the opportunity to get involved on the policy side, on meeting all the more senior people...and it's just that contrast between still enjoying being surrounded by people and what they do and understands livelihoods of poorer people, combined with being in the policy space, I felt like, you know, I have a unique perspective that I wanted to communicate. And it was just a quest to communicate, actually. If anything, I wanted just to tell more of these stories because I think, from all sides, we tend to misunderstand a lot of what's going on and how things work in practice. And that's definitely the case on the academic side. We're so far sometimes from reality that I wanted to tell that story a bit more.Tobi; And I mean, after you wrote the book, and after publication, I presume from some of the feedback that your book is actually quite successful. I gave so many copies away, right, I can't even count. I think at some point, I temporarily bought out Roving Heights' entire stock. So how has the reception been generally?Stefan; I mean, look, what you just told me makes it much more worthwhile than if white kids in Oxford are buying the book. So what I'm really pleased with is that it appealed to a much broader group of people. And actually, you know, if I'm really honest, I hadn't expected that people like you or I was in Bangladesh last week that young people there would actually appreciate the book, you know, that you would actually get people that think about these problems in these countries are actually interested in it. And I'm very pleased that people find it both worthwhile to read and quite interesting. Of course, I get some academics. One story last week in Bangladesh, I had a question, you know, how Lenin fitted in my book. Now, I had to struggle with the answer of how Vladimir Lenin would actually fit into the book and thinking, you know, that's an academic typically responding to, you know... I don't know, I'm not a deep theoretician but it was written out of a kind of pragmatic sense of what can I learn from economics and politics that actually is worthwhile communicating. So it's well received. And if I'm really honest, I don't mind that there are pdf copies circulating as well and things like that. Actually, as long as it's read, you know, you write a book, not because you want the highest sales, but you actually want it to be read, and that actually makes it really interesting that people seem to be able to relate to it. Another group that, actually, I found really interesting that can relate to it is people that are either civil servants working in governments like - in yours, as well as maybe aid officials and International World Bank officials, IMF officials, who actually find it helpful as well. You know, and there's usually a huge bridge between them, there's a huge gap between how in Washington when we think about these things, or in London or in Abuja, and so that's pleasing as well. You know, I don't give a solution to the things but I think I touched on something of where a big part of the problem of development lies is that actually, we are, unfortunately, in quite a few countries, still with governments that fundamentally are backed by elites that don't really want to make the progress and do the hard work. And that's an unfortunate message. But at the same time, you have other countries that are surprising countries that make the progress. And so clearly, there is a lesson there that it's not simply like the problem is simple. Actually, the problem is to some extent, simple. It's about, fundamentally, do you want to actually make it work, make this progress work? And I think that echoes with quite a lot of people - the frustration that many of us have, that some countries seem to be stuck and not making enough progress and we need to be willing to call it out for what it is that it's not entirely the fault of those people who are in control, but they could do far more for the better than they actually do.Tobi; For the purpose of making the conversation practical and accessible, in the spirit of the book itself, I'm going to be asking you some very simple... and what I consider to be fundamental questions for the benefit of the audience and people that probably have not read the book. So there have been so many other books on development that have also been quite as popular as yours, Why Nations Fail comes to mind, and so many others, The End of Poverty by Jeffrey Sachs, some of which you actually reviewed in the opening chapters of the book. And at the heart of most of them is some kind of fundamental concept that then defines how the body of work itself or the central idea itself works, whether it's institutions, or culture, or industrial policy, or whatever. For your book, you talked a lot about the development bargain, what is the development bargain? And how does it work?Stefan; So the way I look at any country in the world, and I mean, any country, rich or poor country is that one way or another, there is a group of people, which I call for convenience, ''the elite.'' It's not like a pejorative title or a title to applaud them, but simply as a descriptive title. The group of people, in politics, civil service, in business definitely, maybe the military, maybe even civil society, key universities, public intellectuals, I talk about the group that I refer to as the elite, these are the people that have power, or they have influenced one way or another, that can be quite broad. Now in every society, I think it's that group that tends to determine what politics and the economy will look like, what the direction of a country will look like, in any society. And I call that underlying idea [as] they have essentially a form of an elite bargain, a bargain between the different people, they don't have to agree on everything, but to have some kind of an agreement that this is the principle by which, you know, my country will be run in politics and in the economy. Now we could have lots of these elite bargains. We could have an elite bargain that, for example, is based on: if I happen to have power, then everything that I'll do is to reward the people that brought me to power. I'll give them jobs in government. I'll give them maybe contracts, I'll do something, you know, technically, we call this Clientelist. You could have another one where he's saying, Look, no, we're going to run this country, totally, where everybody gets an equal right or equal opportunity, and in a particular way. And so you could have political systems that are around this. Now you could have all these things coming together. You could have also regimes that basically say, Well, the main purpose for us is to keep us as a small group in power, you know, he could have a particular way of doing it. Or indeed, to make sure we use it entirely to steal anything we can get and we'll actually put it in our own pockets, you could have a kleptocracy. You could have lots of these different things, you know, you could have different societies. Now, what I mean by development bargain, is actually fundamentally where that underlying elite bargain values, the underlying idea is that we want to grow our economy, and we want to do this in quite an inclusive way. We want to have developmental outcomes as well. And we make this a key part of the elite bargain. So basically, I define a development bargain as an elite bargain - the deals that we have in running our economy and our politics, that fundamentally, one big way we will judge it is that when we make progress in the growth of the economy, and also in development for the broader population, and I call that the development bargain. And I want to actually go a step further and say if you don't have this, you will never see growth and development in your country. You could have leaders talk about it. They could make big development plans, but if underlying all this there is not a fundamental commitment by all these key players that actually it's worthwhile doing, we're not going to achieve it. And maybe I'll make a quick difference here with say, how does that difference...(now, you mentioned Why Nations Fail.) Now, that underlying elite bargain, of course, the nature of your rule of law, your property rights, all these things, they clearly will matter to some extent, but Why Nations Fail puts this entirely into kind of some historical process. And a lot of people that talk about getting institutions right, they say, Well, you need to get institutions right before you can develop, and they seem to come from a long historical process. In my concept of elite bargain, I would actually emphasize [that] even if your country is not perfect in these institutions, even if there's still some corruption left, even if there are still some issues with the political system, even with the legal system, we actually have countries that can make progress if, fundamentally, that commitment is there amongst the elite. So you don't have to wait until perfection starts before you can start to develop. And that actually [means that] I want to put much more power into the hands... sorry, agency is the better word, I put much more agency in those who at the moment are in control of the state. History may not be favourable for you, there may be a history of colonialism, there may be other histories, factors that clearly will affect the nature of your country at a particular moment in time. But actually agency from the key actors today, they can overcome it. And in fact, in the book, I have plenty of examples of countries that start from imperfection, and actually start doing quite interesting things in terms of growth and development, while other countries are very much more stagnant and staying behind. Tobi; You sort of preempted my next question. I mean, since say, 1990, or thereabout, when the results of some of the ''Asia Tigers'' started coming in, maybe also through the works of people like Wade, Hamsden and co., countries like South Korea, Taiwan, Hong Kong, Singapore, have become like the standard for economic development, and subsequent analysis around issues of development always look at those countries and also their neighbours who have actually made some progress, maybe not as much as those specific countries. But what I want to ask you about in your book is, you talk about some of the works on development trying to reach for some kind of long history or some kind of historical...I don't want to say dependency or determinism, but you get my point. So my point is, if we go outside of these Asian Tigers, if we go back to say, Japan, or even the second industrial revolution, America, Germany, the Netherlands, can we observe the development bargain as you have described it? Is it also consistent through history?Stefan; I would say Absolutely. I mean, one of the things with when we look at these countries with longer-term success, you mentioned correctly, you know, the Koreas and also Japan, or going back in time to the Industrial Revolution, the second industrial revolution and so on, actually, we take for granted that actually they really wanted to succeed. And it's actually one of these things, and especially in recent history, [South] Korea came out of deep conflict, of course, it was also called War so they got certain support as well. But it was really important for both Japan and Korea after the Second World War, for Japan to re-emerge and for Korea to emerge. It was a form of also getting legitimacy towards their own population. So it was a real underlying deep commitment by that elite in these countries to try to make a success of it. We take it for granted, if we go back in history, take England in the 19th century...I mean, it was a very strong thing, it's like, you know, we wanted to show that actually, we are ruling the world on commerce and all the kinds of things, there was a deep motivation. And of course, also the pressures, you know, remember, the society was being very fractured, and we can't call growth in the 19th century in Britain very inclusive. [There was] a lot of change happening, and indeed, you know, very poor people I think actually initially didn't manage to take up. But especially if we come to the early 20th century became this kind of thing surely [where] development in the form of growth was also when it's a little bit broader shared, became quite part of it. And it's one of these things that when you look at politics, whether it's in the 1930s or 40s or 50s or now, whether it's in England or in America, actually growth and development, I won't take it for granted. People are voted out of office because they are not managing the economy well. There is a lot of political pressure in Europe now. And it's really political because ''oh you're not dealing with the cost of living crisis right or you're undermining the real income increases.'' You know, the US election, we ended up interpreting Trump as an election that actually [served] people [who] had stayed behind in the process of growth and development. Actually, in the politics of most richer countries, it's so much taken for granted that that's a big part of the narrative. So it's an interesting one (maybe, if I may) just to [use] China, I find it a really interesting one. Because, you know, the historical determinism is problematic there. And of course, some people would say, China should never have grown because it has the wrong institutions. But of course, it is growing fast. But if you think of a bit of what would be historical institutions that are relevant? China has had centralized taxation for 2000 years, a centralized bureaucracy for 2000 years, a meritocratic bureaucracy for 2000 years, you know, it actually had a history that actually acquired strong institutions. But funnily enough, when did it start? Just at the moment of deep weakness in the 1970s. When the Cultural Revolution had destabilised the legitimacy of the state, ideology was totally dominating, Mao died in the early 1970s and mid 1970s the Gang of Four came up, which was his widow, it was all turbulence. And actually lots of people thought China would disappear. It's at that moment, it picked up that kind of thing, you know, and actually, fundamentally, if you read all the statements of that periods, they became fundamentally committed, ''we need to make progress in our economy, that's our source of legitimacy.'' So even there there, that's where you see that actually really emerges and this became something that they needed to achieve - a fundamental commitment to growth and development as a form of getting legitimacy to the population. So in a very different way, as some of the other countries, but it's the same principle. Legitimacy of a lot of countries is equated with progress and growth and development, which is essentially a feature of a development bargain.Tobi; Obviously, all societies have some form of elite bargain. Not all elite bargains are development bargains. That's the gist of your book, basically. Now, what I'm trying to get at here is elite bargains that are not for development, that do not benefit the rapid progress of a society, how do they emerge? You talk about the agency of the people that are running the country at a particular point in time. To take Nigeria as an example, a lot of people will blame Nigeria's problems on colonialism. And I'm also quite intolerant of such arguments, at least up to a point. But what I'm trying to get at is that how do elite bargains that are not for development, how do they emerge? Is it via, also, the agency of the elites of those societies? Or are there features of a particular society that kind of determine the elite bargain that emerges? For example, sticking with Nigeria, a lot of people will argue that our elites and our institutions will think and look differently if we don't have oil.Stefan; Yes. Tobi; Right. The state will be less extractive in its thinking, the bureaucracy will be less predatory, right? A lot of people would argue that. So are there other underlying factors or features in a society that shape the kind of elite bargain that emerges, or this is just down to the agency of the people who find themselves with power and influence? They are just the wrong type of people.Stefan; So, Tobi, you make an excellent point here, and, so let's take this a little bit in turn. Leonard Wantchekon, the economic historian at Princeton, from Benin… he gave a nice lecture not so long ago, at Yale, it's on YouTube. And he made this very helpful statement, and he said, you know, if it's between history and agency, I would put 50% history 50% agency, okay. And I will actually add to it [which] is that depending on where you are, history is a little bit more or a little bit less. And so clearly, and he was talking about Africa in general, colonialism will matter. It has shaped your institutions and, you know, the way countries have emerged and the way they decolonized, all these things will have mattered, and they make it harder and easier and so on. But you alluded to it as well [that] at some level, it's already a long time ago now. Of course, it's still there, but it's a long time ago. So over time agency should become much more important. The point though, that you raise about oil makes a lot of sense. So the problem with a development bargain is that actually for a political elite, and for a business elite, dare I say for a military elite, the status quo is, of course, very convenient. Status quo is something that is very convenient because it involves very few risks. So the problem with growth typically is that, actually, new elites may emerge, a new type of business elites may emerge, they may question the economic elite that exists. As a result, it may change the politics. And in fact, if you go back to history, as we were saying, of course, that's the history of Britain where all the time, you know, there has been a shift of who is the elite, there's always a new elite, but it's shifting. So growth is actually a tricky thing. Because it actually, in that sense, changes relative positions in society. Now, that's obviously the case in every society. But it will even more so if the status quo is actually quite of relative affluence, if the status quo is actually quite a comfortable position to be. Now if you have natural resources, you don't need growth, to be able to steal. You can just basically control the resources that come out of the ground. And so your supply chain for stealing money can be very short, you don't have to do a very complicated game. If you need to get it from growth in the economy, it's much more complicated, and it's much more risky. Okay. And so it's not for nothing, that actually clearly, more countries that didn't have natural resources in recent times, over short periods of time, managed to actually get development bargains and basically leads gambling on it. Because actually, the status quo was not as lucrative as the status quo can be if you have a lot of oil or other minerals. And so you're right, and it makes it just really hard...and it actually means in fact [that] even well-meaning parts of the business elite in Nigeria will find it very hard to shift the model entirely. Because you know, you are a business elite, because you benefit from the system one way or another. I'm not saying that you steal, but it's just [how] the economy is based in Nigeria on a lot of non-tradables, is helped with the fact that you have so much to export from oil and so you end up importing a lot, but you can also keep your borders closed or anything you feel like keeping the borders closed for. And that helps for a lot of domestic industries, because protectionism, you know, you do all the things. So the system self sustains it. And with oil, there is not that much incentives to change it. So yes, it is actually harder if you have natural resources to actually reengineer the system to actually go for growth and development. So yes, it is the case. But it hasn't stopped certain countries from not going that route. You know, Malaysia has oil? Yes, it's not a perfect development bargain. But it has done remarkably well. Indonesia, in its early stages, also had oil in the 1970s as an important part, it managed this kind of relationship, and then maybe come the agency in it, you know, do we get enough actors that actually have the collective ability to shift these incentives enough to start promoting more outward orientation, try to export some new things from your country, all that kinds of stuff? And that is indeed what happened in Indonesia. There in the early 1970s, they had oil, but they also learned to export shoes and garments early on, they took advantage of good global situations. And Nigeria didn't, you know, and then agency comes into it, you know, the managers of both the politics and the relationship between politics and business, including from the military, they went in a particular route, and they had choices and they didn't take them. I'm pretty sure if you go back and, you know, there will be moments of choice and we went for another - as people call it - political settlement... another equilibrium that actually didn't involve development and growth as the key part. So yes, it makes it harder. But the agency still, still matters.Tobi; From that point, my next question then would be, what shifts an elite bargain more? That's kind of like do question, right? What shifts an elite bargain? These questions do sound simple. And I'm sorry, but I know they are incredibly difficult to answer. Otherwise, you wouldn't have written an entire book about it. Right. So what shifts an elite bargain more towards development? I mean, you talked about China, we've seen it also in so many other countries where the country was going in a particular direction that's not really pro growth, pro-development, and then there's this moment where things sort of shifts. So it may be through the actions of particular actors or events that inform those. So what... in your experience as a development practitioner and looking at all these places...What are the factors that have the most influence in shifting the elite bargain? Is it just luck? I mean, when I think about China, what if Deng Xiaoping and his colleagues had actually lost that particular power struggle after the death of Mao? So did they get lucky? Is it luck? What's going on?Stefan; You know, I wouldn't use title of gambling but there has to be a little bit of luck involved as well, you know, the circumstances have to play in your direction. But it's not just luck. Okay. So it's an interesting thing when you look at a couple of the countries, what were the moments that people within the elite managed to shift it in another direction? So. China is interesting because it was going through conflict, not deep conflict or violent conflict, but there was a lot of instability in China at the time, at the end of the Cultural Revolution in that period. Other countries like Bangladesh came out of conflict. And so conflict, definitely, or coming out of conflict creates a moment. But of course, there are lots of countries that come out of conflict that make a mess of it. It's a window of opportunity. And it probably is linked with something related to it, which is legitimacy. When you come out of conflict, most of the time, leaders need to reestablish legitimacy. This is clearly something that happened to Rwanda coming out of the genocide, Kagame clearly had to establish legitimacy, you know, he represented a very small group of people within the country and he needed to get legitimacy overall and he chose growth and development to doing that. I think Ethiopia is similar, that actually Meles Zenawi coming from Tigray, he needed, you know, post 2000, coming out of the Eritrean war at a time, and all kinds of other crisis that he was facing in his own party even, he needed to get legitimacy, and they thought he could get legitimacy for his regime through growth and development. So legitimacy-seeking behavior can be quite important. Now it has another side to it. If there's a crisis of legitimacy, that's the moment when the leader can actually take advantage of it. A crisis of legitimacy is actually saying, ''Well, look, we better go to something that begins to deliver to people.'' And why I'm actually suggesting it is that actually, there are in certain countries, a bit of pressure from below also seems to be quite useful. But there is a role there and I find it very hard to define exactly because I'm always scared of autocrats and so on. But the point of leadership is there. So I don't mean it as the strong leader, but more to do with the kind of group of people that manages to take other people along and convince them that is the kind of thing that they need to do. So if you go to Indonesia, I don't think it was Suharto personally, who was the great thinker there that did it. But he clearly surrounded himself with a group of people that included technocrats and also other people from politics, that actually managed to push this in a particular direction in doing it. So how do we get it? While it is actually people taking advantage of windows of opportunity to actually nudge towards it? Okay. But it's hard. We're talking Nigeria, other people have asked me questions about Brazil, about India, you know, large countries like yours with very complicated elite bargains that have national and state level things and so on... it's really complicated. Rwanda in that sense is well defined, you know, we have one well-defined problem and, you know, we could go for a particular model. It can be quite complicated to have some ideas on that on Nigeria, but maybe we can come to that a bit later.Tobi; So, I'm curious. I know you didn't cover this in your book. So let me let you speculate a bit on the psychology of elite bargains or development bargains specifically now. Given that I've also tried to look at some of the societies that you described, and even some others that you probably didn't mention, I don't think there's been a society yet where this is a gamble true, but where the elites have sort of lost out by gambling on development. So why don't we see a lot more gambles than we are seeing currently?Stefan; Actually, unfortunately, we see gambles that go wrong. I mean, for me, and I've worked a lot on Ethiopia, Ethiopia as a gamble that went wrong at the moment. And Ethiopia... you know, just think a little bit of what happened and maybe typify a little bit in a very simplistic way the nature of the gamble. You know, you had a leader under Meles Zenawi, under the TPLF - the Tigray and rebel group - where in the end the dominant force in the military force that actually took power in 1991. And they stayed dominant, even though they only represent, you know, five 6% of the population, they remain dominant in that political deal. Though other groups joined, but militarily, it was the TPLF that was the most powerful. So it also meant that the political deal was always fragile because in various periods of time, you know, my very first job was teaching in Addis Ababa University so I was teaching there 1992 93... you know, we have violence on the streets of students that were being actually repressed by the state, they were demonstrating against the government. You know, over time, we have various instances where this kind of legitimacy, the political legitimacy of that regime was also being questioned. Now, one of the gambles that Meles Zenawi took was to actually say, look, there's a very fragile political deal, but I'm actually going to get legitimacy through growth and development. So he used development as a way of getting legitimacy for something that politically and you know, just as Nigeria is complicated, Ethiopia is complicated with different nationalities, different balances between the regions, that he actually wasn't quite giving the space for these different nationalities to have a role, but he was gambling on doing it through growth and development. How did this go wrong? You know, I kept on spending a lot of time, but in the 2010s after Meles Zenawi died, very young from illness, the government still tried to pursue this. But actually, increasingly, they couldn't keep the politics together anymore. They were almost a different nationality, they were always on the streets, there was lots of violence and so on. And then in the end, you know, the Tigrayans lost power in the central government, and then, of course, we know how it escalated further after Abiy. But in some sense, the underlying political deal was fragile and the hope was that through economic progress, we could strengthen that political deal to legitimacy. That gamble is fine. Now it's a very fractured state and unfortunately, all the news we get from the country is that it's increasingly fractured. And I don't know how we'll put it together again. So that's a gamble that failed. Now, we know more about it. And it was very visible because it lasted quite a long time. Many of these gambles may actually misfire if they don't pick the right political moments. You know, if you don't do it at the right moment, and if you're a little bit unlucky with global circumstances, you fairly quickly could get into a bit of trouble politically, and whatever. For example, with the high inflation we have in virtually every country in the world now, it is clearly not the moment to gamble. It's extremely risky, [and] fragile, and your opponents will use it against you. So it's another thing like, you know, we don't see them gambling, you know, there are relatively few windows of opportunities at which you can gamble. And there are some that will go wrong. And even some that I described as successes, you know, we don't know whether they will last, whether they will become the new Koreas. I'm cautious about that. So, we need to just see it a little bit. Although I don't see Nigeria taking that gamble. So that's another matter.Tobi; No, no. I mean, that's where I was going next. Let me talk to you a bit about the role of outsiders here. We're going to get the aid discussion later. So currently in Nigeria, obviously, the economy has been through a lot in the last several years, a lot of people will put that firmly into the hands of the current administration. Rightly so. There were some very terrible policy choices that were made. But one point that I've quite often made to friends is that, to borrow your terminology, I don't think Nigeria was under the influence of a development bargain that suddenly went astray seven years ago. We've always been heading in this direction, some periods were just pretty good. And one of those periods was in the mid to late 2000s, when the economy seemed to be doing quite well, with high oil prices and also, the government actually really took a stab at macro-economic reforms. But if also you look carefully at the micro-history of that period, you'll see the influence of, should I say, outside legitimacy, you know, trying to get the debt forgiveness deal over the line and, you know, so many other moves that the government was making to increase its credibility internationally was highly influential in some of those decisions and the people that were brought into the government and some of the reform too. And my proof for that when I talk to people is to look at the other things that we should have done, which, we didn't do. We had the opportunity to actually reform either through privatization, a more sustainable model of our energy policy - the energy industry, generally. Electricity? People like to talk about telecommunications and the GSM revolution, but we didn't do anything about electricity, we didn't do anything about transportation. Infrastructure was still highly deficient and investment was not really serious, you know. So it was not... for me, personally, it was not a development bargain. Now, my question then would be, could it have been different if some of the outside influences that are sometimes exerted on countries can be a bit more focused on long-term development, as opposed to short-term macro-economic reforms on stability? You know, institutions like the IMF, the World Bank, I know they have their defined mandates, but is it time for a change? I think they actually have a lot more influence than they are using currently.Stefan; You make extremely valid points. And I think I will broadly agree with you with what you just implied. And I'll take a stance on it now. So the first thing, of course, and you correctly saw that something very misleading in Nigeria's growth figures is that periods of high growth are not at all linked to much action by economic policymakers. But it's still largely linked to oil prices. And we have this unfortunate cyclical behaviour in policymaking. Where the behaviour when prices are really good, is just always missing taking advantage of the opportunity. While when things are bad, we're talking about all kinds of things one ought to be doing but then saying, ''we can't do it because the prices are low.'' And so there is this kind of strange, asymmetric thing about policymaking that we always have the best ideas when we can't do them, and then we don't have the ideas we should have when the going is good. And this is in a way what you're alluding to. Of course, the role of outsiders that gets very interesting is what these outsiders were focusing on, actually, I think it was in the interest of the, call them, semi-outsider inside government...some of these technocrats that were brought in. And I can understand it entirely, you know, there were some really sensible finance ministers at various moments and so on. They were focused on actually things that were relatively easy in that period. So they were actually relatively easy, because the going was quite good. And so actually you created that strange impression, and it's a little bit like together with the outsiders, with World Bank, IMF, but actually, we're dealing with something really dramatic but, actually, we were not at all setting a precedent because it was actually, relatively... relatively politically low cost to do these things at that moment. Okay. So it was progress of sorts, you know, getting the debt relief, and so on. But arguably, you know, it's not a bad thing. But this actually was quite a low-hanging fruit and many of these organizations like these ideas of low-hanging fruits, because actually, politically, it played well, it increased the stature internationally of Nigeria...but, actually, it didn't really cost the elite much. It wasn't really hard for the elite to do these things. [If they did] the difficult things, they would really have started to change Nigeria. And so there is something there that I'm struck by the last sentence you said that some of these outsiders may be focusing on the wrong things. I think it has to be the insiders wanting to focus on these things, on these more difficult things. And then I do agree with you, the outsider should be smarter, and better able to respond to this. There's a problem with the outsiders here as well, take something that clearly you still struggle with and struggled forever with - electricity reform, the electricity sector. It's so complicated, and it's set up so complicated in all kinds of ways and whatever. So much inefficiency, so much waste that then it doesn't function and everybody, you know, complains about it. But it becomes politically very sensitive because there are definitely vested interests linked to it now and it becomes very hard to unravel it. Now the problem is if you ask typically a World Bank or an IMF for advice, they will make it very simple and say, Oh, just privatize the whole thing and do the whole thing. Now. You know that in a politically sensitive environment, you just can't privatize everything, so you privatize a little bit, but anything that's really with vested interests you won't touch. But these are the inefficient bits. So the easy prey, you privatize, and that's someone else making even more money off it because it's actually the efficient part of those systems that gets privatized, and then the inefficient part is still there and costs even more money. And so what I think these outsiders could do better is to have a better understanding of Nigeria's political economy, which is complicated at the best of times, but really understand, where can we start actually touching on something that we are beginning to touch on something vested interests that we begin to unravel a little bit some of the kind of underlying problem of, you know, politically connected business, you know, all the way to party financing or whatever...that you need to start unraveling somehow, where actually the underlying causes of inefficiency lie. Because the underlying causes of inefficiency are not just technical, they're actually not just economic. The underlying causes are these kinds of things. So I think why the outsiders did what they did at that time, it actually suited the government at the time, the technocratic ministers, that's the best they could do because that was the only mandate they had. Together with the outsider, they'd say, Well, that's certainly something we could do. But actually, fundamentally, you didn't really change that much. You don't still have then wherever it goes a bit bad, I'll get six or whatever exchange rates, and I'll get all kinds of other macroeconomic poor management, and, of course, nothing can happen when there's a crisis. There's no way we can do these more micro sector-specific reforms than doing it. So yeah, you're absolutely right. But let's not underestimate how hard it is. But starting to do the things that you refer to is where we need to get to to doing some of these difficult things.Tobi; The way I also read your book is that the two classic problems of political economy are still present, which is, the incentive and the knowledge problem. So I want to talk about the role of knowledge and ideas here. Let's even suppose that a particular group of elites at a particular time are properly incentivized to pursue a development bargain. Right? Sometimes the kind of ideas you still find floating around in the corridors of power can be quite counterproductive. A very revealing part of your book for me was when you were talking about the role of China. Also, I have no problem with China. The anecdote about Justin meme stood out to me quite well, because I could relate to it personally because I've also been opportuned to be at conferences where Justin Lin spoke, and I was slightly uneasy at how much simplification happens. I mean, just to digress a little bit, there was a particular presidential candidate in the just concluded primaries of the ruling party, I'm not going to mention the name, who is quite under the heavy influence of the China model. Right? Always consults with China, always meeting with Chinese economists and technocrats. And my reaction when he lost the primaries was ''thank god,'' right? Because what I see mostly in development thinking locally, I don't mean in academic circles, a lot of debates are going on in academics... is that the success of China and Asia more broadly has brought the State primarily into the front and centre. If you look at this current government, they will tell you seven years ago that they meant well. You know, judging by the Abba Kyari anecdotes where government should own the means of production. He may not believe that, like you said, truthfully, but you can see the influence of what has been called ''state-led development.'' In a state where there is no capable bureaucracy. The government itself is not even optimized to know the problem to solve or even how to solve that particular problem. Right. So broadly, my question is, if an elite chooses to pursue a development bargain, how does it then ensure that the right ideas, which lead to the right kind of policies, and maybe there might not even be the right policies - one of the things you mentioned is changing your mind quickly, it's an experimental process - but, you know, this process needs people who are open to ideas, who change their minds, who can also bring other people in with different ideas, you know, so this idea generation process in a development bargain, how can it be stable even if you have an elite consensus is that chooses to pursue development?Stefan; Look, it's an excellent question. And last week, or 10 days ago, when it was in Bangladesh, I was very struck that, you know, as a country I think that has the development bargain, there was a lot of openness. And you know, I was in the Ministry of Finance, and people had a variety of ideas, but they were all openly debated, there was not a kind of fixed mindset. And it is something that I've always found a bit unfortunate dealing with both politicians and senior technocrats in Nigeria. Nigeria is quickly seen as the centre of the world, there's nothing to learn from the rest of the world, we'll just pick an idea, and then we'll run with it and there's nothing that needs to be checked. And, you know, I love the self-confidence, but for thinking and for pursuit of ideas, you know, looking around and questioning what you hear whether you hear it from Justin Lin, who by the way, I don't think he's malign and he means well, he just has a particular way of communicating but it is, of course, a simplified story that you can simply get, and then you'll pick it up. And of course, if you ask the UK Government, the official line from London, they will also tell you there is only one model when they're purely official, but privately they will be a bit more open-minded, and maybe Chinese officials don't feel they have that freedom to privately encourage you to think a bit broader and so you have maybe a stricter line. So how do we do that? I think we can learn something here from India in the 1970s and 1980s. So when India after independence, it had a very strict set of ideas. In that sense, India was as a child of its time as a state, you know, state control, state-led development, there were strong views around it and India ended up doing a lot of regulation. They used to refer to India as the License Raj. Like a whole system based around licensing and everything was regulated by the state. So the state had far too much say in terms of the activity, despite the fact that the underlying economy was meant to be very entrepreneurship and commerce-led, but you had a lot of licensing rules, and so on. And of course, its growth stayed very low in the 1970s and 80s, it was actually very stagnant. It changed in the 1990s. Partly came with a crisis - in fact, a balance of payments crisis - it needs to reform and Manmohan Singh was the finance minister, then, later on, he became maybe a less successful Prime Minister. But as a finance minister in the early 90s, he did quite amazing things. And then during the 90s, gradually, every party started adopting a much more growth-oriented, more outward-oriented type of mindset. Now, why do I say this? Because actually, during the 1970s, and 80s, you had think-tanks, all the time pushing for these broader ideas. It took them 20 years. But there were really well-known think-tanks that kept on trying to convince people in the planning commission, economists in the universities and so on. And to critically think, look, there must be other ways. So actually, funnily enough, in India, it has a lot to do with the thinking and the public debates, that initially the politicians didn't take up, but actually found the right people to influence... you know, you actually have still in the civil service some decent technocrats there, they don't get a chance. But there are decent people, I know some of them and so on. But there needs to be a feeding of these ideas. And actually, this is where I would almost say there's a bit of a failing here, in the way the public discourse is done [in Nigeria] and maybe voices like you, but also more systematically from universities from think tanks and so on to actually feed and keep on feeding these ideas. There is a suggestion [by] Lant Pritchett - you know he's a former Harvard economist, he is now in the UK - [who] wrote this very interesting paper and he said, some of these think tanks who are actually getting a little bit of aid money here and there and he said, that's probably the best spent aid money in India ever. Because the rate of return and he calculates this number is like 1,000,000%, or something. Because he basically says the power of ideas is there. And I do think there is something there that I'm always surprised by that there are some very smart Nigerians outside the country, they don't really get much of a hearing inside the country, then there are some that are actually inside the country, the quality of debate is maybe not stimulated to be thinking beyond. It has to do probably with how complicated your country is, and of course, the Federal status plays a role. I just wonder whether maybe this is something that needs to start in particular states. You know, there are some governors that are a little bit more progressive than others. Maybe it is actually increasing and focusing attention over this on a few states to get the debate up to a high level and to actually see what they can do and maybe it's where the entry point is, but you need ideas I agree with you and I do worry at times about the kind of critical quality... there are some great thinkers in Nigeria, don't get me wrong, but the critical quality of ideas around alternative ways of doing the economy and so on, and that they get so easily captured by simple narrative, simple national narratives that are really just too simple to actually pursue. I mean...yeah.Tobi; That's quite deep. That's quite deep. I mean, just captures my life's mission right there. It's interesting you talked about Lant Pritchett and the question of aid, which is like my next line of question to you. There was this brief exchange on Twitter that I caught about the review of your book in the guardian, and the question of aid came up. I saw responses from Martin Ravallion, from Rachel Glennerster, I'm not sure I'm pronouncing her name right. So it's sort of then brings me to the whole question of development assistance, aid, and the way intervention has now been captured by what works. One fantastic example I got from your book is on Bangladesh, and how both systems work. You know, there's a broad development bargain, it's not perfect, nothing is, no society is. And there's the pursuit of economic growth. And also, it's a country where aid money and all forms of development assistance is quite active, and is quite huge, and it's actually quite effective. Now, my question is that basic insight from your book, which is for aid spending to be a little bit more biased, not your word... a little bit more bias to countries that have development bargains broadly? Why is that insight so difficult for, I should say, the international NGO industry to grasp? Why is it elusive? Because the status quo, which I would say, I don't mean to offend anybody, but which I will say is also aided by development economists and academics who have sort of put methodology and evidence above prosperity, in my view... because what you see is that, regardless of how dysfunctional the country is, broadly, the aid industry just carves out a nice niche where they do all sorts of interventions, cash transfers, chickens and, of course, you can always do randomized control trials and you say you have evidence for what works. But meanwhile you don't see the broad influence of some of these so-called assistants in the country as a whole. And these are institutions who proclaim that they are committed to fighting extreme poverty and we know what has vastly reduced poverty through history has always been economic growth and prosperity. So why is this elusive? Have those agencies and international development thinking itself been captured?Stefan; Look, I think I should make you do my interviews in the future. Yeah. So I've got to hire you to give...Because, look, I've been inside the aid industry and, in fact, the two people that you mentioned, you know, I would call them my friends, although one of them clearly is very cross at me at the moment. But you know, these are people I've worked with, and so on. And I am worried that there is such an obsession within the aid industry to prove their effectiveness. And I know I've been under pressure, you know, I've worked in it and sitting in London and getting your newspapers to say you're wasting all this money. It's really affecting a lot of people. And it was really hardwork for these 10 years that I sat inside it. But it's about just the humility that you just described, you know, and I want to make this distinction between...I'm about to make two distinctions. So the first one is - you made it well, even Bangladesh, something is going on. And you know, with all the imperfections, the government is trying to do something, and largely by staying to some extent out of the way. And there's some good stuff happening. So there's growth picking up and so on. So you can do all kinds of things. And I think aid in Bangladesh has been great at trying to make sure that the growth that was taking place in that country was a bit more inclusive than it probably would have been. I think it's great. And I think the aid industry should be proud of it. There is a great book that I quote as well also by Naomi Hossein and she calls it The Aid Lab and this is a bit like in praise of it. You know, if we do it carefully with some community and complement what's going on in a country that is deeply poor, you know, you can actually do really good things. Because in the book, I also mentioned Ghana that, actually, aid has been pretty effective because something had begun to change in the 90s, and so on. And we can question that to some extent and, of course, it's none of this perfection. But if you then come to a country where, you know... probably the two of us agree [that] there is some form of stagnation in that kind of [country], there's no development bargain, the elite bargain doesn't really push everything forward. Just be humble to say, look, I have a little niche, and there will be some chicken farmers that are happier, we'll do some good things in health... in health, actually, it's quite straightforward to do good things. But they are to call these good things, don't classify this as if you are leading the fight against extreme poverty, leading the fight against the change in these countries. Because, actually, if the local elite is not leading their change, and those people who have the power and influence not leading their change, the best you can do is doing good things. So I'm happy for us to be able to say we do good things. And it led me in the context of an interview to say like in India, as doing a lot of good things means that aid was actually in itself quite irrelevant, because the real change came, as I described in the 90s, actually, there was a real shift in gear, and suddenly their own development spending became gradually more effective. And of course, you can help them then to make it more effective. But, you know, I was a bit sad, and Martin Ravallion now took issue with it and wanted to emphasize... you know, and I don't want us to ever say, look, we did it. I mean, it's such a lack of humility I'll say this. At some point, we may have been supportive of doing it, but it's always the countries that did it. And the people there that did it. And other times just be humble and say, well, we may be doing something reasonably good, we may improve health outcomes, education outcomes, but not necessarily the whole country may do it in the schools that we work in, or whatever. And it's, that's good, you know, that's just as there are Nigerians that do good things via their own organizations and so on, they do good things. And it's probably teachers in the country, within the state schools that do some of these good things in the best practice stuff. And so yeah, they improve things, but overall, have the humility to say you're not changing Nigeria, because unfortunately, Nigeria is not being changed at the moment.Tobi; So my question then would be, is it reflective of the current intellectual climate in development economics where randomized control trials, they pursue...I know Lant Pritchett has really come down quite heavily on this particular movement, though, sometimes he seems to be the only one standing, maybe not quite literally true and I'll give you two examples from Nigeria, right? In 2012, when the anti subsidy-removal protests broke out, when the government on the first day of January removed fuel subsidy and prices suddenly went up. And the labour movement, the student movement, opposition politicians mobilized the population against that particular move. Some form of resolution that the current president at that time reached was to do what they call a partial removal of subsidy, you know, prices will go up a little bit and the government then did a scheme - an entrepreneurship scheme - where you submit a business plan and you're paid to get $50,000 to do a business.And I read a particular study by David Evans of the World Bank of how fantastically successful this particular scheme was, and of course, no doubt, it was successful. I mean, if you get $50,000 to do business in Nigeria, that's a lot of money. I don't need econometric analysis to know that, but maybe some people do. But the truth is, if you look today, I can bet you that a lot of those businesses are probably dead now due to how the economy as sort of evolved after that. Secondly, at the time we were having these debates and protests in 2012, the subsidy figure there was $8 billion annually, today it is $15 billion. So if you say you have evidence that something works, what exactly is your time horizon for measuring what works? And if you say something works, works in whose benefit, really? The most recent example was in 2018, 2019, where the government was given a small amount of money to small retailers, they call it Trader Moni. I'm sure there were World Bank officials and economists (I have a lot of respect for them) who are measuring the effectiveness of this thing. But you could see clearly that what was politically going on was the government doing vote buying. Right? So if you say something work, works for whom? Right? That was my response to Rachel on Twitter, but she didn't reply me. My question then to you... Sorry, I'm talking too much... Is this reflective of the current intellectual climate in development economics? Stefan; So yes and no? Okay. So, well, i'm going to have to be very careful. Of course, Rachel...I know her very well. And, actually, I have not that many gripes with her. She comes out of, indeed, the whole school of RCTs. By the way, I also actually do RCTs. I like it as a tool to actually study things. And I'll explain in a moment a bit more. So I do these randomized control trials as well. But I am very, very sympathetic. And I actually totally agree with your frustration around this idea to creating that impression about what works. You know, I have it in the book, I even mentioned it, there was a particular minister that at some point announced we're only going to spend our money on what works, you know, like a great slogan, as if you have all the answers, you know what to do. And of course, there is a technical meaning to it. Technical meaning would mean, if I do something and if you haven't done it, what would have been the outcome? And the paper that you refer on the entrepreneurship, this entrepreneurship for the $50,000... I know actually the research very well, the original was from David McKenzie and then other people commenting on it. Yes, relative to a counterfactual, yes, it was actually much bigger than an alternative scheme, you know, then that's something. So you could say, well, you know, as a research question, as a researcher, I find it interesting. From a policy point of view, I'm so much more cautious. And I'm totally with you. You know, first of all, in the bigger scheme of things, how tiny maybe it be... now there are some people who would say, well, we don't know anything, really, what to do in this whole messy environment so at least [to] have something that does a bit better than other things is maybe a useful thing to know. I think it comes back to that humility. As a research tool, it's great at getting exact answers. As a policy tool, I think we need to have much more humility. Because are these ideas tha totally transforms everything, that is actually makes a huge difference? Not really. It probably means that we can identify a little bit and I think even Pritchard wouldn't disagree with [that] sometimes a few things are a little bit better than other things. And if we want to do good, maybe it's helpful in medicine whether we know whether we should spend a bit more money on X or on Y, that it actually does a little bit better in the functioning of a health facility or not, if we spent a bit more money on that practice or on that practice, same in teaching in the school, if we do a little bit more of that in a very constrained environment than something else, that's useful, it doesn't change dramatically. And I categorize it with doing good. With humility, if we do good, it's helpful to know which things are a bit better than other things...when we try to do good. It's an interesting thing, even in Rachel's thread, she actually used it, we can still do quite a lot of good with aid. Actually, funnily enough, I don't disagree that deeply with her and say, Yeah, we may be able to do it good, but don't present it as if we, in the bigger scheme of things, which is where you're getting that, make any difference. And this is where I'm also sympathetic with Lant in saying, Look, sometimes we seem to be focusing on the small trivial things and yeah, it's useful to know but meanwhile the big picture is what you were describing, there's so much going on and, actually, nothing changes there. And so I categorize it in a bit of the same thing. Because I'll now give you an account, which is then go to Bangladesh again. Look, I think it was extremely useful in Bangladesh at some point to really have ... an RCT - a randomized control trial. So really careful evidence to show that a particular program that BRAC, the biggest NGO in the world, the local NGO, was actually what it was actually doing to the ultra-poor. In fact, two weeks ago, I was visiting the program again. And I find it really interesting because it's really helpful for BRAC to know that that program, when I do it in a careful evaluation relative to other things, that actually this program is really effective. And that, actually, we know for BRAC that they can have so much choices to spend their money on poverty alleviation, the things that we can dream up, to actually know this is actually a really good thing. And why of course does it work? Well, it works relative to doing nothing, but of course, it helps in Bangladesh {that] growth is taking place and it actually can get people to become [a big] part of it. In fact, I was visiting people that, whether we use a Nigerian or Bangladeshi definition of extreme poverty, they wouldn't have been in that state 10 years ago and so this is their being six, seven years in that program, and it was really interesting that I was sitting into some interviews they were doing, and I looked over my shoulder, and they now had a TV and a fridge. And I say, okay, an extremely poor person in Bangladesh would not have had this. So there's clearly something happening. Now, that's not simply because of the program. It's also because the whole country is improving. But I'm pretty sure and what the data showed is that those who actually had a program would have found it a bit easier to take part in that progress. And I'm pretty sure that the TV, and the fridge, probably was helped, to some extent, by the programme. In fact, we have very good evidence in the kind of evidence that Rachel Glennerster talks about. So again, I think it's all about a bit of humility, and understanding better what we mean by it. And to be honest, I think there are lots of people who work in that field that are careful with it. And that actually will do it, use it well. It gets just really worrying that people, often more junior people than Rachel, they've never really been in the field properly and then they make massive statements. So they work in big organizations, and they use that evidence, overuse it and overstate it. I think Rachel is actually careful, even her thread was very careful, although your question is a very good one. But it's very careful. But it still allows other people to overinterpret this whole thing. And then I get really worried. I'm actually going to put out a thread on Twitter in the coming days where I'm going to talk about tribalism in development economics... where I'm good to deal with your question as well because I think the way the profession has evolved is that you need to be in one tribe or another, otherwise, you're not allowed to function. I think, you know, you need to be eclectic, you know, no one has this single answer. And there's too much tribalism going on, much more than I've ever known before. You know, you need to be Oh, a fan of that, or you need to be the historical approach, or the Political Economy approach, and the whole... we should learn from all these bits. That's the idea of knowledge that you learn from... as much as possible from the progress in different parts of a discipline, or in thinking.Tobi; I'm glad to have caught you on a free day because having a lot more time to have this conversation has made it quite rich for me personally, and I'm sure for the audience as well. So I just have a couple more questions before I let you get back to your day. The first of those would be...um, when I first became aware of your book on Twitter, it was via a Chris Blattman thread. And he mentioned something that I have also struggled with, both personally in my thought and, in my conversation with people. And somethin

I was thrilled to get a chance to talk about cities with Alain Bertaud - he has been one of the most important thinkers in urban planning for the past fifty years. His book Order Without Design is a must-read and an excellent summary of his research (conducted in collaboration with his wife Marie-Agnes, an urban planning scholar in her own right) project with aim of bridging the gap between urban planning and urban economics. Alain is a brilliant and generous teacher who has greatly influenced me - I hope my questions have done their bit to honour him.TranscriptTobi; Welcome to Ideas Untrapped podcast and my guest today is legendary urban planner, Alain Bertaud, welcome to the show, sir, it's an honour to speak to you.Alain; Thank you very much for inviting me, I'm quite honoured.Tobi; You are aware that some of the biggest cities into the future are going to be in the so-called low-income countries, because urbanization is exploding in cities like Lagos, Kinshasa, and these cities are a bit different from some of the cities in other places around the world, especially in the West, you know, in that they are lower-income, they are a bit congested, they don't have much density, and, it's a challenge for such cities having to host that many people. Now, if I may ask you, what would you say the problem has been in making some of these cities work? Are we seeing a failure of markets or planning or a bit of both? Alain; I think that there are sometimes market failures. But I think that there has been a neglect of infrastructure. For me, a city, and that's something common to all the cities of the world, whether they are, you know, in Europe, in America, in Africa, or Asia, the main things for cities are labour markets, that's why people go to cities to find a job. And that is why a big firm will go to Lagos. They will go to Lagos, rather than a small town somewhere. They will go to Lagos because they will find in Lagos people who are competent in whatever they want to do. They will find a large labour force, you will have a lot of choices. And so if I am a migrant living in a small village somewhere in Africa, and not necessarily Nigeria, I may want to go to Lagos because I know there are a lot of jobs there. So if we accept that a city is a labour market, the most important things are two things. First is transport. You should be able to move in this large city. Within an hour, you should be able, ideally, to go from one side to another side, in order to find the job you want and change jobs. You know, changing job also is very important. That's why company town, you know… sometimes you have a mining town or a town developed around a steel mill or something, and then everybody there is working for one employer - the mine or the steel mill, this is not very good, because you have no chance of changing jobs. I think the advantage of very large cities like Lagos or Abidjan or Dakar, is that there are so many employers that you can fill your way, you know, you can change jobs and learn things from other people, that's what's a city. Now, what should the planning be? Planning should be transport, you know, there should be a system of transport. And when I say transport, I don't mean necessarily a subway, I mean, subway sometimes is necessary, but not always. It could be informal transport, you know, the different minibuses, for instance, so things like that which are private. But the planners often consider them as a nuisance, you know, that they are a little messy, they stop everywhere. Sometimes they don't follow the rules very much. But if they are there, it's because there are people who prefer to take this informal thing rather than a regular bus. So we have to take them into account. And we have to make them more efficient, you know, by having specific stops where they can stop which is wide enough and things like that rather than eliminating them. So the first thing is transport. The goal is to allow people to move from one part of the city to another in less than one hour. Now, in a very large city like Lagos, I suppose it's a bit like Mexico City, you will find that this is impossible right now [to move] from one side of the city to [the other], you know, let's say you go from north to south, it may take you three hours to go there. The goal is to decrease this time, you know, [and] how do you decrease this time so that you can have access? Any individual should have access to the maximum number of jobs. And it's the same for the employer. You know, the employer, when they look for employees, if they move to Lagos, suddenly they need somebody with specialized, I don't know, a welder, for instance, somebody who is very specialized in something. They want to have a choice between competent people. If the transport system works well, they will have a choice between 100 welders and they will select what is best for their company. So transport is the most important thing and you have to take into account informal transport, you know, this is very important. You cannot just say the best will be to have a subway or... you know, it's possible that the subways might be necessary but it's only one part of the transport system. You cannot pretend that one day everybody will move by subway, or municipal buses, or even ferries or things like that.All these modes of transport have to be combined and thought together, including cars, by the way. Many of my colleagues now are dreaming of cities without cars, I don't think it can work because first you have freight, and you have certain jobs which cannot be done without a car, you know, if you are a plumber, or if you are an electrician, you have to move around with your material, you cannot take a subway… if you are a plumber, you know, with your bathtub or something like that. So a large city has acquired a lot of freight, you know, you have restaurants, you have bars, you need to bring food to those restaurants, to [bring] bottles of beers, something like that. So you need a transport system which accommodates all modes of transport. Some of my colleagues have a preferred means of transport that they love, you know, say light train, tramway, or bicycle, or scooters, or whatever, or subway, or monorail. And I think that it's possible that a monorail is a good thing, but it will be only a small component, you know. So the job of the planner is to accommodate all these different modes of transport. And if people prefer to take even a taxi motorcycle for instance, which I think in many countries of Africa, I'm sure in Lagos it exists too, you have to accept that this is the best way for some people, not everybody, but for some people. So you have to also accommodate that and say, Well, what do we do for them to reduce, for instance, reduce the pollution they cause but also reduce accident, make them more convenient, because those means of transport are serving certain groups of people who have no choice, who cannot afford it, or who live in a part of the city which is not served by the normal transport. So transport is very important and transport has to be multimodal, and you have to look at it. The other thing which is very important in every city is housing. People move to the city from the countryside or from another city, and they look for a job, but they have to find housing. And very often, I think [for] many of the cities in Africa, but also in Asia, or even in Europe, they didn't welcome the migrants, they considered that the migrants are a nuisance, you know, because usually, they are relatively poor. Some of them are coming from the countryside, so they do not have the skills. You know, they have skills, but they are raw skills, which are not necessarily very useful in the city. So they have to learn skills. The city has to welcome those people because they are the labour force of the future. They are the ones who are going to pay taxes in the future. You cannot import only people who have PhDs or things like that, I mean, those are very useful, too. But we have seen that during the pandemic. During the pandemic suddenly I remember in New York, but everywhere else, people were saying indispensable people, who are the indispensable people? And we found that the indispensable people were not professors like me, they were people who were delivering food in grocery stores, they were indispensable. They are indispensable for the life of the city. So that's why they have to be welcome too, you know, and for that they need housing. So they need housing, they need land. I think that the big mistake that many cities have done, again, everywhere in Europe, as well as in Asia, or in South Africa, by the way, is to concentrate too much on housing, and not enough on infrastructure. I think what planners need to do is to let people build whatever they want even if it's a shack, but provide clean water supply, provide sewers, and some services like health [centres] and schools, and let people build whatever they want on the lot, even on the very small lot. In my book, I have an example in Indonesia what they call the Kampung development which were villages which were absorbed by the city, and you know, if they were very poor, they will have a lot which is only 15 square meters, and they will build a house of 10 square meters with corrugated iron and bamboo and then that's it. This is okay, providing they have clean water supply and that the dirty water is evacuated. What is terrible is to live in an area where the garbage accumulates, children play in dirty water and there are no health facilities at all or schools. So, to me, the criterion of a successful city is how long do they take to absorb a migrant, a migrant who is coming from the rural area, who has no skills, he has only his arms or her arms. And how long does it take to absorb them so that they can get an urban job where they are very productive for the city and then contribute to the welfare of the city. So some cities have tried to measure it a bit informally and some cities take one or two generations. You have one or two generations of migrants living in extreme poverty, very often being sick because they live in very unhealthy neighbourhoods, and it takes two generations to be absorbed. In other cities, in some cities of Asia that I know, in half a generation, those people are absorbed. So for me, how quickly you can absorb these people in the city life is a sign of success that you can measure. Now, the attitude very often of the housing board or people in government involved in housing, is to say, well, these are poor people, let us be nice to them and build really nice houses for them. So they build kind of a walk-up apartment, or five, six-storey or something like that. And the problem with that is sometimes they are well designed, most of the time badly designed. But when they are well designed, they are too expensive. So the government, instead of delivering one million lot a year to absorb those migrants, they deliver 500 houses. So the houses are nice, you know, they have electricity, they have plumbing, but 500 houses do not solve any problem at all for all the others. So I think that you have to give up the idea of building houses. And this is not very popular, by the way. Politicians like to say, we are going to have one... usually, they say 1 million houses, and then they end up building on the 5000. And they call the press, they build a simple building and they say, you see everybody in the city now is going to be entitled to a house like that, and then never get built. And then we are back to square one. So I think we have to be very realistic, we have to accept poverty, we have to accept that there is a lot of difference in income in a city and we have to concentrate the resources of the government on the few things which are important, like water supply, sewer and things like that. Not, you know, not having an ideal city. And poverty is something which is temporary. For instance, I used to work in Korea, a long time ago, you know, Korea, in 1968-70 I think had about the GDP of Mali, you know, it has about the same and then what happened? And suddenly now it's an industrialized country. They absorbed migrants very intelligently, I think the absorbed migrants and the area which were slums are well developed, you know, you still have neighbourhoods which were former slums which have been developed. So you see, poverty is a temporary phenomenon. It's not a permanent one. And you have to accept it when it happens. But then slowly make the people employed, so slowly, they will emerge from poverty. You don't address the problem of poverty by giving say somebody who has an income of, let's say, $300 a year to give this person a house, which costs you know, $50,000 is not going to solve poverty because you will not give very many houses like that to them. And probably those houses are going to go to people of much higher income very soon. So you see where infrastructure is always useful for everybody. So that's my attitude, those two things. First, the people who live in the city are the ones who are going to make this city so the infrastructure has to serve this. And the infrastructure, in particular the roads, has to give access to a lot of land even if the cities sprawl, so that everybody has access to a piece of land where they can build something. If originally they build a shack which is not very nice,[it] doesn't matter providing they have an infrastructure which allows them to stay healthy, and to have access to jobs eventually. So then they will themselves either move to another neighbourhood or build something which is better. Again, I think my chapter on the Kampung in Indonesia in my book illustrates this very well.Tobi; I'm going to come back to cities as labour markets later, which is one of the most powerful insights I got from your book. So we're talking about housing. For example, in Nigeria, it is popularly reported that we have a housing deficit of 17 million households, there are many independent estimates that put the number higher than that. So how do we, especially, in the face of rapidly increasing urbanization… how do we increase urban housing at a big enough scale? Do we have to democratize land markets in some of these cities? For example, in Nigeria, we have a Land Use Act that places the ownership of land solely in the hands of government, though there is an informal land market but it's, of course, largely informal. So do we have to democratize ownership? And would you say the ideas of Hernando de Soto will be useful here, like, we need to absorb more people into the formal land registry?Alain; Right, yeah, I like your idea of democratizing the land market. That's exactly what you have to do. Now how do you do that? I will give you an example. In Indonesia where I worked again, when the government started investing in the Kampungs, which were slums at the time, you know, pretty bad slumps, actually, but providing the infrastructure in those slums, you know, I was working for the World Bank at the time. And we insisted that they should survey this informal area, and give tenure to everybody, even people who had only say 10 square meters of land. And then the Indonesian told us, that will cost a lot of money, it will be very, very long to do because, you know, all the streets are crooked and things like that it's very difficult to survey. And they say, why don't we just accept the informal market. And it took a long time for us to accept, and then we accepted it. And then we realized that after people were giving water, you know, clean running water in those slums, they had a bill to pay for water. And the bill was a substitute for tenure because they have an address. You have an informal market which becomes formal, because it was legal, because people could do it. So you have to legalize. It doesn't mean necessarily that we have to have a registry in the cadastral, in the formal cadastral, because that may take 20 years. In a way, the Kampung in Indonesia, you could consider an entire neighbourhood as a condominium. So it's a condominium and within this condominium, you establish the rules which are specific to the condominium. And then let people trade. They know what is the boundary of their lot, usually, they're very small. And everybody knows that and says, if you have three or four witnesses, you will have a piece of paper. And little by little, then you could formalize it. But I think that recognizing the informal trading of land, making it legal, and including, by the way, we found then in the Kampung that even banks now accept as a title, just the water bill. you know, there is a water bill, Mr So and so during last five years had paid this water bill at this address, and you know, you don't have the former survey, but you know, the lot is, say 50 square meter, and a bank will accept that as collateral, because it's recognized by the government, it's not going to be bulldozed. The problem with informal settlements is that sometimes the government will just go through and bulldoze that area, or put a highway through, and do not compensate people because they do not recognize the legitimacy of their claim. And so if you do that, then, of course, you create an enormous uncertainty on tenure. You do not encourage people to invest in their own neighbourhood. And of course, banks will never touch it, because you know, if they learn something, and then a highway goes through and there is no compensation. So I think that integrating the informal sector, not necessarily making it formal in the sense that they have to follow the same rule as the formal, but have special role for the informal sector to make it legal. And then look at land use regulation. That's been my problem all over the world. And that's true, by the way, in New York or Paris, that there are standards for housing which are not really reflective of what people want. For instance, in New York, the government imposed by regulation, larger apartments than what people want. You know, there are a lot of people now in New York who are living alone who are a small couple with only one child or no child and the regulation do not reflect that, that those people will be very happy to live in a studio and they are not allowed to build a studio. So I think it's the same in developing countries. If you are poor, you can live with your family in 10 square meters, but if that 10 square meters is close to jobs and have, again, access to clean water, and if there is a school nearby, this is what is important. And you should be able to live there legally, you know, legally without the threat of being exploited or things like that. And again, you know, you were mentioning at the beginning housing deficits, right. I don't believe in housing deficit. Deficit is only, what is your minimum standard for a house? Have you measured all the houses in Lagos to know which ones are below the standard? And what are your minimum standards? You know, is it 10 square meters? Is it 100 square meters? Do you need two bathrooms? For instance, the UN have this thing, I think you have to have, I think it's one room per person or one-half person per room or something like that. And if it's below that, it's a slum, and it's informal. It's a deficit in the housing, I don't think it is. By definition, all the people who live in Lagos live in something they can afford. The problem with housing is that they can afford very, very little, and there's no water and no electricity, maybe, I don't know. And so you have to increase the consumption of housing of the people who are already living there, it is not a question of saying this is not housing, we need to build a new house somewhere to compensate for this house. So I think that the idea of deficit, you know, doesn't lead you to good policy. It's too abstract. You could say, you know, in Lagos, for instance, we can produce only, I don't know, 20 litres of clean water per capita, per day. And so we want, of course, to increase it to, for instance, 60 or 80 or 100. And then you will need to bring more clean water or use more clean water in Lagos, that's legitimate. Let's say you have a deficit of water in the sense that you want to increase the consumption of water. Now, when you do that, you will have to look at the income distribution curve within the city, you know, but in my book, I have several of those curves, and you will have to see if you increase the supply of water in Lagos, you have to make sure that the ones who increase their consumption are the ones now who consume very little. And so you increase their consumption. So you have to measure the consumption of these different groups. Clearly to increase consumption is not to build more houses. And people will build [for] themselves more houses if there is enough land with infrastructure. So the goal of the city is to develop more land with infrastructure.Tobi;So urban planners are by nature very practical people, but I'm going to ask you a bit of an abstract question. Do you think part of the problem with this housing thing is that on some level we do not really respect or extend that abstract idea of property rights to poor people? Is that part of the problem?Alain;Absolutely. Absolutely. I think there is a paternalism, let's say, of the elite, who consider that poor people will always be dependent on a social program. And in a way, you have a society that largely lives on markets. But then you try to condemn the poor into a kind of non-market things, you know, like putting them in public housing or saying well, wait for public housing, we are going to provide you with public housing, you know, don't worry about it. So they are in a socialist system with no property rights. You know, their property rights is going to be given to them by the government, it's not something they will acquire by themselves. So you have these two societies, and then it creates a poverty trap for the poor, you know, they cannot escape because they never accumulate capital. They cannot invest in their own house because their house belongs to the government, [it] doesn't belong to them. So I think that, yes, it's a problem of poverty right. And very often also, many cities have colonized poverty right only if you have a lot developed very formally of a certain size, you know, they will not allow people to own land if the parcel is not at least 200 square meter or 500 square meters, I don't know. And this is not correct. You know, if somebody owns 100 square meters, you should recognize that this ownership is 100 square meters because if not, if you put this minimum threshold of ownership, that means you exclude from ownership half of the population of your city, and you make them live in a non-market economy while the rest of the economy is working on the markets.Tobi; Let's talk a bit about density. So when I travel to New York City, I enjoyed the fact that from my hotel, I can access a cafe, I can access the cinema, I can go to my appointments, possibly all within a walking distance of 15 to 20 minutes. Alain; Yes.Tobi; That is something that I don't have in my city. Sometimes if I want to see a movie from my house, I have to drive two, sometimes two and a half hours. So how can cities in... I don't like that phrase developing world, but that's what I'll use for now. I don't like it. So how can our cities, and by us I mean cities like Lagos and co., better optimize for density or [as] I'm also seeing, ideas by some other planners or thinkers in that space saying that perhaps some of these cities have to give up on the idea of density altogether? So?Alain; Controlling densities, yeah, you see, every land use regulation, control density, tend to put density down, always. You have a minimum lot size. So some people would like to have a small lot, but they are obliged to have a bigger lot because that's the regulation. And then you have the floor ratio or maximum height of buildings. I think that the height of buildings should be removed. So planners say ah, ah but if we do that, we will not have the infrastructure to serve higher densities. Infrastructure is much cheaper than land, always. Much cheaper than land. So what engineers are doing, they are saying, Hey, you have now a water pipe, which is only that big. Therefore, the density cannot be more than that, because we will not have enough water if the density increases. But they are making a trade-off between land and the price of your pipe. And land is more expensive, and more useful. So I think that if they let the density increase, of course, they have to have a system of taxation on land. But again, if they recognize the ownership of land to a lot of people, they can have a type of property tax or something like that which will allow them to have the resource to pay for the infrastructure. And it's always cheaper to increase the level of infrastructure in [an] existing area, to increase the capacity than to expand further away. So if your regulation restricts densities, it means that people will have to build somewhere else, you know, further away. And they're not going to leave the city because the planners say the density here is restricted to that, they are going to stay there but they are going to live further away and at lower densities. So many of those regulations should be audited. I'm not saying that all regulations are bad, not at all, I think the markets need regulation. But the regulation which regulates consumption, that the people themselves can see... you know, if I go into a studio which is 20 square meter, I know it's 20 square meters, if I want to rent it to buy it, this is my business, the government do not have to tell me, No, no, a studio has to be certain square meter, or at least you cannot buy 20 square meters, this is absurd. Let the consumer decide what is best for them. Because then they can... you know, the problem you were mentioning, they can make a trade-off between living in a smaller house but closer to amenities, or a large house far away from everything, you know, some people may prefer that. So regulation restricts the choice. And of course, regulation, because they have this minimum consumption standards, if you look at the income distribution curve, those minimum construction housing standards have a cost. So they eliminate automatically, maybe 50% of the population from anything formal. You know, informality is really created by regulation. It's not created by anything else.Tobi; I want to talk about, perhaps, maybe, there is a kind of market failure in trying to deliver density. Devon Zuegel, I'm sure you're aware [because] she is your friend, wrote...Alain; She's my friend, yes. Tobi; She wrote a blog post a couple of days ago...Alain; I read it, yes.Tobi; Very interesting. I found it very interesting. And while read in that I, because i liked it...Alain; Yeah, Devon, in the last line of her thing [blog], she says, I have not discussed regulation. And my experience is that most of the inconsistencies or contradictions of densities in cities are due to regulations. And I will argue with her about that. You know, that she has to do a blog on regulation.Tobi; I would love to read that because while internalizing the idea she was putting forward, I thought about my street. So I live on a beautiful street. There is access to a major road and so many other amenities. it's gated well secured and all that. But we have just nine houses. Landlords built these huge compound houses. And I can't help but think, every time I go back and forth, that this is an area that can actually house a lot more people. So would you say that's a failure of markets because I think that equilibrium came to be because the first settlers on my streets prefer building for space as opposed to access?Alain; Yeah, but that's not a failure of markets. The market is a mechanism. It's not a god, it's not a religion, it's a mechanism. So here you have people in your compound who live there because they enjoy having low density. And I hope that they paid for it, they didn't steal the lot. So they paid for it? And so that reflects the market. At a certain point, if there is demand for higher density there, a developer will come to your compound and say, I'm making a deal with you, you know, I will give you that much money, and we are going to build more houses here. Unless. Unless there is a regulation which says you cannot have more houses there, or unless the water company tell you, we will never provide enough water in this area for higher density. You know, there are market failures, by the way, but I don't think that density is part of market failures. I think the market predicts rational densities if they are free to [build]. So let us talk about market failure. For instance, pollution is a market failure, you know, there is no way to decrease pollution directly through markets. I mean, you can do it by taxing polluting cars more than non-polluting cars, you know, this you can do, but you have to address it through market mechanism. But the market itself is not going to create a non-polluting thing. The same with global warming, you know, you have to price carbon. The government has to put a price on carbon because the market will not go into putting a price on carbon. That's clear. And then for major infrastructure, for instance, say, if a large city like Lagos needs more water, you know, enough water, clean water for everybody, you need major work to get the water somewhere - from a river, from a deep well, I don't know. And this major work is not going to be created by markets. The government could use a private company to do it. But the initiative has to come from the government, to say we need that many millions of cubic meters of water in the next 10 years. And our engineers say that to do that, we need to have, say, deep well, or whatever water plants, and that will cost that many million dollars. And that will be recovered from taxation. So it could be tax on land, it could be tax on income tax, I don't know. And then we have to do this major work somewhere in the city or in the suburb of the city where you will have the water plant. So all this is not done by markets, the total amount of water which will be brought to [households] has to be done by government, it has to be planned. And after, you will allow the land market to work. If you are allowed to put a network of pipes with water everywhere, including in areas which are not yet developed, including areas which have very low density but could not densify without more water.Tobi; Finally on housing before I move on, do you think that some of [the] newer propositions or technologies like blockchain, for example, hold any promise in terms of land registration, and generally democratizing property rights in cities?Alain; It's quite possible. I am not knowledgeable about [blockchain]. I'm very interested and intrigued by blockchain but I have not seen an example yet. But it's quite possible that yes, this could do it. Yes. You know, at the beginning I was talking about the problem of formal cadastral you know, the traditional property rights [that is] given the cadastral way [where] you have a surveyor from the government who starts taking [measuring] things, and this is very slow, it's very costly to do. It's possible that there are better ways of doing it. And it's possible that blockchain will be [it] but I've not seen an example yet, but it's possible and it might be a good way to start in a city like Lagos, just to try it, see [if it works].Tobi; Interesting. So let's talk about charter cities. I know you're very good friends with Paul Romer. I became intrigued by the idea when I first saw his presentation. And I've sort of followed how that idea developed. But first of all, why do you think some of these projects failed? The one in Honduras and Madagascar? Yeah. What do you think were the pitfalls?Alain; Because government were not ready to allow a [...] charter city, they saw that as just a new real estate development, and they thought that they could control it. And if the existing government control it, it means it's going to be a traditional city, it's not going to be a charter city. I think that in Honduras it was very clear. In Madagascar, I'm less aware of the details. But in Honduras, I follow the [development]. By the way, there are several new charter cities in Honduras now, I'm curious to see if they will succeed or not. Actually, Devon is involved in one of them. And I'm curious... sometimes I'm a little uneasy when I see that one of the first things that the promoter of a new charter city [does] is asking a big architect to put the design first. To me, a charter city is, again, developed land, and the possibility that you were talking about the beginning, democratising land ownership. That means that if you move to a charter city, and you want to open a small restaurant where you will sell sandwiches to workers, you should be able to either rent or buy a little piece of land where you will build your restaurant. You should not go through the government and say I want to open a restaurant, please give me a permit. So for me, a charter city is first a layout of streets, not building, you know, it's a layout of streets where you can buy very small pieces of land. And you can buy some big one, you know, maybe a department store or an office building so they want a big lot, that's fine. But there should be small lots available to people who move there. Because, again, the indispensable people are not only bankers and architects and lawyers. Indispensable people are the people making sandwiches. And so I think that one of the problems is that they have to start with the layout, and making land available to all sorts of people, including very small lots. And I think that will work. Now, my argument was Paul for the first part of your question, but when we first discuss it, you know, when we started working together, and he told me, well, we think that we could do 50 charter cities, you know. My first reaction is, cities are dictated by location and there are no more locations for 50 cities. The good locations are all taken. So if you want to start from scratch, you go to the countryside, and, you know, you have some farmers there even and you say, Oh, the land is very cheap there because there is nothing, why don't we do a charter city? In Lagos land is so expensive. Don't forget that a city is people, it's not the sewers. You're not going to move to a city because it has a nice sewer system, you are going to move to a city because there are jobs, because there are other people you want to work with or be friends with. So the problem with any new city is, who is the first one? Would you leave Lagos for, let's take NEOM in Saudi Arabia (the city that the Saudis want to build) Tobi; Yeah. Alain; So if I told you, okay, in NEOM we could give you a house for $50,000 and it has this fantastic infrastructure. Would you leave Lagos to go there? Unless you know how many people are already there? Are you going to move by yourself or with your family? And you don't know if the schools are working? You don't know if there are restaurants or bars there, you know, [finding] bars in Saudi Arabia is always a problem. [laughs]And so you see, that's the problem. I have an example to explain the problem of a new city. In South Korea, they thought that Seoul was too large, and they thought that they would build a satellite town which will be self-sufficient. So they calculate how many jobs they will need, how much housing and the Koreans are very good at that, they really planned it extremely well, it was financed very well too. They matched exactly the number of jobs and they use the demographic, everything. And they're very good at logistics too. So they built the school, the sewer, the transport, the buses, all at the same time and well done. And it was nice architecture. So the idea was it will be self-sufficient [and] that the people who live there will work there. When the city is fully built and inhabited, they found that 90% of the people who live there commute to Seoul. They work in Seoul, but they live in the New City; and the people who have jobs there, they come from Seoul, they live in Seoul but they work in the New City. Why that? Why didn't they manage to match the thing? It's a question of the first inhabitants. When the plan is finished and the thing is ready to be sold, they told firms in Korea, well, you know, if you want to establish yourself here, you could have a factory of this and it will cost that much and you will pay that much more for electricity, So very attractive. So the firms say, Hey, we are in Seoul right now, but we want to expand, and in Seoul, we cannot expand because land is too expensive, so let's move to this new city where we'll something more modern. Now, these firms, if they have the money to move to the new city, completely new, it means that they already have employees, they have [an existing] business. So they are not going to fire their employees and say we are going to recruit entirely new employees. So the employees which are already in Seoul, working in the old site are going to commute to this. Now, why don't they say oh, we have this new job there and we are going to move into an apartment in the new city? Because where they are now, maybe they have their mother-in-law who is babysitting their kid and they cannot move. Or maybe they have a school that they like a lot for their children. And they don't want to move their children to a new school which has no record. You know, there are a lot of reasons why people don't want to move, or maybe because there are a couple and one of them is working in the neighbourhood and do not want to commute. So the new firms are attracting existing employees from outside and the people who take housing there... you know, if you are a young couple in Seoul, you are desperately looking for a new apartment, but it's too expensive and suddenly, they propose you a nice apartment in the new city... Now, you will need an hour 20-minute commute but you think well, this is a really nice apartment, there will be a nice school so you move there with your family. But your job is in Seoul, you know, because if you can afford an apartment in the new city it's because you already have a job. So you're not going to quit your job and say, Well, I've moved to the new city, I'm going to look for a job in the New City. Maybe after 20 years, you will do that. But initially, you won't. So you see this is a problem of new cities and that will include charter cities unless the charter city becomes so attractive in terms of, again, the democratization of land use, and of property rights. But again, you have the problem of the first mover, you see. So that's why cities like maybe Abuja or Brasilia are successful because they are civil servants so they are obliged to go there. And the government pays for it and all the taxpayers, by the way, all the taxpayers of Nigeria are paying for Abuja.Tobi; Yeah, that much is true. Alain; Yeah. And this is true also for Brasilia, you know, the people who live in Brasilia are not paying for their infrastructure, it's the Brazilians who live in Recife or Rio de Janeiro who are paying for that. So, you see, those examples are not very good examples - the new capitals. The other thing which is very difficult, and I saw that when I was working in China in a new economic zone which usually piggybacks on a city is the cash flow. You know, when you build a new city, there are certain things that are discrete, you know, for instance, you cannot build a sewer plant for 500 people, you are obliged to build a sewer plant for at least 10,000 people or 20,000 people and when you build that you have to spend for 10,000 people but you will not get 10,000 people before five or six years. So you pay interest on this capital for five or 10 years. So you have a negative cash flow for a long time and that is [for] the sewer plant but that's true for schools, that's true for roads, that's true for the water system, that's true for garbage removal, you know. You need right away to bring trucks to remove the garbage to treat it and before you have [enough] inhabitants. So you have to pay a lot of interest. My experience in developing a new economic zone in China was that the cost of interest during construction (that means the cost of interest before the lots were sold to the private sector) represents sometimes 40% of the entire expenditure. So this negative cash flow, if it's a private city, by the way, you have bankers, so the banker, let's say, trusts you. And they say, all right, you have planned to have, say 1000 people, the second year at 10,000 people, the fifth year... and then 100,000 people in 15 years. So they trust your business plan, but then imagine that it's a little slow at coming. So you are borrowing more and more money, and at the same time the bankers get cold feet, and they say, we are not going to go roll over your loan, because you know, your thing… it's too risky, you are accumulating a negative cash flow much longer than we thought. And then they will cut your finance, and then you will go bankrupt. And that's why the most successful new cities are capitals because the entire country is paying the bill, you know, money was no object.Tobi; Does this mean you're bearish on private cities generally? So I'll give you some examples. And I'll try to be brief. For example, in Lagos, there was this project called the Eko Atlantic project. This was a land that was basically reclaimed from the Atlantic Ocean, it raised $6 billion, right. And at the end of the day, they ended up building office buildings for oil companies, banks and skyscraper apartments that cost $2 million. Almost nobody goes there to work, which fails the labour market condition in my view, right. There was also the story of Gurgaon, I'm not sure I'm pronouncing that right. In India... Alain; A suburb of Delhi. Yes, yes.Tobi; Yeah. So, where, maybe it was partly driven by the labour market, the tech workers and private firms. But we saw that they could not deliver on things like the sewer system... public goods investments failed woefully. But the common thread in some of these narratives and initiatives, and of course, you know that private cities are very, very hot right now in Silicon Valley...Alain; Yes. SureTobi; Is to look at Shenzhen and say, oh, yeah, this was a fishing village of 30,000 people... Alain; Yes, yes. Right. Yeah. Tobi; And it's now the manufacturing capital of the world, the centre of technology with 50 million people. So are you bearish on private cities generally, that was one? Secondly, what are we missing from the Shenzhen story?Alain; You know, Shenzhen by the way, I know it well, because when it was a little more than a fishing village, I was working for the World Bank… the Chinese invited me there with the team. We were five or six planners and economists. So at the time, it was about 300,000 people, but dispersed, it was not really a big city. And they say we want to build the city of, at the time they say, 4 million people and we want the World Bank to finance it. And this is one skeleton in my closet. I told them you are too ambitious. If you want to build a city of two million, up to 2 million, you know, I made a back of an envelope calculation, I say look 2 million is a city is so large, so fast [and] would be impossible because of logistics. You will not have enough trucks, it will be impossible and I was wrong. So after that, I followed because I was spectacularly wrong. I followed what happened in Shenzhen I went there regularly and you know what created Shenzhen? First, location. You know I was telling you at the beginning [about] location. They have a deep port. A natural deep port in Shenzhen and you know the rocks are going there. And it's next to Hong Kong. Hong Kong port is already saturated. They are at a coveting distance from Hong Kong. So when they want somebody very specialized - an architect, an engineer - at the time when they built it, that was in '83, you know, when I was there, '83-'84, the needed manpower will commute from Hong Kong. They will spend maybe the night in Shenzhen and go back. And then you have the Pearl River Delta on the other side of Hong Kong, you had Guangzhou, you know, which is a very important city too. So, they are in between. Now. The major thing which did the success of Shenzhen was Deng Xiaoping [who] for the first time in the history of China, put a line around Shenzhen and say within this area, the firms are going to pay the workers according to [the] market, and people who come to Shenzhen will negotiate their salary with their employers, depending on their skill. In China before that, if you were, say, a geologist, at 30 years old, the government will say your pay is this per month, period. If you are a welder, the government will say, for entire China, this is your pay, and the government will decide where you will be employed. You have no labour market, there was no labour market in China, you know, people were unemployed, but the government tells them where to [work]. Even the kid coming out of high school, the government will say you're going to work in this factory for the rest of your life. Now, in Shenzen, for the first time, you had the labour market, and a lot of Chinese coming from the north, from all over China (the ones who were the most courageous, you know, [it's] a bit like migrants coming to Lagos are the most courageous in a way that, you know, it's a selection of people) they decided that they were trusting their own skill, they say, we'd rather work and negotiate our salary and change employment when we want rather than stay with it. So you had an influx of people, of talent, from all over China. And that's why, you know, Shenzhen is in an area where everybody speaks Cantonese, normally, you know, in the south of China, like Hong Kong or Guangzhou, but you will find that, in Shenzen, most people speak Mandarin, because they came from all over China. They didn't [all] come from there, [the southern part]...some people from Guangzhou, obviously, from the Pearl River Delta, but say the language that you hear the most is Mandarin because they came from all over. So, you see, what created the enormous success of Shenzhen was the market. It was the labour market. It was the first time you had the labour market in China. And then after that, they used experiment, and you had that, you know. And by the way, housing, also… it was the first housing on the market that people will be paid at the market price, but then with their salary, they will have to pay for housing. Where before in China, housing was provided by your employer entirely. That means that you have no mobility and you have no capital either, by the way. You cannot leave your job because if you leave your job, you have no savings, and you have no house. So that's the story of Shenzhen, and do not forget the location. Look at the container port of Shenzhen, it is one of the best in the world and it's because location, you know, it's even better than Hong Kong. It's larger than Hong Kong's. In Hong Kong, they have to do a lot of land reclamation, whereas [in Shenzhen], it's natural. They don't need to dredge it or anything, you know, it's a natural beauty. So that's the story. So I am not bearish. You know, I like the idea of trying new cities and private cities, I think that's a good thing. But let's say, you know, just to think that if you have a good infrastructure, you know, [when] building [a] new city, they say, Oh, we will have this fantastic system for removing garbage by vacuum and things like that, this is good and well. If the city is reasonably clean, that's good enough, you know, and you don't move to a city because the garbage is vacuumed. You move to a city because there is a good job, the city's attractive, you have bars, cinemas, and you know, whatever, if you'd like to go jogging or things like that, you have nice parks. But you move to a city mostly because of the people who live there. So the question of new cities, how do you attract a lot of people right away in the beginning? Who will be the guinea pig to live in this new city? And then there is the financial aspect, you know, this cash flow, you need to have a lot of money in advance to finance it because bankers will get cold feet. Maybe I've been talking too much and not [...] enough questions. I enjoy it. That was very interesting. I hope maybe we can do it again sometime.Tobi; Okay. Thank you very much. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.ideasuntrapped.com/subscribe

It is difficult to overstate China's rise in terms of economic development in the four decades - growing from one of the poorest countries to becoming the world's second-largest economy. China has also become an important geopolitical partner to many developing countries, and it is quite common to encounter talk of the ‘‘China model'' of development as being more suitable for many African countries that have struggled with economic transformation. Joining me on today's episode is political scientist Yuen Yuen Ang to unpack what China did during the reform years and the many ways that process is misunderstood. She has two excellent books (linked here) on China, and she is one of the most careful, thoughtful, and perceptive scholars I have read.TranscriptTobi; Welcome to Ideas Untrapped, and my guest today is Yuen Yuen Ang who is a professor of political science at the University of Michigan. She has written two very important books on China. And I want to talk to her today about the first book, How China Escaped the Poverty Trap. Welcome, Yuen.Yuen; Well, thank you very much, Tobi, thank you for having me. And I very much appreciate your support.Tobi; In global development today, it's almost impossible not to talk about China. China has become so important both economically and geopolitically, and we know that the picture or the situation was quite different 40 years ago. Another thing with what China has done in the last four decades, I mean, two-thirds of the global reduction in poverty is in China and so many other amazing things, is that there's a lot of, should I say, content on China and in my experience, it feels a bit like quantum physics and that Feynman quote, which is the more you read on China, the less we understand. But, reading your book for me as being quite illuminating. Again, I want to thank you for writing it. So the first question I'll ask you is, very early in your first book you made what I think was an important distinction, which is the difference between market-creating institutions and market-preserving institutions. Can you elaborate more on that? And how China was able to take advantage of the former?Yuen; Sure. Well, first of all, I really love the quote that you used. And before I jump into the question that you just asked, I think it's useful to respond to your comments, which I think it's very insightful, which is that everyone is very interested in China. There's a lot of talk about it, but it feels confusing. And so at the outset, when I write my books, I think one of the things that I wanted to set out to do was to provide an integrative account of China's development since its market opening in 1978. And I stress the word integrative, because I think one of the sources of confusion that you alluded to comes from the fact that there are many, many accounts about China's development, but they tend to focus on only one aspect. So some will talk about trade, others might talk about economic policy, so there are so many different topics about China. But what people need is an integrative account that puts all of these different elements and variables together. I really put them on a timeline to help people to understand, sort of, the different factors that were salient at different points in time. And this is important for correcting the misconception that there is one China model, like some kind of blueprint that was created at the outset and designed to help China take off. So that was the kind of broader backdrop that motivated the way that I write my book, in particular, the first one. Let me now come back to your original question, which is the concept of market-building and market-preserving institutions. And the important thing to understand about institutions is that economists have all agreed that good institutions, such as rule of law, such as formal accountability, such as modern courts, that all of these good institutions are essential for growth. And you have famous books like Why Nations Fail pretty much making similar arguments. And that then translated into the good governance agenda that was advanced by International Development Agencies, such as the World Bank. So for about, I would say, 1990s to the present day or so, there was a great deal of attention and hope that if poor countries could get institutions, right, if they could have first-world institutions, then they will be able to have economic growth and become developed. And when I look at the China case, that obviously does not follow that formula, because if you look at the early parts of China's growth, and even until today, there are so many dimensions of China's institutional design - everything from the ownership of companies, to the property rights, to the design of bureaucracies that just don't conform with what we think first-world good institutions should look like. So why is it that China has been able to grow its economy without those first-world institutions that economists say are the preconditions for growth, and this has been a long-standing puzzle in political economy? So from my investigation, what I find is that the fallacy with the conventional wisdom is that it thinks that there is just one universal set of institutions that are necessary for growth, namely, the first-world rich country institutions. But in fact, what really happens in the course of development is that countries actually have to develop qualitatively different institutions for early and late stages of growth. And those institutions at early stages of growth, that can support the growth process can actually look very, very different from the first-world norms. They can look in ways that conventionally we would dismiss as dysfunctional or corrupt. But those institutions can actually work very well at early growth stages. And subsequently, however, when the economy takes off, and it enters into a more mature stage of development, and then you begin to see that, yes, you do need institutions that are more like fist-world institutions, such as formal regulations, private property rights, and so forth. So that is why I make a distinction between market-building institutions and market-preserving institutions.Tobi; I mean, one important thing that I also learnt from your first book, and you can please correct me if I'm getting this wrong, is that (it's interesting you alluded to economics accounts of China's rise) ever since the works of people like [Robert] Wade and [Alice] Amsden talking about the East Asian miracle, there has always been this importance for the role of the states. And then the discussion then polarizes into, do you use the State? Or do you use the markets? And policymakers in different developing countries choose what they see, you know, and some stressed the importance of state capitalism. But what I learned from your book was that it really doesn't matter the kind of political system you run. Every political system in history that has gone through that stage has used market-building institutions. One thing you also talked about quite early in the book is this concept of directed improvisation. What is that? And how did China use that?Yuen; Yes. The conventional wisdom when people look at China's case is to assume that the recipe for its economic growth must be centralized political control because it is an authoritarian regime. So when people talk about the China model today, it's reduced or dumbed down into, basically, authoritarianism, plus some elements of capitalism. And I question that conventional wisdom in my book. If the answer was simply authoritarianism and centralized control, then China would have prospered long ago, under the reign of Mao, where you had absolute centralized power under one leader, even more centralized back then than it was today. So it couldn't be that centralized political control or authoritarianism is the answer to China's development. Instead, what really happened is that the central government under Deng Xiaoping was the reformist leader who took over thus helping change the role of the central government from that of a dictator to a director. And what the director does is that it focuses its job on setting up conducive conditions for bottom-up innovation and bottom-up adaptation, primarily among local governments. So China is politically centralized, but it's economically and administratively decentralized. But in encouraging local governments to adapt and to find local solutions to local problems. The central government still plays a crucial role in terms of providing direction, setting up the rules of the game, defining what the goals and targets should be. So these were the ways in which the central government “directed” the process of adaptation. So directed improvisation simply means you have the merger of direction from above, with bottom-up adaptation among local governments. So in the first 30 years of reform, which most people call the reform period, which is up to 2012, what you can see in China is actually a diverse range of regional economic models, and not just one. And if you take even any county or city in China, and you trace the history of development over those 30 years, you'll find that the role of the government and the development strategies that that particular city undertook kept changing over time. So I think it is this highly adaptive element of the Chinese experience that is often neglected, or not understood in the global discourse about China because people are overly distracted by stereotypes about authoritarian control. But the point that I think is most valuable, and that China should talk about more is the adaptive element under the reformist Deng government and the amount of diversity that they were able to create despite being a formerly authoritarian state. Tobi; One distinction I'll also like you to elaborate [on] is control versus influence, which was something I also got from your book and found interesting. I remember reading Robert Bates, writing about the political economy of Africa. He talked about the importance of control regimes, you know, having a closed economy, price distortion, regulation of industrial outputs, regulation of markets, these were things that were also part of China's economy and policymaking during the Mao era, you know. But we also observed that during the reform years after 1978 policymaking also was not thrown into chaos, you know, like the opposite of control. So how did China manage that balance, particularly substituting influence for direct administrative control of policy?Yuen; I'm really glad that you raised this subtle point, but an important point. So let me give some theoretical background before I elaborate on the China case. If you look at the conventional thinking about politics and economics, it is really a literature that is obsessed with control. Right? So it's always about someone controlling someone, it's like the state controlling civil society, or politicians controlling bureaucracy, central governments controlling local governments. And this fixation with control is, I think, an extension of a mechanical intellectual paradigm. So if you look at the beginning of my book, I talked about how and why I use a complexity paradigm to interpret the Chinese development process. The conventional paradigm is a mechanical one. So things about how things work as if it functions as a machine. And indeed, the top economists do explicitly say that they think in machine mode. So when you think in machine mode, everything looks like a control problem. And so that's why you see the literature and Political Economy being so fixated on control. But what we don't talk about enough, or sometimes not at all, is the other element of human activity, which is, apart from trying to control we also adapt all the time, including in Nigeria, and we have very little understanding in the political economy context of how do people adapt? Why do they adapt? What are the conditions that make adaptation possible? What are the products of adaptation? These are the various questions that we don't ask in political economy. So once you move to the Chinese context, and you apply the lens of adaptation, it immediately opens up a very different story from the traditional one that was entirely about control. One of the things that is important to know when we think about China is that control is always an element present in the Chinese political context. And it's present in a big way because it is a top-down political system. So I'm not saying that there is no control in China. Of course, there is; such as censorship. But what I'm saying is that as the reformed leadership under Deng took over from Mao, it dramatically change the role of government as well as the mixture of control and adaptation. So on under Deng, of course, there were still policies of repression and control. The family planning policy, for instance, required a great deal of forceful implementation. But it also dramatically increase the amount of adaptive activity that the government carried out. So the distinction I make is that when you are fixated on control, what we conceptualize is that politicians want to control the outcome. So they already have a predetermined outcome or solution, and they're just trying to control everyone so that they can get there. Right? When I use the term influence, however, the assumption is that oftentimes, the leaders actually do not know what the best outcome should be. They don't have the solutions to the problems that they face. And this was absolutely evident in China's market transition process, because that was something that China had never tried before, it had never tried to move from communism to a market economy. So oftentimes, these leaders themselves do not actually know what is the best solution that they should create. And so what they did is instead of trying to control outcomes, which presumes that you have a lot of knowledge and know exactly what's best for you, they instead try to influence the process of coming up with solutions by, for example, encouraging local governments to come up with solutions that are tailored to local conditions, but at the same time setting up some guardrails in this process of experimentation. So that is what I mean by the difference between trying to control an outcome versus influencing the process of problem-solving.Tobi; One thing I so love about your first book, which you've also alluded to in your answer is appreciating that a society and the economy is a complex system. And you said that an alternative to control in complex systems is to influence the process of adaptation and change. So I want you to talk briefly about how these influence the design of the reform packages themselves in the China reform experience, particularly the three key mechanisms you talked about in the book, which were variation, selection, and niche creation. How did that work?Yuen; Yes, I'm happy to do that. Let me focus on the first two parts because of time, which are variation and selection. And these terms come from the well-established scientific literature about how adaptation happens. So adaptation begins with generating a variety of possible solutions. So that's why the first mechanism is variation. And this is followed by selection. So from the possible pool of solutions, you pick one, and you test it out, collect feedback and decide "do you want to continue with this solution? Do you want to share this solution with others, or perhaps you find out the solution I picked didn't actually work so well, so let's select another one."And niche creation is about creating differences among members of the units so that these members can coexist, instead of competing head-on with one another. So I use these mechanisms to organize different parts of the book in explicating what were the mechanisms that the central government designed in order to structure the process of adaptive governance in China.And on variation, I look specifically at the system of political communication in China. China is a top-down political system. So the way the top government sends commands - written directives to the local governments - is the primary and most important mechanism by which it commands, instructs, and guides the whole bureaucracy. And normally, this is a system that, frankly, almost nobody studies because it doesn't really seem interesting. It's a command system. So you think that, you know, whatever, if Beijing wants to send a command. But what I argue and actually show in the book is that the command system in China actually functions in ways much more interesting way can imagine. And specifically, what I show is that in the Chinese political system, the central government would send out three different types of signals. The first signal is what I call black signals. These are written directives, where the language is explicitly clear, saying, "yes, you can do this. Yes, the local governments all over China, you can do this." And the second type of directive is what I call red signals, which explicitly says, "no, you cannot do this." So, for example, "no, you cannot exceed the amount of water use by this amount." And then the most interesting one is the third category, which is the grey directives. So commands that are deliberately ambiguous. And there are a lot of ambiguous commands and instructions that occur in the Chinese political system. And they still do today. And I argue that what these ambiguous commands do is that they actually provide room for experimentation. Because from the perspective of the local officials when the command is vague and ambiguous, and broadly stated, it means that they are free to interpret how to implement that particular instruction. And when they experiment and try things out, it produces, generates a variety of possible solutions. And from these possible solutions, the regulators in Beijing can then take a look at these options, many of which they had never thought about before and then decide, "among these possible solutions, are there some really good ones that we should scale up to regional or national levels," or sometimes they might also realize, oh, some local experiments turn out to be not good. And we are going to change our commands from grey to red and say, No, I don't want you guys to try this anymore. So through this varied and dynamic system of commands, is one example of a mechanism by which the central government in China is able to calibrate the amount of discretion that it gives local officials, allowing them to experiment when the central government wants to experiment, and then also providing a mechanism for the central government to collect feedback to scale things up if they want to. And also to scale things down, if they decide that that is the right thing to do.Tobi; So it's really hard to talk about China, at least the way China is being written about generally, without talking about state capacity. Like you talked about in the early part of the discussion that analysts and scholars usually take one thing and focus on that when discussing China, and there is always this talk about state capacity being the be-all of how China was able to reform itself and become rich. You know.Some say it's the bureaucracy that was inherited from the communist regime, some talk about the 5000-year history of civilization, and so many other theories. But you've discussed this often on your Twitter feed, and in other appearances, that when we talk about the bureaucracy, we usually have the Weberian Western-type democracy in mind, and that the way scholars and people discuss this is like, it's the only way to achieve bureaucratic coordination. But you've also challenged the idea that there are other forms of bureaucracy. So I want to ask you, how did China achieve that bureaucratic coordination without feeding into the Weberian archetype? You know, so to speak, because the challenge with most developing countries like Nigeria, which I am familiar with, is that you often have pockets of effectiveness in different arms of the government, but it's usually difficult for one vision to be projected, you know, and be implemented. So how did China achieve this through its bureaucracy, what were the design elements?Yuen; I am very glad that you brought up this important point. It is a point that I keep making in my books and in other forms of speaking. It is also a point that many people find hard to accept. The reason for this is that for a very long time, the conventional wisdom has always subscribed to the view that there is only one standard for good institutions, for stake capacity, for good governance and that is to look like rich Western nations. Now, the conventional wisdom doesn't put it this way, but if you look at all of the global metrics that are created, regardless of the names that are coined for them, it's always the same countries that are ranked in the top 10. And it's always the same group of countries, including Nigeria, and sometimes China that's ranked at the bottom, right?And so this is very deeply entrenched in both academic and popular thinking that there is only one standard in this world for good governance and good institutions. And that we should only use that benchmark. And when we look at developing countries, their situation is only accessed in terms of their distance from this ideal type. So things in developing countries are not perceived as being qualitatively different, they are instead perceived as deficient because they don't comply with the standard expectation of how things should function. And so including in the discussion about state capacity, one of the core elements of state capacity is bureaucratic capacity. And so as you alluded to, everyone subscribes to the legal-rational model that Max Weber had portrayed 100 years ago. And it is assumed that the only kind of effective bureaucracies are the ones that have these Weberian qualities, and everything else must be corrupt or dysfunctional. And the reason that I questioned this conventional wisdom is that I think it is... first of all, it reflects a first-world bias that people are either unaware of or unwilling to admit. And second of all, it is limiting and distorting. Because when you assume that there is only one standard, you cannot see qualitative or categorical differences. Meaning that perhaps in this world, we are actually comparing apples, oranges, bananas and guavas. But when you say only the Apple is the legitimate fruit, and then you look at the banana, and you think, "Oh no, the banana is deficient, because it doesn't look like an apple," right? So that is why it becomes this very narrowing logic. And what I find from both my historical research and my field research, in the case of China, as a very good example is that the qualities of an effective bureaucracy were actually very different at the early and late growth stages. So the given example, I show that in the early 1980s, 1990s, when markets first opened in China, the country actually relied on bureaucracies that had non-Weberian characteristics. So they were not specialized. Local governments would mobilize every agency to go and recruit investors. And this defies Weber's rule of specialization and technocracy. They also create a mechanism where these bureaucrats were basically taking a cut from the investments they could bring in which in economics, we say high-powered incentives. And in Weberian bureaucracy, you're not supposed to provide high-powered incentives, you're supposed to have these very modest rule-abiding and somewhat boring bureaucrats in office. And the reason why these non-Weberian qualities work very well, in the beginning, is because they made the best use of what China had in the beginning, which is it had a communist apparatus and a communist apparatus [that] is good at mobilization. It made use of the personal connections of local government officials and these personal connections substituted for formal property rights, and so forth. And so even though these individual characteristics would appear to be wrong from the first-world perspective, they were actually functionally a good fit with the objectives of early development. However, as the process goes on, income rises, the markets become more complex, businesses grow and so forth, the society and the economy had different objectives, had different priorities about growth. They no longer wanted just any type of growth they wanted, instead, quality growth in states-selected priority sectors. And that's when you begin to see an evolution in the bureaucracy towards the more specialized and technocratic forms that we see in first-world countries today. So to sum it all up, there are two takeaways. The first takeaway is [that] the good institutions that are often touted as universally ideal institutions are actually good institutions suitable for advanced stages of growth. But early stages of growth may actually require functionally and qualitatively different institutions that make the best use of what low-income societies have. So that is the first takeaway. And the second takeaway is that we should drop this assumption that there is only one standard because that prevents us from seeing potentially creative solutions throughout the developing world.Tobi; So your second book, "China's Gilded Age: the paradox of economic boom and vast corruption," I would say, also slayed another dragon for me personally, only that the dragon is not China. So from my experience in Nigeria, when you talk about corruption, the almost - I should say, self-interested response you get from politicians is that there is corruption in other places. And from somebody coming from a civil society background or even an average citizen, that answer is unpalatable, because the way we have been made to think about corruption is usually about the overall level of corruption, the quantitative level of corruption. But in your book, you made it important that the qualitative aspect of corruption is also important. So can you please briefly explain the difference? How did you come about this insight of unbundling corruption, so to speak?Yuen; Yes. So the second book is called China's Gilded Age. And it is a sequel to my first where I zoom in on the relationship between corruption and capitalism. And the core argument of the second book is actually quite simple. What I argue is that corruption comes in different types. And different types of corruption have different forms of harm. And I focus on one particular type of corruption that I call access money: elite exchanges of power and wealth. And I show that in many contexts, not just in China, access money can actually encourage businesses to do more business; because politicians provide them with conducive conditions. But that this form of corruption results in indirect risk and harm that is nearly impossible to quantify. And so once we, in particular, zoom in on access money, we can understand why there are many economies that are prosperous, on the one hand, but on the other hand, have many structural distortions and risks. And in addition to China, the other country that fits this model is actually the United States. So whether you look at the United States in the late 19th century, the original Gilded Age, or whether you look at the United States during the 2008 financial crisis and today, you'll find that these are wealthy capitalist economies that produce rapid growth, but also [produce] inequality - a great deal of inequality and a great deal of policy distortions and systemic risk. And that is the kind of corruption that is neglected that people don't look at. The reason for this is that most people, when they think about corruption, they immediately think about the forms of illegal corruption that they encounter in their daily lives. So when a policeman stops you and extracts a bribe from you. Now that is obviously corrupt. It is an act of bribery, it is illegal, it is extortion. And so the focus is on this type of corruption. Whereas a lot of the popular discourse neglects the other type of corruption - access money - which has always been actually central to the history of capitalism.Tobi; I find that book very insightful. I'll give you a brief anecdote. The former president during one of his media appearances went on television and made, I would say, the error at the time of saying that corruption is different from stealing. And it happened to be one of the things that became a public relations nightmare for him. So I just want to ask you, for countries that are dominated by the destructive types of corruption, can they transition to access money types of corruption, and can they also avoid the inequalities that come with it? And I should say that you stressed in the book that corruption is not good, which is another wrong message that a lot of people take from the book.Yuen; So my book, China's Gilded Age, unfortunately, as you pointed out, is widely misunderstood. As soon as people see the story of corruption coexisting with growth, they take that argument out of context, and start screaming that, "oh, my god, she's saying corruption is good for growth, and she's saying we should do more corruption."And so there have been quite a lot of nonsensical reactions to the argument. So at the outset, let me stress that actually, I made clear throughout the book, and over and over again in my speaking that all corruption is bad. This is not an argument about corruption being good in any way. All corruption is bad, but the harm is expressed in different ways. And so that is why I use the analogy of drugs. I used the analogy of toxic drugs to refer to extortion and embezzlement. These types of corruption have absolutely no benefit, you immediately see the harm, and it immediately destroys the economy. And Nigeria is a good example of this type of highly destructive corruption. And the second type of corruption I call speed money, I refer to that as painkillers. So you can think about a business that pays a small bribe so that it can get a business license faster. And that corruption is a painkiller in the sense that it allows the business to buy some conveniences, gets rid of some headaches, but that doesn't actually help the business to make more money. Ultimately, for the business owner, it is a hassle. And it is a cost. So that's not good, either. And the last type of corruption, access money, I call it steroids. So steroids, as we know, is a kind of drug that dishonoured athletes use to help them grow muscles and perform superhuman feats. But if you keep using steroids, then ultimately it's really going to have a whole range of serious side effects that accumulate over time. And access money is a type of corruption that you find in high growth or wealthy, crony capitalist economies, right? So what people should take away from this book is not that corruption is good, or that countries should do more corruption, which obviously would be nonsensical. Instead, they should really think about the following issues. First of all, countries should take a look at what is the dominant type of corruption that exists in their country, and think about the appropriate methods to fight the dominant type of corruption. For instance, in the United States, extortion, petty bribery, these sometimes happen, but it's not common in the United States. But over there, the dominant type of corruption is legalized access money. So lobbying has become a gigantic industry. And so the United States would have to come up with very different ways of fighting the kind of corruption that dominates in their society. Conversely, when you look at Nigeria, it has all four types of corruption that I talk about and so in a country like Nigeria, there has to be a focus on fighting all of these four types of corruption, but particularly the toxic ones. So embezzlement, extortion, imposing petty bribes, and thuggery on people. These types of corruption have no benefits at all. They drain the economy and the burden falls most heavily on the poor. So countries have to think about what are the measures they can take to bring down this overtly, growth-dampening corruption. And if you look at the Chinese experience, what happens as it developed over time is that the structure of corruption changed, and it invested at least 20 years of efforts to really bring down extortion and embezzlement.And although I had an entire chapter devoted to that topic, a lot of people just ignore it. And instead, they run with the misleading conclusion that oh, we should do more corruption. They ignore my discussion about the 20 years of effort that China put into bringing down extortion and embezzlement. So for readers in Nigeria, start with the obvious things, things like extortion, embezzlement… of course, they're wrong; of course, they're terrible; of course, they're damaging, so do something about that first before you even attempt to think about how can we transition to more advanced forms of crony capitalism like we might see in some advanced economies. The other takeaway I would add... the third takeaway that I would emphasize is that the part about access money, it's not about how do we encourage more access money corruption… the way to think about that takeaway is how do countries like Nigeria, create incentives for government officials to have a personal stake in economic outcomes? Right.And so what happened in the Chinese case is the system that I call profit sharing. Meaning local officials have a stake in economic growth, which comes both in terms of their career, as well as in their financial payoffs. And that shows up as access money.It doesn't mean that other countries should have more of that kind of corruption. Instead, the real lesson is, if not this type of corruption, are there other less damaging ways in which we can create incentives for government officials to actually have a personal stake in economic development?Tobi; One final question, I know our time is gone. I know scholars usually, sometimes, shy away from making policy proposals but for countries that are also interested or ambitious about escaping the poverty trap, what… maybe theoretically speaking, or practically, what are the three things that you would recommend from your research on the China experience? Not necessarily copying China, we know that has pitfalls, so what would you recommend? Yuen; It's a good final question to wrap up. Um, I would sum up with three takeaways. The first takeaway is, really work hard on fighting the overtly growth damaging types of corruption. It is a simple takeaway, but a lot of people actually forget about it. So things like embezzlement, things like extortion. If Nigeria could bring down the level of these damaging types of corruption, of course, immediately, you will see the economic and social benefits. So work hard on that. And then the second takeaway is, how is it possible for government officials in Nigeria to have a personal stake in collective outcomes? I don't have the answer. But I think it is a question that Nigerians have to sit down and think about. One of the things that are often missing in developing countries is a discussion about incentives and also about a sense of personal ownership in shared outcomes. People prefer to invest their energies in criticizing politicians and so forth. But if you think about it from an institutional perspective, why should that particular politician care about the collective outcome? Right. So how can we create those incentives, which doesn't necessarily have to be monetary. It could also be non-monetary, it could be reputational, how do we make them care? Right? So that's the second thing to think about. The third thing I would emphasize is a principle that I call using what you have, and China illustrates that principle, richly. Using what you have means that every society, even one that is a low-income society has a lot of indigenous resources, they have human capital, they have creativity. So the first step of development is not to go and copy rich countries, it is also not to sell your oil resources, but to really make the best use of these indigenous resources. And so for those who know my first book, actually, in the conclusion, I have a chapter about Nollywood. And that's an excellent example whereby under desperate circumstances, the people in Nigeria actually created an industry from the bottom up using what Nigeria had at that particular time. And so there are so many instances throughout the developing world where there are actually a lot of indigenous resources, they are untapped, or they are ignored or they're dismissed. Because we are so used to thinking that the only right solution is to look like rich countries. And we have to drop that mindset. I think it's part of an extension of a colonial mindset as well. And developing countries have to develop a certain sense of intellectual independence, as well as confidence in seeing the potential that is already existent in every society, and make the best use of those resources to kickstart entrepreneurship and new industries.Tobi; Thank you very much, Yuen Yuen Ang, it's been fantastic talking to you.Yuen; Thank you very much. It's a real pleasure to speak with you. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.ideasuntrapped.com/subscribe

Innovation is the key ingredient to human material prosperity and an essential factor in economic development. But the importance of innovation is often misunderstood because of the common belief that poorer nations need not invent anything new and can always copy existing technologies from the richer nations - hence innovation policies are often missing from the development agenda of most developing countries. My guest today is social scientist and innovation policy expert Dan Breznitz - and he has made many significant contributions to changing the conversation and policy around innovation. We talked about the distinctions between innovation and invention, why the Silicon Valley model of innovation does not fit all contexts, and how innovation policies can be set in the long term.TRANSCRIPTTobi;Where I will start, basically, is innovation as the engine of economic growth is a view that has been pretty much validated through economic history. But when we think of innovation, we still think of new things, invention, which is kinda like a distinction you made in the book. So briefly, just tell me what is the difference between innovation and inventing new things, which most people understand innovation to be.Dan;So there's a big difference between innovation (and that's what we should care about) and invention. We should also care about it but it does not necessarily lead to economic growth, especially not where it happens. So if you and I would go back to my lab or your lab in the university, or just a lab in the back room, and we come up with a new idea for a new product or service. Even if we move it to a level of a prototype or have a patent on it, that's great, that's invention but that's not innovation.Innovation is taking ideas and actualizing them in the real world. So taking the idea that we develop and actually make it into a product (if we talk about economic innovation) or service and sell it to people. It can be novel ideas, but it's across all the arrays of activities from coming up with novel ideas, to improving them, to recombining them with others, to innovation in their production, to even innovation in their assembly and after-sale. And innovation is important and creates welfare, not in the moment of invention but because it's continuous. So let me give you two examples that are very prominent because of Covid.The one which is the most simple, since I know you love new cars, right, Tobi, and you ordered at least three in the last year, right. And you can't get even one of them. And the reason you can get one of them is not because people cannot produce cars, but because there are not enough semiconductors. And the reason there are not enough semiconductors in the world is Silicon Valley, which is called Silicon Valley because it was in semiconductors [but now] no longer knows how to innovate in the production of semiconductors. There are actually only very few companies. two be exact, and they both come from Taiwan, that knows how to create semiconductors, and how to actually innovate in their production.But a much better example is COVID itself. I mean, it's great that we came up with new vaccines. But that was not enough, right, with the molecule. We had to innovate in their production, we had to innovate in material science creating a new glass vial, so we can move them around. We have to innovate in their distribution. But it's now very, very clear that that's not enough. True welfare for humanity and the ability to live with Corona would happen when we innovate to a level, which is now very clear, of producing billions of units of said vaccines and distributing them to every human on earth. Okay. That will probably allow us to put Corona behind us.So it's not the moment of invention. I mean, the moment of invention is great. But innovation is the actualization of ideas all across the [value chain], if you want to call it the supply or the production, network, and stages, in order to constantly come up with better and improved products and services, and its impact, real impact start to happen when either all or most people on earth actually have access to it. And that happens because it's continuous.So you and I talk on Zoom, which is a very old invention, right? Telemedia. However, you and I can talk - you're in Nigeria, I'm in Toronto - and not even think about the cost of this because hundreds of millions... not because somebody invented it, but because after somebody invented it, hundreds of millions of engineering hours, if not days, went into improvement in fiber optics, improvement in software algorithm, improvement in memory, improvement in CPU and speed to the level that now you and I can do zoom as if this is costless. And that's the real impact of innovation.Tobi;There's so much to unpack in that answer. But now today, like you said in the introduction, when people talk about innovation what usually comes to mind is Silicon Valley, and that's the model that you've critiqued quite a lot, rightfully so, in my opinion on many points, but just give me a brief. What are the limitations of the Silicon Valley model of innovation today and why is it an inappropriate example of what innovation should be?Dan;So let's understand what has changed in the world. And what has changed in the world in the last 20 to 30 years is before, when somebody came up with an invention and a novel innovation, it was then produced, it was transformed into industries, in production around that area. So let's think about HP, or Apple computers, as it was known there.It used to be that when they came up with new products, they will produce that product very close to their headquarters. So Apple and HP employed 1000s, if not 10s of 1000s of engineers around Silicon Valley or in places like Colorado, around it. And those people will have great jobs in what you and I will now call advanced manufacturing, and all boats will be right. What we now have is a global system of fragmented production.So let's talk about semiconductors. Okay. In semiconductors, now, we look at Tel Aviv, Silicon Valley, Taipei, Shinshu Park, Taiwan, Seoul, Korea, Shenzhen, in China, all of those places have unbelievably successful semiconductors industries. And if you look at those places, you'll also see that many of the same companies work in all of those places. So you think great, but then if you look at what the companies in those places do, it's completely different.So in Silicon Valley and Tel Aviv, it's the first stage, we think about new ideas to put on silicon. In Taiwan, as you now know because you can get your car, it's the only place where they can take those ideas and actually make them into silicon. And Seoul, in Korea, Samsung and LG control very critical niches. So for every smartphone that you buy, the second-highest profits go to Samsung and LG because of memory and the controller of the screen, the touch screen. And in Shenzhen, it's the only place where we can work with different materials, constantly changing components [that] actually produce a product that works, for example, this iPhone and all the rest and sell it.So all those places are extremely innovative, but they do different activities. And in order to succeed in each one of them, you need therefore different innovational capacities, but also different finance, different institutional system, different education system. And there are real, for two reasons, those options of where you work. One is because once you develop those capabilities and systems, you can excel in one or two of those stages but not in others. And the second is because they also define who is enjoying the fruits of the success, who is being employed, and how we're being compensated for that employment.[What] happened in Silicon Valley and in Tel Aviv is that when move, we move to fragmented production, and we have a new model of venture capital. We moved [away] from actually having an industry which is really about innovation. So if you want to be completely cynical about it, the industry is about creating companies for cheap and selling them for a financial exit within five to seven years for the highest bidders, preferably 1000s of percent, right? It's not really for most of those people about changing the world. And in this system, the only people you employ are the engineers of the top universities (so not the people we should really care about or worry about). They are getting wages that are at the top wages of the US and Silicon Valley, or Tel Aviv, it's the same wages. So they're on their way to becoming a millionaire and they're getting stock options, right, basically lottery tickets to become billionaires.But who are the people that enjoy this system, it's only the GEEK ELITE, their financiers, maybe a few celebrity chefs and that's it. No one else is really employed in that level. And as soon as they finish with their work, all the rest of innovation goes somewhere else to be done. So what happened in both Tel Aviv and Silicon Valley is suddenly from a system that created a lot of good employment and jobs for everybody in that society, you're employing only the top 15 percent who are already basically extremely well off, the rest of it 85% are on a treadmill to nowhere.We all heard about what happened in San Francisco and Silicon Valley. But let's talk about Israel. Israel moved from being the second most equal society in western democracies in the 70s when it started that process, to now moving into a position where one of every five families in Israel is under the poverty line, which means they don't have enough money to buy food at the end of the month. And that's the fruit of a success they enjoy from this tremendous, maybe the most amazing innovation miracle in the second half of the 20th century. 20% of Israelis, including children, don't have enough money to buy food at the end of the month. So I wonder why people, even if they can imitate Silicon Valley, why do we think this is a good model for our community?Tobi;Now, you touched on something that I want to sort of press on, which is the finance of innovation and how it has come to be dominated today by venture capital finance model. Now, we all know how even Silicon Valley itself got started with a lot of public funding, either in Defense Research, which created lots of companies from IBM, Oracle, even Microsoft… how DARPA funded Google initially. So my question then would be why did the public, in this case, governments (whether at the city level or at the federal level) stop funding [research]? How did venture capital come to dominate the finance of innovation, and public financing just kept dwindling and dwindling, is it because we stopped believing in innovation as a source of growth, and policy sort of shifted to things like redistribution and things like that?Dan;So I will say that it really depends. There are some countries, multiple countries that still have a lot of public support for innovation. Canada, for example, is one. However, the problem with some of them is that they don't know how to transport that investment in basic invention into real innovation. And then all that great wealth, intellectual wealth, if you will, and all those inventions are then being taken away, and becomes great innovation somewhere else with what you say private money. So I wouldn't be as harsh on that. What I think has happened is that we have developed together with what people will call the neoliberal worldview. A firm belief with Silicon Valley is the only model. And then a very thin understanding of how Silicon Valley really works. And that's a belief that actually helps a lot of government if they so wish because then they don't have to be responsible and the only thing we need to do is to allow venture capital, whatever that is to come into the play, instead of actually looking cases of success, real success, from China, to Taiwan, to Korea to Finland, to actually all the Nordic countries.Whereas a significant role for public money and very interesting division of labor between public funding, public money and what it's trying to do, and where and how, and I think that's the most important thing, how private money and private investment in innovation are done, regulated, and most importantly institutionalized. And the way to think about it remember those stages we talked about?Tobi;Yes.Dan;Each one of them necessitates a completely different financial system in order to excel in it, right. If your aim is to supposedly create a new Alphabet, Google, or Facebook, you need maybe a system that resembles venture capitalist [...]. I have to say venture capital work only in ICT in biotech so far. So if you are in any other industry, maybe you should look for other ways of financing it. But if you're, for example, in the business of Taiwan where in order to excel as TSMC, you need to build new fabrication facilities, basically, factories at the tune of several billions, if not 10 or above billions a year, Venture Capital, Private Equity and even the New York Stock Exchange and NASDAQ are just not the way you can find this type of behavior.There is no venture capital on earth that would allow you to spend hundreds of millions or billions every year on basically capital equipment. You need to figure out the different financial systems that allow you to do that and judge you. The metrics of your success are different than the metrics of the success that your VCs and NASDAQ uses. From return on assets, to a margin of profitability, all those things need to be changed for you and your financiers to actually be able to make money.Tobi;So not to defend Silicon Valley, I'm not in any position to do that. But I'm just thinking from the perspective of say an African startup founder, for example. And we are talking about the proliferation of this model. So my question is, don't you think this model, the Silicon Valley model, venture financing startup as an approach to innovation spread the way it did because it is permissionless? So for example, I can start a startup right here in my room, in Lagos, Nigeria, whereas the current political economy might not let me be able to build a factory, because then I'll have to go through all kinds of regulatory red tape, I have to know someone at government ministries, I'll have to navigate a whole bunch of things. So an African found out my hear your argument and think, Well, the only way I have this opportunity to rise is because of the Silicon Valley model. So what would you say to them?Dan;So I will say that A, you're right. And, and I'm not against the Silicon Valley model. The two things that you have to take into the equation, and again, as a community leader is A, it's very, very hard to innovate with the Silicon Valley model, which is fine.  But the second, if you are successful, really successful, one of the results will be growing inequality if you really imitate it. So you might as well think about it in advance and figure out ways how to at least limit this inequality, or, you know, the growth much more positive and wide, instead of, you know, like Israel, who understand that they have a problem, but now for at least a decade now have programs after programs trying to diffuse the miracle with mixed success because they're already stuck in that model.So from a point of what you just said, yeah, all power to you. The question is, how can we then widen the, in Lagos, or in Nigeria.... the impact of your startups? One thing is what I call in the book, play [...] is, you say, Yeah, that's a model, that's a financial system and it works. And that's one problem. Once you put venture capital into your firm, Tobi, you will need to supply them with a financial exit, right? That's how they make their money. But what I want as the mayor of Lagos is for your company to grow as big as possible, preferably in Lagos.So we need to then figure out how to do two things. A, how to allow you to grow as big as possible in Lagos for as long as possible before a financial exit. Because then two things happen, A, if you're big enough and successful enough in life your venture capitalist wouldn't want to move, they would like you to be in Lagos. Not only that, then is the biggest you are and the most successful you are the chances are that your financial exit will be an IPO, which means that you will stay as an independent company. And then when we do an IPO, should you go to a NASDAQ IPO or should you go to a local IPO or should you go to an [...] IPO there are several options, right? Each one of them has consequences on your growth. The second if you grow big enough and successful enough, even if the financial exit is somebody is buying you, Tobi, because you by then have already 300, 400 employees in Lagos and you have customers all over Africa, the foreign company that will buy you will probably keep you maybe even grow you to become their main division in Nigeria.So it's not that the only thing that Lagos will get is you, your co-founders and some of your employees becoming millionaires and then the employment disappearing. But not only you as some of your employees grow and become bigger and employ more people. And as we do that, we also need to think about what will be the financial incentives I'll have you if you're big enough, so you can employ people who are not just r&d engineers. So I would call it, you know, playful delay. So the Nigerian startups or any African startups that now happen, grow as big as they can, for as long as they can before they're being bought by someone else.Tobi;So now, if I am the governor of Lagos, the Mayor of Lagos and I'm trying... So my first question before I get that would be, are there geographic? So I'm thinking along the lines of things like new trade theory, economic geography, and specializations. So are there geographic determinants of innovation? Or can innovation be deliberately nurtured and directed in any location? So I had a conversation recently about the supply chain, which you also touched on on semiconductors. And it took the pandemic for me to know that probably two-thirds of the global supply of hand gloves come from Malaysia. But I didn't think, unless you tell me I'm wrong, that Malaysia did set out to become the global supplier of hand gloves. So are some of these innovative niches and economic dominance based on innovation, are they serendipitous or can they be deliberately nurtured in a particular location?Dan;So let's talk reality. Okay.Tobi;Yeah.Dan;And I'm going to use Israel and Taiwan as an example, just because both of them are famous enough that people at least heard about them. So both of them started at the same time, okay. And since I interviewed the people who were responsible, if I tell you that they really knew how the end outcome would look, I'll be lying, and they would be lying as well. But they made particular choices that really define their success. So Israel, even before Silicon Valley became famous and all the rest says, Look, we have no natural resources, we don't have a lot of money, what we have is brains. And we actually have no clue in what industrial sector those brains will transform things into to growth. So we are going to create an innovation policy, which is a horizontal technology policy. Back then just so you understand how limited knowledge was, they called it science-based industries because the term high tech was not yet created. And they said, in order to do that, we will focus all our attention on coming up with new ideas and making them into products. Okay, and we'll derisk will help private [companies] and private companies need to do that. And we will create policy, after policy, after policy to make it happen.And then those companies started to be created. Then very early on like a year after the NASDAQ was established, there was already an Israeli IPO on NASDAQ. So the state co-evolved its policies to slowly but surely worked down this model. So it's not a surprise that Israel ended up basically as an engine of startups. It's not a surprise because it was horizontal. So it was whatever was successful in the market, it followed very closely in the footsteps of the US in new industries, first hardware, and then software. But the Israelis had no clue that this is what was going to happen. They also invested a lot in Agri-tech companies and in geothermal energy and then all the rest. Okay. But their model of how do we know that we are successful is, we will have a lot of new companies with new products that are exportable and we'll build the financial system to allow that to happen. Taiwan was almost the opposite.Taiwan says for both political reasons other is we do not want to have very big corporations like Japan and Korea, which is a model we see to our left. And because we are isolated, we can take that risk. We also don't think that we can be successful completely imitating Silicon Valley. So where we can be successful is in new industries working with the US. It's not just Silicon Valley back then, it's the US as a whole. So we will put bets on this new industry called semiconductors. But unlike Japan or Korea, we will not put bets on a specific niche. But we will create two capabilities that will allow Taiwan to excel in what we want to excel, which is basically the sub-suppliers for American companies, maybe Japanese. Remember, there was nothing else in the world back then. So they spent resources on innovation in the production of semiconductors. So all those companies that we talk about TSMC, UMC, Taiwan Mask Company, all of them came from a public research institution, which created projects that basically took the technology from abroad, brought it to Taiwan, created the company that then allow the ability to, you know, produce semiconductors in Taiwan, that was one.And the second, [is] a huge amount of attention to design. So you want to do something with silicon, you need to do two things. Actually produce the silicon but also design what it is that this chip does. And again, through the same public research institute that was diffused. But the aim was not an industry like Silicon Valley that comes up with new ideas, but the aim was you need much more simple semiconductors, for example, in toys. So we will figure out where there are niches where you already have a need for semiconductors and we'll make those semiconductors more reliable and cheaper. We're not going to invent new ones.And we will be able to do that because we just created those factories so we can do those two things and be these great sub-suppliers for very big multinationals. So without even understanding how the global system is getting fragmented, they opted for one industry and in one part of that industry. When they created TSMC they didn't know that they were going to completely change the global semiconductor industry. But they had a very specific strategy of thinking, what would success look like to Taiwan? So the ability to do over design and supply for big American, European and Japanese companies, the ability to innovate in the production, and the ability to innovate in second-generation innovation and semiconductors and multiple companies that will grow big but most of them are SMEs, and that was the vision. And then as industry changed, right, they co-evolved.In both places, there was nothing, really nothing before the government started. So in Israel, there were 860 Something people with any kind of academic education doing any kind of r&d in the whole business sector. So probably less than in one lecture hall in your university. And in Taiwan, not only that the private industry did not want to do semiconductors but even after a few very successful spinoffs from ITRI, (that public research institute I'm talking about) when they wanted to spin off TSMC (maybe one of the world's most successful companies), private investors in Taiwan refuse to participate, and it ended up in a small Dutch company called Philips [which] became the biggest investors in TSMC. So again, did they know how they were going to change the global industry? No. But did they have a very specific vision of what is success and what would it do to Taiwan and Israel? Yes.Tobi;Excellent. That brings me to my next question, which is kind of broad. Like I mentioned earlier, if I was the governor of Lagos, or the mayor of a city, or even maybe the President, and I want to design innovation policy, I really want to exploit innovation for real inclusive, widespread, broad-based growth that tries to avoid some of these problems that you have mentioned, both in the book and even in our conversation on Israel, Silicon Valley and all that. What should I do? What should I be funding? What complimentary public institutions do I need? And how should innovation policies be designed generally?Dan;So I think you're missing the most important step. The most important step is what, as I just said, Israel and Taiwan have done, maybe even unknowingly. What I will tell you as the governor of Lagos is that, Okay, let's assume you're successful as a first step. 15 years from now, what does Lagos look like? What kind of companies do you have? What kind of people do they employ, what kind of things do they sell to the global system and what kind of things do they buy from the global system? Okay, now that we have this vision, let's do reverse engineering, and figure out how we get into that vision knowing that we, I mean, the world is constantly changing, we might have to, you know, change course, but we have a vision of what success is. And that vision is not the one that too many cases are now [that] when they talk about innovation, they talk, oh, I want to go to VCs and I did a lot of patents. No.What does your society look like? Once you do that, A) we can reverse engineer and figure out exactly what financial system you need, how you develop it, what changes you need for your education system, how you also tie yourself into those global networks so you get the outputs you need, which are not just physical outputs but the constant knowledge and ideas, and how do you move it back? And as you do that, you also need to look at several things: what are your current strengths and limitations? what you can build upon? And what are gaps that you have that [you think] is reasonable for you to assume you can fix? And then we can start to be much more targeted. Not necessarily in industries, but the way I think about it is in capabilities, where do you want to operate in those four stages? And then we can maybe talk about industries, maybe just talk about core activities of what you need in order to excel in that and build all those institutions and programs. But without that vision, you're basically going into a very rough ocean with no map and the no goal. So the only thing that will happen is, at best, you'll be drowned.Tobi;That's powerful and poignant. Final question, Dan. And this is a bit of a tradition on show. What's the one idea, it may be from your work, it may be something you admire, it may be something that is probably even old and the world has forgotten about, what's the one idea that you would like to see spread everywhere, you'd like to see people discuss more, you'd like to see people think about a lot more? What's that idea?Dan;That idea is that: believe in human agency, or believe in the ability of humans to do things and to make things better. Right? So if you think about what makes us human, it's really to innovate is to take ideas and make them part of the world. Right? That's what we do. And for too long, everybody has been taught that there's only one way to success. And I think that that's the main problem of modern economics and modern social science. We look too much at structure, and not enough at the human agency. And we need to believe in the ability of societies, humans working together, figuring out new ways to make our communities better. But in order to do it, they have to understand how the world works and how they work. And doing that I think we now have more options than ever before to make communities both richer and more inclusive. But it has to come from the communities itself. Lagos and a lot of places in Africa need to dream their own dreams and stop dreaming the European or American dreams. The other successful countries that have done that manage at least to tailor the American dream and make it into their, I don't know, flavour [of] dreams - from Japan and Korea to Taiwan, Israel, Finland, all of those places that have moved from being poor to successful after World War Two.Tobi;Terrific. Thank you so much, Dan, for doing this with me. It's been educating, it's been enjoyable. Thank you so much.Dan;You are very, very welcome. I hope that one of those days, maybe after, we will finally innovate our way out of COVID...Tobi;YeahDan;Then I can meet face to face.Tobi;Yeah, I would I would love nothing more. 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If you ask any Nigerian today what the number one problem that they think political leadership should tackle - I am fairly certain security will be the overwhelming answer. In the last week alone there have been two deadly attacks in the Ondo state and Kaduna state with scores of people murdered in their homes and places of worship. Go back a week further, and the number of such murderous attacks would have risen to six. What many Nigerians depressing is that the problem is worsening and spreading to all parts of the country without any sign that it might abate anytime soon. Politicians seeking elective positions in next year's elections are making promises to end the crisis, but given how much it has gotten worse under the current administration despite similar promises leaves very little room for optimism. It is in the light of this that I speak to my guests on the podcast today James Barnett and Dr. Muritala Rufai. Our conversation is about what is now known as banditry in the Northwest of Nigeria. We talked about the origins of banditry, the nuances of the many factors at play, corruption, and the failure of local governance. Dr. Murtala Rufai is a professor of history at Usman Danfodiyo University in Sokoto.TRANSCRIPTTobi; So I'll start right at the end, which is not the most recent attack, but the Kaduna train attack was heavy in people's memory, and mentality, and maybe because of the status of some of the people that were involved. And in the weeks after there has been suggestions that the banditry issue is sort of evolving into something rather different. Maybe something akin to Boko Haram or ISWAP tactics. And some have even suggested that there are some evidence that both groups are now working together. So I like to take it from there because in both your paper your article on this, you suggested that this is a problem that has the potential to evolve even more dangerously. So is this part of that evolution? And if so, what can you tell us about the background to that and where it's likely to go next?James; ...In terms of the kind of the relationship between the bandits and Boko Haram, you know, the term that we talk more generally about jihadist because, really, there're kind of at least three different primary factions of what was once Boko Haram in Nigeria, today. There's ISWAP, there's the original Boko Haram, which we use the acronym JAS, which was led by Abubakar Shekau until May of last year when he was killed. And then there's also the Ansaru splinter faction of Boko Haram. So when looking at relationships between bandits and jihadists, I think if anything, our study was maybe a bit more skeptical of some of the claims that, you know, by 2021 (by last year) there was already more speculation. You had more comments from government officials, commentators, journalists saying, you know, the bandits, they are being recruited by Boko Haram, they're working together. I think our study was, in some ways, a bit more skeptical of the degree of, I would say, co-optation.You know, we kind of pushed back to some extent against this idea that the jihadists were coming in and recruiting all the bandits and that they were kind of transforming the conflict. I think our argument was that the conflict in the Northwest for now is very much still one being driven by the bandits rather than by Boko Haram or the jihadists. We do note, as you say, I think there's definitely room for closer potential cooperation. I think that from what we're beginning to see of the Kaduna train attack, the evidence so far, the details I've heard so far, there are kind of concerning issues there. But I think that for now, you know, even recognizing that the Kaduna train attack is a notable attack, a very serious one and obviously, the situation is still ongoing in terms of the the situation with the hostages, negotiations. So I think it's good to kind of avoid commenting too much right now as the situation is rather uncertain. But I think my view is still that one of the impediments that has, kind of, historically prevented the jihadists from getting closer to the bandits is that the bandits, for the most part, they really prized their autonomy. It's very much part of their modus operandi to operate very independently, they will cooperate with, you know, different gangs, will cooperate with each other, but banditry is definitely an activity that in some ways, kind of rewards autonomy. You know, the groups are not as rigidly structured as a jihadist organizations. It's an area where many people today if they want to get rich, they can take up arms and become a bandit. And so I think, because the bandits kind of value their autonomy, and also just given the fact that they've become, frankly, so powerful in recent years, they are not necessarily in such desperate need to kind of be recruited or trained or equipped or supported by jihadist. So I think my view is that there are opportunities from the perspective of Jihadist to work with bandits in certain instances, you know, to cooperate on certain operations. But I think, as we've seen with for example, especially the group Ansaru, which has tried in the past several years to recruit bandits to say, 'you should stop acting like bandits, you should join our group. Your fight is not with Muslim people. It's with the Nigerian government.' They go on this preaching tours and their efforts have really fallen flat. The bandits have not been interested in joining Ansaru. And so there have actually been many clashes. And recently, I think, as recently as a week ago, was the last one. And so, you know, the situation in Northwest is very volatile, many different militants, many different gangs, and sometimes they work together, sometimes they fight together, but I think for the foreseeable future, that the jihadist element to the northwest - this Boko Haram, this Ansaru...it's a problem, it's a challenge and makes things more complicated for sure. But I think that, in my view, the primary challenge in the Northwest is still bandits. It's not Boko Haram.Dr Rufai; I should just continue from where he stopped. You see, the fundamental problem is that the bandits are not in any way a monolithic criminal formation. There are quite a number of bandit gangs and also bandit groups operating separately and individually. Now having the unity of the bandits into a one united organization, for instance, is indeed a very difficult exercise. Because when we talk about a bandit group or a bandit gang, we've seen cases and instances where three, four, five people, for instance, form up a gang. And they have their own independent and absolute autonomy. They could actually do and undo, they may decide to go on attack, they may decide to carry out abduction, they may decide to do whatever they feel like doing. So now, putting all these bandits together into a one single platform - it is indeed a very difficult exercise. And there are also quite a number of them that consider this jihadist group including Boko Haram, Ansaru and ISWAP that he pointed out clearly, as their traditional enemies, and on several locations attempts by these groups to bring to the fore the members of the bandits, for instance, became so much challenging to the extent that some of the bandit groups and also bandit leaders were making it very clear to them that our problem as you were arguing is not with the Nigerian state - that is what we fail to understand. The problem of banditry is basically and fundamentally local. Until probably recently, that the whole conflict is now taking a more national dimension. You go to the rural areas, you interact with the pundits, they will tell you that their problem is local and solution to their problem also remain local.Local in the sense that they more or less have problem with the an sake - with the vigilante - and other local authorities than even with their state governors. So now, my argument has always been: bringing this bandits, about 120 gangs operating separately and loosely, individually, into a one single platform to probably relate with any of the jihadist groups or any of the criminal group like the case of Boko Haram, ISWAP and Ansaru is actually going to be a very difficult exercise. But I am also not disputing the fact that there are very few number of these bandits that subscribe to the view of either Ansaru or Boko Haram. For instance, the general believe and also accusation which is actually not confirm about the train attack is actually something executed and conducted under the leadership of Ali Kachalla. Ali Kachalla has been a very good friend of Dogo Gide, who were all initially bandits under the control of Buharin Daji. Now, there is that possibility of having that continuity in the relationship between Ali Kachalla, who was until probably recently, a bandit, relating with Dogo Gide who is actually his traditional friend while they were under the leadership and control of Buharin Daji. Of course, going by the pattern of the attack. In terms of the train attack, for instance, we've seen actually certain features and characteristics that differ slightly the case of the bandit. And that is why people have the belief that there must be actually connections with [an]other international terrorist group like ISWAP... some said it's ISWAP. some are even talking about Ansaru, and people also talking about the involvement of Boko Haram. But we've also seen historically, as far back as 2016 - 2017, when some Boko Haram elements were sent to the northwest to come and actually recruit and create a certain ideology on the bandits. At the end of the day, some of these members of Boko Haram became bandits. Because of what? Because they feel there is comfort, there is joy, there is freedom, and also there is wealth in banditry compared to Boko Haram.And that has to do with nothing other than the level of independence and autonomy that is within the bandit world.James; I would just jump in really quickly. I think he did a very good job of explaining how the bandits prize their autonomy and that issue with the jihadists. He brought up the character Dogo Gide who I think is worth describing very quickly.He's an interesting figure in terms of understanding, okay, who's a bandit, who's a jihadist, maybe [for] some of the listeners who don't follow these issues as closely. But he's someone that we profiled a bit in our article, our study for the CTC Sentinel, which is a big research report on the bandit-jihadist relations. And he's someone very interesting because he's a bandit, but he has had very close ties with jihadists for several years. There are disagreements, you know, different sources, different people will place his first contact with jihadists at different points. But he's someone that a couple of years ago, he was mostly saying, 'I don't have any ties with Boko Haram.'He is denying any relationship with the jihadist. But now in the past year or so he started to act as if he is a jihadist. But even as we did when we were digging through and doing our analysis, what we found is that he is maybe even now pretending to be more of a jihadist than he really is. Because he will release these videos or he will be communicating with intermediaries, he will be trying to sound like a jihadist, but he doesn't actually even know the proper Arabic phrases. In one instance, he refers to the leader of ISIS to suggest that he is a member of Daesh or ISIS, but he's referring to the dead leader, who's been dead for over a year. And so I think it's one of the challenges of doing this research in the northwest. It's why I think it's good to be very cautious and skeptical and try to kind of scrutinize all the data coming out. Because on the one hand, sometimes like Dogo Gide a couple of years ago, he would have understated his contacts with jihadists. He would have pretended that he doesn't have any at all. Whereas in fact, we do know that he has.He has been in contact with various jihadists for some time. But then he could also maybe overstate his level of influence. Because there are instances in which the bandits find it advantageous to maybe assume the appearance of jihadists because they think it will make them seem more powerful, or because they think that it will give them some sort of advantage in negotiations, for example. That was the case with the Kankara abductions back in December 2020 that was conducted by Awwal Daudawa in Katsina. So it's a very important question, you know, how much are these bandits and jihadists working together? And it's one that I think requires a bit of a skeptical eye. Because sometimes things are not necessarily as they appear on the surface. And sometimes these bandits… they have [a] complicated kind of calculus that will determine how they interact with jihadists, whether they want to give you the jihadists credit for an operation or something like that. So I think that the Dogo Gide example is a very interesting one.Tobi; The sense I'm getting is 'this a bit hard to predict, because the tactics and the motives are constantly changing.' So before I draw you guys into the issue of causality, which is going to be my next question, briefly, given where James stopped, do you think that's part of the reason why the government and security forces have not been able to deal with this issue? Because it's constantly in flux, it's unpredictable? And like he said, there is need for a patient and cautious strategy. Also, and this is a bit speculative, are there people in government to your knowledge who are also aware, and why is that not reflecting in the security approach?Dr. Rufai; Well, you see, what is important about the approach to this particular security threat, in my opinion, is to have a detailed, deeper, and clearer understanding of the issues. And even within the bandit cycle, for instance, we've seen people in the rural areas with AK 47 and AK 49, 24/7, that are not bandits. You can see a major problem now. When you define a bandit on the basis of weapon, for instance, you've completely missed the issue. Why? Because some of these people bearing these weapons are, basically, and fundamentally, using them for self-defense. Without these weapons, for instance, the bandits will within a twinkle of an eye, wipe them out. And that becomes a very serious problem and also challenging to the Nigerian security operatives as well. So, now, the government actually, in my opinion, the security operatives are doing their utmost best, but their best is not enough. It is not enough because there is still a gap. And what is that gap? A knowledge gap of what actually is happening in the field. It is not just about going kinetic. Before you go kinetic, before you take the kinetic approach, for instance, it is far more important to have an underground knowledge of what is obtainable in the rural areas. For instance, the Gide we are talking about, a long time ago, has established a mutual relationship and understanding with the rural communities. And I'm telling you, the rural communities around Dansadau, around Baba Doka, around Birnin Gwari, around Madada, around Dandala will never or have never seen Dogo Gide as a problem or as a threat.That, rather, what he is after is the abduction of school children, abduction of expatriates, and his major problem is with the federal government. And as long as he will keep on fighting the State, the local communities have no problem with him, they may even decide to support him.And at times, getting credible intelligence from the rural areas by the security agencies becomes a very serious problem, because the rurals will rather relate with the bandits than with the Nigerian state. You can see a major problem, a major problem here. And again, because of this level of intermingling between the bandits, where areas that are dominated by the bandits. And also, with Boko Haram elements, where areas dominated by the Boko Haram elements with the rural communities, it becomes a very difficult exercise for the security agencies to execute operations in those areas. And the major dilemma they are facing today, I'm talking about the agencies - the security agencies - is the issue of the collateral damage. If at all you are going to address this issue head-on, then definitely the issue of the collateral damage will be 100%. Why, because, you cannot differentiate who is a bandit and who is not? Who is a member of Boko Haram, and who is not? Who is a passive and active collaborator of these people? And these are some of the issues that actually compounded the issue more. So we cannot say that the security agencies are not doing anything in the field. But, in my opinion, what they are doing is not enough. What is important is not going to kinetic alone, but let us have a clearer and deeper understanding of the issues. And for that to be done, a lot of underground research(es) needs to be conducted, and a lot of sensitization and mobilization, and winning the support and confidence of the rurals or the locals must be done without which I think we are likely going to continue this war to a foreseeable future.Tobi; You want to weigh in James? James; Yeah, I guess I would just add... I think in addition to everything that Dr. Rufai has just said, one other challenge, as Dr Rufai noted in a previous answer to your question that, you know, the issue with banditry in many ways is very local. But it's also become much more of a national issue. And this also, in some ways, complicates the response of the state because the state itself is not monolithic, right.If you look at, you know, who is involved in trying to address this issue of banditry, very often these issues are occurring at a very local level, within a particular district within a particular emirate within a particular local government area. But also, it's become much more of a national issue.The security forces, particularly the military, since the launch of the first major military offensive operation [...] - that was now what? six, seven years ago. The military has also been engaged in the northwest in these anti-banditry operations. And so sometimes, there have been issues of a lack of coordination between all the various stakeholders on the side of, you know, the governments, if you will - broadly defined to include district officials, traditional rulers, local stakeholders like that - where sometimes you'll have one community [that] is actually attempting to negotiate something like a peace deal with some of the local bandits or an amnesty with the local bandits at the same time that the military is conducting a military offensive in the area. And so this kind of erodes trust. Or likewise, there will be times where, you know, a certain area is being really badly affected by the bandits, but the military's focusing on another area because their forces are overstretched. And so I think it's one of the challenges that Nigeria faces so far is looking at, okay, who are the authorities or the stakeholders that are tasked with addressing this issue of banditry? And how can you increase the coordination between the state governments; but also between the state and the federal governments; between the states and the local governments; between the formal authorities and the more informal or traditional authorities which in many regions still have very significant informal influence. So that's also been one of the challenges. And it's reflected to some extent, as he noted in the very fractured nature of the bandits themselves. We were discussing this yesterday with some colleagues of mine here at Unilag after the presentation, one of whom is from the Niger Delta area, and we're comparing and contrasting. He was saying, why can't they do what they did in the Delta? You know, what is the difference between what's happening in the Delta and what's happening in the Northwest? And Dr. Rufai put it very well. He said, you know, in the Delta, the militants can speak with one or two or three voices. But this is a big challenge for the bandits. So, anyone can form a gang these days, there are just so many bandits that there's no one person you can talk to, that represents all the bandits and you can negotiate.Dr. Rufai; And I think, added to the issue of interagency rivalry that he's talking about, it is actually a major challenge. And when you look at the operations against banditry in the northwest today, it has become a military affair. And if all is well, if teams are moving the way they should, this is an issue that's supposed to be addressed by the police. But where are the Nigerian police force today when you're talking about banditry? Nobody talks about the police. And not even the police, for instance, we have the Civil Defense. These are very local problems, local security challenges that actually supposed to be addressed by these people. But as we speak today, it is actually the military that is in charge of addressing some of these issues. And look at it, the role of the military, within the context of provision of internal security, for instance... virtually there are so many operations taking place, virtually in every part of the country. 36 states, including Abuja, for instance, you'll find different military operations. Look at the number of the military within the context of the increasing rate of crime and the violence, insecurity, for instance, the two cannot in any way match. And that becomes a very serious problem. And by extension, the military [personnel] are overstretched and overwhelmed by the level of conflict taking place in the country. And not only that, this problem of banditry just like I said earlier, is basically a local problem. And it is something that actually requires the activities of special forces. Do we really have the special forces within even the military, for instance, to address this issue? Because there's not just an affair of [the military]. Of course, nobody is talking about the State Department and the underground role they are supposed to play in this. So virtually, it is the military operating alone.And this same military [personnel] we're talking about are gradually overwhelmed by the volume, and also the gravity of the problem. They don't even know, in some cases, where to start from. Identifying who is their friend and who is their enemy becomes a problem. The attack on the train, the Abuja-Kaduna train we are talking about, is not in any way aimed at the victims. Rather, to send a danger signal to the Nigerian state. And they've actually succeeded in doing that. And as we speak, identifying where these people are, becomes a huge problem to virtually all the security agencies. Simply because of what? Because of lack of harmony, lack of coordination, and lack of peaceful working relations amongst all the security agencies.Tobi; I don't want to lean too hard on the security angle, at least for now. Because I mean, primarily, you guys are researchers, not policy advisors, at least for the purpose of this conversation. So let's go back for a little bit. Because in your work, you guys stated that the manifestation of this is multi-dimensional. There’s elements of criminality going on, economic opportunism in inter-ethnic clashes, you know, there's also the issue of climate change and damage to the environment and the strain that puts on resources between farmers and herders and many other interests. But what ties these all together? Right? How did this become such a national Flashpoint? Because I recall, maybe, 2016 when these attacks started blasting on the pages of newspapers, we don't even know the word bandit. Right? Bandit made it into the national Zeitgeist much later. It was always herders, Fulani herdsmen, you know. At some point, the presidency was claiming that they're actually foreigners who come to attack locals and carry out criminality and all that. So help me in as many words as you can untangle the causality of this. How did this escalate?James; I think Dr. Rufai can give the ... I mean, it's very multi-dimensional. And he's the historian and has been looking at this for a long time. And you know, in our different reports, we've explained this, yes, there's issues of land use, there's [the] issue of ethnicity, all these different factors that go into it. I think the one that I always stress, and these coming from my background, I worked in Washington, DC for several years, I'm still in contact with people there. Like, when people talk about farmer-herder conflict in Africa, and very often in DC, the first thing is that people have a very reductionist view of it.That's in many ways, kind of, very apolitical in some ways. They think farmers and herders used to get along, and then climate change meant there were fewer and there's fewer land, fewer resources and so now they're fighting each other. And climate change is definitely real, it's definitely a problem. It's absolutely aggravating the situation there. But I think that leaning too hard on the climate change angle, and you see sometimes governments doing this, not just Nigeria, but other governments: they'll say, ah, you know, the problem here is climate change - it's a way to escape responsibility, right? Because you throw up your hands and say, we didn't do this. Tobi; It's not my fault.James; It's not my fault. I think that one of the central issues that is seen in every aspect of how this conflict escalated from people becoming angry, to the weapons flowing into the region, to people not trusting their neighbors, to not trusting the authorities… one of the central issues is corruption.And this is an issue everywhere in Nigeria, right? It's not just in the northwest. But the specific ways it played out in the northwest, I think had a very pivotal role to play. From people not feeling that they could trust the criminal justice system or the authorities to handle disputes or legal matters related to land use, farmer-herder issues. Herdsmen felt that they were really being extorted because they were seen as kind of an easy target by authorities… whether it's the police, village heads, judges in the courts, they were seen as people that can easily be extorted. And then just everything from the fact that I mean, the IGP announced the other day that something like 85,000 AK 47s that belong to the police are unaccounted for. Tobi; Yeah.James; Right. And you wonder how you go out and, you know, we both interview bandits, we've seen nine-year-olds with AK 47s? How is it that that happens? It's not all coming from the Nigerian military or police stockpiles. But you know, there are many reasons that there are so many weapons in West Africa today.But corruption is a huge challenge, both in the inability to prevent weapons from flowing into and around the country. And also the fact that very often weapons that are intended for use by the Nigerian state find their way into the hands of criminals.So I could go on and on that, but I think interviewing people in the Northwest, and you ask them how did this start? Very often they'll talk about corruption.Dr. Rufai; I think he has actually said it all. What is far more important is the issue of corruption, the issue of corruption he's talking about. But again, added to that is, the collapse in our family value system actually added to the crisis. Situations where we have families that could not in any way take care of their children. Within the context of, in some cases, poverty, unemployment, underemployment, all play significant roles in the conflict. And also within the context of the traditional authorities again, it's become a very serious problem. And the point he pointed out on the issue of corruption. Corruption within the traditional rulers contributed and contributed significantly to the escalation of the conflict. But there are a lot of issues lumped together, more especially this issue of injustice.All people contacted and also interacted, interviewed on this issue of rural banditry are pointing to the issue of injustice. Injustice in all sense of the word. Injustice from the traditional authorities, injustice from the security agencies, injustice from virtually every angle of the society, and that plays a very important role, and it serves as a unifying factor that contributed to and that unite virtually most of the bandits together. For instance, you see them also talking about the activities of the vigilante and the an sake. And when you look at the operations of the vigilante and the an sake, it's nothing other than the idea of extrajudicial killings. The level of extrajudicial killings actually taking place in the rural areas is unimaginable even before the issue of rural banditry becomes a problem. And that is why the Fulani people feel they are not actually taken care of, they are absolutely rejected and detected by the Nigerian states and they feel they are on their own. And the best thing to do is to fight for their freedom. And that idea of freedom fighting, forming a union, or a gang for the Fulani liberation movement, for instance, was the bedrock of the banditry.So there are a lot of issues put together. And more so, within the context of the Fulani, they feel the presidency, for instance, Mr. President is a Fulani and they feel if at all they need to be taken care of, there is no regime that's supposed to take good care of them other than this particular regime that the head is someone that is their own - one of them. And that becomes a problem. And you see some of them lamenting and lamenting bitterly about the level of neglect by the State - by both the federal government and also the state government. And when you look at it, [the] absence of state presence plays also a very important role in the rural areas. Infrastructure-wise, for instance, the presence of security in the rural areas is virtually zero. I am talking about villages, I am talking about rural areas. You go to a village with 3000-4000 people, you cannot in any way see a single presence of the State, and that becomes a huge problem. So there is this type of high level of disconnection between the rural world and the urban world. And now, it is the rural world fighting in the urban world. Because of what? Because the rural world was neglected, the rural world was not taken care of, the rural world was absolutely spared from [infrastructure-wise] what we see in the urban centers. And that also constitutes a major problem. Talking about the issue of climate change, talking about the farmer-header issue, in my opinion, are just issues that are of secondary importance to this violent conflict. There has been farmer-herder conflict right from day one, right from the onset. And not only that, traditionally, conflict resolution mechanisms or dispute resolution mechanisms, for instance, were actually at work, and also addressing the farmer-herder clashes. And then the question is, where are they? Taken away by so many things, taken away by the issue of injustice, by the issue of corruption, and lack of respect for traditional authorities.And today, some of these traditional authorities, village heads, district heads, and to some extent, emirs, in Zamfara, in Sokoto, and in other places are under the control of these bandits. Simply because no state presence, no security presence, and the only thing they think they will do is to listen to the bandits.Dance according to the tune of these bandits, and also subscribe to the view of the bandits. Not because they want to do so, but because they were neglected by the federal and the state authorities. And that constitutes a very big problem. Unless we get some of these things right, unless we fix some of these issues, lacuna, and problems associated with the rural areas, I don't think peace will actually elude some of our urban centers and even at the national level.Tobi; It's so important for me to talk about this because in trying to analyze a lot of these issues, some things become a talking point. Right. And even though the government's censorious stance kicks in to quell some of these things, but they do happen. Whether it's on social media, or on internet radios, that's why I'm trying to tease out the issue of causality. Because some people will tell you, without any iota of doubt, that there is a Fulanisation agenda going on and that is the underlying driver of this. Some will say there is a systematic massacre of Christians going on in that region, that has drawn the attention of the Trump administration on religious persecution and so many other issues. So it's very important for the purpose of the audience, and you know, Nigeria is a diverse multi-ethnic society, it's easy for certain talking points to get away and... I mean, it becomes something else. So, now, I get you correctly. Even the issue of causality is not just one thing. But I'm saying it, maybe you guys are not, there's a huge level of state failure going on. Right. Now, my question then is, elections: politicians are campaigning again. As a matter of fact, one thing I learned from this conversation is that nobody is even talking about the issue of restructuring or decentralization of power in the context of this conflict. Right? We are talking about VAT or how to administer Lagos or Port Harcourt or Kaduna. So nobody is even talking about how empowering local governance, local institutions can actually bring peace, you know.But today, if you ask everybody, insecurity is the number one national issue. You know, all politicians are saying that if you elect me, I'm going to solve this... So then my question is, given the level of state failure that I am saying that I can tease out from this conversation, if you have to sketch some kind of starting point or an attempt at addressing the issue, where would you start from?Dr. Rufai; Excuse me, please, I think you've raised very critical issues that require [a] deeper and clearer explanation.Tobi; Please go on.Dr. Rufai; The first issue is the Fulanisation of maybe Nigeria or northern Nigeria, or whatever. I think if at all, there is an ethnic group that is understudied, and that is still less clear in terms of the nature, the operations, and the relationship, I think it's the Fulani.There is a high level of internal division, internal rivalry, and internal conflict among the Fulani. They are not in any way a one united ethnic group as we see, in the case of the Hausa, in the case of the Nupe, and, to some extent, in the case of the Yoruba, and the case of the Igbo.These are people that are so much attached to their traditional and local way of life. Even if you are born and brought up a Fulani, if you don't have respect and value for the Fulani culture, they don't consider you as part of them. And that is why 90%, let me not exaggerate - 60 or 70%, of the victims of rural violence, rural insecurity, rural banditry are Fulani. And 90% of the victims are not just Fulani, are also Muslims. You get the point. And you interact with some of these bandits, you talk about, okay, this person you killed, this person you rustled [their] cattle, this person you intimidate, this village you actually raided, for instance, it is a Fulani dominated village, they will tell you that that particular person, that particular village, that particular community you're talking about, we don't consider them as members of the Fulani. They are not in any way respected within the Fulani circle. They have their own code of conduct that serves as their guiding principles, that serve as their Constitution. Whoever strays away from that code of conduct, for instance, they have no value, no respect for him. And there is also a striking difference between an urban and the rural Fulani. For instance, the town Fulani is different from the village Fulani, the village Fulani is different from the nomadic Fulani, the nomadic Fulani is different from the stationed Fulani. All these nuances are not really clear. Now, if you decide to create a whole northern Nigeria to be under the control of the Fulani, I am sure there will be a lot of crisis and a lot of conflict, internal dynamics and internal differences will not even allow that to happen. Now, in spite of all this, if you have the knowledge and understanding of this, you go by the code of conduct, if you also don't speak the Fulfulde language, they have no respect and no value for you. These are things that people don't understand.Talking about now, a Fulani agenda, trying to create... No. And when it comes to the issue of suppression, exploitation, high level of injustice, I think the level of injustice committed against the Fulani in Nigeria could not be compared with injustice committed against any other ethnic group in Nigeria. These are people that I don't want to use the word docile, but are people that don't voice out. They are people that actually have this idea of not forgiving, and also not forgetting. You commit a crime, you cheat a Fulani man, for instance, today, if he sees you after 10-20 years, he will remember. And he will also wait for a chance and a better opportunity to retaliate. So now, we are simply paying the price of social injustice, exploitation, extortion that we've committed against these people over time, and it has manifested. And that is why when they decided to form up a union in 2011, you find a large number of Fulani people with long historical and deep-rooted grievances populating the gang. Virtually the first generation of the bandits, for instance, have that feeling.And you see if I am given the opportunity today….Tobi; Yeah.Dr. Rufai; To address the problem of rural banditry as the president of this country... I think the easiest way to address the issue is local government autonomy, no more, no less. If you give local government autonomy today, you have no problem with the rural areas. Rural communities will actually hold their local government Chairmen accountable, their are counselors accountable. And when there was local government autonomy in the past, for instance, we've seen the level of infrastructural development taking place in the rural areas. Because every area, every ward, every community has a representative in the local governance. And for instance, you cannot be relating with the local authorities, with the local government chairman without complaining and we've seen the level of projects executed by these local government chairmen in the rural areas. And some of these projects we're talking about are still there in the rural areas. But the major bottleneck is governance will certainly not allow that to happen unless and until they are overpowered, or else they will not allow local government autonomy. They will not because they are the ones controlling the resources. All local government resources go to the state governments. And when you go to the local government areas to the rural areas, you find virtually nothing. So now, if you have this idea of local governance, they are given their autonomy, they get their subvention directly from [the] Federal [Governement], monthly, for instance, you don't even need to hold these local government Chairmen accountable over what is happening in rural areas, the local communities will be the one putting pressure on them to work. And you set in also the idea of high level of competition among the local government chairmen, everyone will be competing. And whenever and wherever there is a rural or a local violence, rural conflict coming up, you hold the local government chairman accountable. So I think, in my opinion, the answer to some of these problems revolves around local government.James; I think, and I would agree with everything you said there, and I think, unfortunately, not to be too pessimistic but that's one reason I don't see this situation dramatically improving anytime soon. Because all of these issues, you know, I'm not an expert in Nigerian governance, but looking at like the security sector, for example, which is a scenario maybe I'm a bit more familiar with. We got a question when we gave our presentation at the University of Lagos yesterday, and one of the questions I got was about state police, people are always fighting about state police. And as I was talking to the person who asked the question after the presentation; I was like, Look, I don't have a strong opinion one way or the other about state police versus Federal Police. All I can say is that there's not going to be some law that just creates state police tomorrow, like, that's not going to happen. Because it all ties into larger questions of the federal structure. You can't just have, you know, a reform of the police into the state police level in a vacuum. Everything is about this larger question of the structure of the federal government, which also gets into this question of oil rents, and you know, how the government funds itself. And so you're not going to be able to pick at these little issues so much and say, Okay, we'll do a bit, we'll restructure the police to the state police, we'll give local government autonomy because all of it ties into this bigger question about the structure of the Nigerian state. And I don't have like a vision for, oh, here's how you should reconstruct Nigeria to improve all these issues. But it's simply an observation that many of these reforms or these kinds of challenges that people have identified that I think are already very much in the public consciousness about, you know, people are demanding local government autonomy, state police, all that stuff...there's a reason that hasn't happened yet. And it's because there are significant structural political impediments to that happening. And so I think that if you know, if the problem really is that, okay, it's the structure of the federal police force, that that's one of the major challenges, then that's not something that's going to be solved overnight.Tobi; One thing that came to my mind now is the issue of power generation. National Assembly just passed a law that would actually require the ratification of two-thirds of the states... good luck with that happening...that then allows state governments to generate their own power. So we've all been locked into this dysfunctional structure. So like you, James, I'm not super optimistic. But one thing I want to push you guys on... your work is gaining a lot of exposure and I'm sure a lot more international exposure is still ahead. Hopefully, there'll be a book. So, now, one thing that regularly comes up is....there was a time the President even wrote an op-ed, on the Financial Times asking for international aid, and security, securing weapons, lifting some of the restrictions, and all that. My point is, how should the international community engage on this banditry issue? Because we just talked about how the security forces sometimes are not the appropriate force level contact for some of these problems. There have been issues of extrajudicial killings even by the security forces, there's the huge issue of excessive force, even in bombings, air raids, you know, collateral damage, and all that. And the same government that controls the security forces then goes to the international community, whether it's the EU, or China, or the United States for aid and assistance in tackling insecurity. But, given the complexity of this issue, how should the international community engage on this [issue]?James; It's really tough. The international community, I think, when we say that what you really mean is like Western governments...Tobi; Absolutely...James; China, depending on what the context is...Tobi; Yeah. There's a Western alliance.James; Yeah, exactly. The Western alliance. I think these conflicts are so complex, deep-rooted in these kinds of systemic issues in Nigeria. And frankly, we just don't have a great track record, you know, speaking as an Oyinbo man, we don't have a great track record of intervening in complex conflict situations like this. I think that one thing that I was very wary of... this is something that we kind of touched on a bit at the end of our study on jihadisation is that, you know, for now, the bandits have a much more parochial local agenda than the jihadists.Dr. Rufai; Yeah.James; This Ansaru, one of the things that was really interesting interviewing with people who had heard Ansaru preach in their villages, in these villages Birnin Gwari, they would say: yeah, Ansaru, they're always complaining about America. They're always saying: your fight is not with Nigeria, your fight is not with this, your fight is with America. They're the great Satan, they're hurting us. And these people they think, 'huh?' you know, that doesn't really resonate with them. They think 'no, no, my complaint is with the local governments and you know, the fact that I don't have roads and school and stuff,' they're not thinking in terms of this big ideological struggle. And I think it's the same for the bandits, you know.I was able to interview several bandits who... they see me, a foreigner, a Christian man, they're just oh, they're very interested. They want to learn, oh, what's the, you know... they're even asking what's Bature land, like, you know, are there different tribes of Bature? Very curious, they did not have these strong preconceived notions about the West and whether or not it's a friend or an enemy. It was very remote to them, you know. And so I think that if you had the kind of Western powers coming in and taking a more visible role in, for example, security assistance or something, then in some ways you'd be giving propaganda to the jihadist right, you know. And I'm not saying anyone's suggesting this now. But since your question was okay, the Nigerian military is not handling the situation sufficiently, what can the international community do? I do not think that the answer is to kind of take on a more forceful role, right? If you had these, like Reaper drones flying over northwestern Nigeria, these bandits, you know, their fight is a local fight. But all of a sudden, they're getting pursued by US military hardware, they go what's happening? And then that's the moment that Ansaru can say, ah, we told you, you see? Your real enemy is America. Dr. Rufai; Yeah. James; You weren't bothering anyone but these Americans, they're ideologically hell-bent on killing Muslims. And so that's why you have to join us. So I think this is a very long way... I'm not giving you a satisfactory answer, I'm just saying what I think we shouldn't do. But I think that it's important to stress that level of caution that whatever approach, the ''international community'' takes, I think it needs to be very careful, very clear to let Nigerians lead on this, to not be taking a too visible role in some ways, especially on the security front. And I think that's a challenge, right? Because as you know, it's a dilemma in some ways, because the Nigerian security forces have not shown the capacity to handle this. But I think that very often, you know, the medicine can be worse than the disease. And so I think that that's kind of my word of caution. But I'll let Dr. Rufai...Tobi; I get you and I'll get to Dr. [Rufai] in a minute, so my question is actually a lot more subtle than that. Of course, everything you say is true. If you have drones flying over the Northwest, this will certainly make it worse but what I'm asking is [that] there is some engagement going on, either it is funding or it is selling military hardware to the Nigerian government, that probably makes this worse? Maybe not directly, from the Western alliance…But, what I'm saying is, how should the engagement change if it's going to, to be a bit more progressive? Even if it is to fund more local researchers to better understand the problem? Right? I mean, to say the obvious, at least for me, in this particular case, it took an Oyinbo man, like you said, to be aware of his work. James; Yeah, it's true. It's one of the challenges.Tobi; Which is not supposed to be so. Right? So I'll go back to that point, how exactly should engagement be, even at [the] diplomatic level? Not just force? How do we better make the incentive and issues clear? Dr, you can weigh in?Dr. Rufai; You see, in my own opinion, rather than going too much international, looking at the Western world... I think, to address this issue properly and adequately, the Nigerien government [Niger Republic] has a better, clearer, and deeper understanding of Northwest's problem, unfortunately, than even the Nigerian state.Because when these conflicts actually started, it was more or less a cross-border issue between Nigeria and Niger. And what the Nigerien Government fantastically did during that period, is to profile all the bandits along the border. Both on the Nigerian side, and also on the Nigerian side. Not just an ordinary profiling, but rather to have the names, the locations, and also the family background of each and every potential bandit. And of course, they succeeded in drawing a map of their locations, and also their relationships. And when that was also going on, for instance, every local head... I mean, either the village head, or a district head, or an emir in Niger, for instance, in that particular part of the world, they have the names of these people. And these people or these bandits, for instance, were declared wanted. And we've seen, of course, going by my interviews, and also fieldwork in some part of Niger, where whenever a bandit comes in, they alert the authorities. And that was how they succeeded in picking [a] larger number of them that are in Niger. On the Nigerian side, when the Northwestern governors, for instance, feel there is need for collaboration with their counterparts in Niger. Of course, they had series of meetings with the governors of Northwest - Kano, Katsina, Sokoto, Zamfara, and the rest. But their unfortunate conclusion is that we are not serious people, these governors are not in any way committed to ending banditry anytime soon. Because there were, of course, some series of joint operations, but at the end of the day, the Nigerien side that were committed, and also ready to end the problem, were rather given out to the bandits.To the extent that they lost some of their officers and men in the course of fighting banditry. And they felt that is basically coming from the neglect of the Nigerian or the Northwestern authorities. And on that basis, they cease to assist, they cease to discuss issues related to insecurity in the Northwest of Nigeria. And not only that, if today, the Nigerien government decides to strengthen its border security, the movement of small arms and light weapons into the northwest, into Nigeria, will certainly reduce and reduce drastically. But since they feel we are not serious people, we are not committed to end[ing] the problem, or the security challenges, for instance, they let it go and they loosely operate along the border. And we've seen cases and instances where people were saying that, okay, there are cases of people moving into the country with arms and ammunition across the border, but Nigerien border officials, for instance, will decide to even close their eyes and feel nothing is happening. And some of these arms and ammunition as long as they aren't going to be used in Niger, they let it move into the northern part [of Nigeria]. So instead of looking for assistance, financial, funding, selling [buying] of military hardware from the Western world, the problem still remains local. I said it's local because you cannot differentiate [between] the people who live in Daura, the President's hometown for instance, and the people who live in Kwangalam, which is in Niger Republic. It is a stone's throw. They are the same father... people from the same father and the same mother, they are people of the same family. And now, there could be other forms of engagement at the local level without necessarily engaging or even involving the state government, not to talk about the federal government. So if you strengthen this old relationship between these border communities, it is enough, for instance, for you to address the issue. And the unfortunate scenario, the unfortunate happening and now is that you see two-three kilometres... for instance, if you take Illela, you can trek from Illela which is in Nigeria in Sokoto State to Kwani, which is just three-four kilometres to Kwani. And you see absolute peace, absolute security, absolute harmony in Kwani, and a high level of insecurity in Illela. And what the larger number of the people in Illela do now is when it is 6 'o' clock, they trek down to the other side of the border...To sleep!To some extent not even sleep in houses, in villages... they sleep in an open space along the border. Wake up in the following morning and move to Nigeria for their daily business and economic activities. So one begins to wonder what is actually happening?Not only in Illela, you go to Kwangalam, you find the same thing. You go to the Medujia, you find the same thing. You go to Jibia, you find the same thing. You ask the question, what is actually happening? And today, some of these border communities have more confidence, trust, pride in the Nigerien security than the Nigerian security. And in an event of [an] attack, they'd rather call the Zandarma, for instance, in Niger to call other security operatives along the border in Niger than to call Nigerian security operatives. So the trust, confidence, is not there at all. So if now we can strengthen international relations within these border areas, look at issues around ECOWAS protocol, for instance, free movement and all that, strengthen that aspect. I think it is something that will go a long way in addressing some of these challenges.Rather than seeking for funds, military hardware, support, from the international communities. And no right-thinking nation in the Western world will engage itself or involve itself in the mess that is happening in Nigeria because it is a local problem.It is a local problem. You get the point. And probably the only thing I think they will do in cases like that is to provide, probably, the necessary advice, the necessary military training, and all that. If not, nobody will just come directly and get themselves into that. And not only that, the major people, people having a very serious threat on this are basically the Chinese. As we speak, there are a large number of Chinese nationalities that were abducted by these bandits. Though some people say bandit and I argue, I said, no, not bandit, rather, Boko Haram, Ansaru, and the rest of them.Because they are people that relate directly with the rural communities. And because of that relationship, they are vulnerable to abduction. And unfortunately, if you interact with some of these Chinese nationalities, the information and the news you will get from them is frightening. It's frightening because we've seen instances and situations where the security guards that are supposed to provide security to these people were the same people collaborating, serving as informants, serving as spy agents to some of these bandits, and also to some of these Boko Haram members.Meaning they facilitate the abduction of these nationalities. And at the end of the day, they will get their own share of the loots. So, there are lots of ugly stories taking place in the country, at times is even better you don't know than you know because you know you won't even say. Because the situation is completely hopeless.James; I think that last point... the penultimate point about strengthening cooperation with Nigeria and Niger. I think that's a great comment, in part because, also, it's not something that the international community, you know, the Western powers needs to do. The mechanisms for that exist, right? Tobi; Yeah.James; You have ECOWAS, you already have all these bilateral forums and stuff between them. So it's just there needs to be the political will on both sides to actually work together on this. This isn't something that you need to turn to Washington or Brussels or London for. These mechanisms for Regional Cooperation already exist, it's just a question of whether there's the political will to use them to actually channel effort towards addressing these issues.Tobi; So I mean, your jobs might be hard, because sometimes the numbers that you deal with, and analyse, are actual human lives. And I know we've been analytical and impersonal so far. These are serious issues with real lives at stake.People are dying, 1000s, every month now, in Nigeria. So on that sombre note, I think we can close the podcast with this last lighthearted question. What's the one idea - it's a bit of a tradition on the show.... what's the one idea that inspires you, that you would like to see spread? That you'd like to see people everywhere believe, adopt, or just be fascinated by? And it could be anything. So what keeps you guys going...what keeps you guys slogging through this?James; Caffeine keeps me going. [laughs]It can be hard to be optimistic sometimes. But I think seeing... I don't know, maybe it's a bit banal, but seeing the energy that many of my Nigerian colleagues have for actually trying to address this issue, I think that helps me avoid fatalism, maybe. I think even Dr. Rufai, you know, we're sharing accommodation here in Unilag, he was up several hours later than I was last night and he was up before me. And so I think sometimes if I get fatalistic or tired, I remember that there are a lot of good people (not just Dr. Rufai that, you know, I got the benefit of working with a number of colleagues in Abuja, Kaduna, people up in Gusau) who genuinely believe that there are solutions to this that they need to be pushing for. For them, the stakes are much higher than they are for me, I have to be honest about that, you know. And so I think that seeing the enthusiasm, the energy, that people bring to this…it acts as a check on my kind of instinct towards pessimism and fatalism. Yeah, I think that's important.Dr. Rufai; I think for me, all I want to see is peace. Harmony. Inter-community relations and inter-community collaboration that actually used to happen in the past. Where we have a free rural world. People operate freely, relate freely, and that love for one another is there.But the unfortunate story is that today, no trust, no freedom, in fact, nothing works actually in the rural areas. And you interact with the rural communities (more), especially in Zamfara, where I know and where I conducted a larger part of my research. Some of these people will tell you [that] they don't need anything from the state government. All they want at the moment is nothing other than peace. A peace that will actually give them an opportunity to continue with their social, economic, and political way of life. They have their own definition of comfort. If it actually rains, cat and dog every year, they consider themselves as the most prosperous people.Because it is from that rain, the grains they produce, [the] different types of crops they harvest, for instance, that they run their daily and yearly life. An ordinary farmer in Zamfara, in Katsina, in some parts of Sokoto is not in any way poor (going by our own definition of poverty, poverty line, and also someone to be poor). Why, because they have their own way, local and the rural way of life... they harvest, they rear their animals, and you see them every year, paying money, millions to go on pilgrimage, Hajj, without intervention from the state, without a penny from anybody. And of course, from the foodstuff, they sustain their life. And they will tell you, if at all there is anything they need from the state, it is the infrastructure and facilities, particularly the roads. Access roads, where they will access the markets, no more, no less. They don't need electricity, for instance, they will tell you that 'take away your education,' they don't bother about that as long as they have operational Islamiyya schools, for instance. They will tell you that 'take away even your justice system,' as long as their traditional village heads are strong, alive, and active to [sic] their responsibilities. They believe in them, and they are capable of providing them with absolute justice. So all this beauty in the rural areas are [sic], today, no more. And what do we see in the rural areas today? A high level, an increasing number of internally displaced persons. People that were millionaires, I mean, millionaires in the actual sense of the war, before banditry, today, are beggars.Today, lives from hand to mouth. They have become so much degraded, wallowing in absolute and abject poverty as a result of these rural conflicts. And what do we see in the rural areas today, we see a large army of internally displaced persons, as I said, child prostitution, and we've seen marriage and the respected women that lost their beloved ones, their husbands, their relatives, their breadwinners, turning into prostitutes, just for them to survive. And the unfortunate story is that nobody cares, nobody reports and nobody tends to know that some of these things are happening. You will understand this better if you go to some of these rural areas.They are poor, not because they are naturally been poor, but because they were denied access to their farmlands by the bandits. And their own definition of life is land. Life begins and ends with land. If they have access to land, I mean farmland, for instance, they have access to a decent living and also to a life that could be compared with any other life in the urban centers. They don't need your water supply. They don't need your electricity. They don't need anything that one could think of within the context of a comfortable life in the urban center. Their rural setting, they are comfortable with it, because you'll see some of them spending five, six years without coming to the state capital. You ask them 'you've never been to Gusau,' for instance, which is your State Capital, he will tell you 'what will I do in Gusau? If at all, you see me in Gusau or any of the urban centers, probably I'm going to the airport, flying out to Mecca.'And look at it, these people will also tell you that the best people you can easily manage, govern and administer with ease are Nigerians and also the rural dwellers. You live a comfortable life, you steal their money, you engage yourself in corruption; they never bother. All they want is peace. If you give them peace, continue with your life. Because their belief is that in the Hereafter you will account for your deed. And that is where the problem lies. So in my opinion, I want to see life going back to normal, the way it used to be in the past - a prosperous and happy, rural areas. Thank you very much.Tobi; Thank you very much, Dr. RUfai. Thank you, James. It's really fantastic talking to both of you. And hopefully, when next we speak about this, things would have improved, hopefully. Thank you both so much. This is a public episode. If you’d like to discuss this with other subscribers or get access to bonus episodes, visit www.ideasuntrapped.com/subscribe

How Religion shapes and influences the trajectory of a country's development path is a subject I have long been curious about - and I found persuasive answers in the work of Economic Historian Jared Rubin. Jared's book is a tour de force on how rulers and elites use religious legitimacy to propagate their rule - and the developmental implications of such equilibrium. The first part of our conversation is to get him to explain some of the fundamental concepts of his book and analysis. It is impossible to capture his work in a single conversation, so curious listeners can check out his book - and his excellent blog posts here, here, and here. He also has a new book out with previous podcast guest, Mark Koyama (episode here).You can also get the podcast on all the popular platforms like Spotify, Google Podcast, Apple Podcast, and the rest. The transcript of the conversation is available below. Thank you for listening and for your support.TRANSCRIPTTobi; Welcome to Ideas Untrapped podcast my guest today is Jared Rubin. Jared is an economics professor at Chapman University in California. He's an economic historian, and he has written a wonderful book titled Rulers, Religion and Riches: Why the West Got Rich and the Middle East Did Not. Welcome to the show, Jared.Jared; Thank you. It's great to be here. It really is.Tobi; Kind of like [an] obvious first question is why religion, really? I mean, so religion has always been this largely accepted but not really systematically defined or studied aspect of the society, especially when it comes to its influence on institutions and economic development. So what motivated you along this line of research?Jared; Yeah, so this goes back a long way. Religion is something I've always been interested in. Not necessarily, for me, a personal conviction and I'll be fine if it were, but it's been something mainly because I've had a hard time understanding its impact. It's something that very obviously influences decision making. So from my undergraduate days, I was interested in economics, which I view as, kind of, how and why people make decisions. And I was also interested in religion for actually similar reasons because it clearly influenced the way that people made decisions. So I took a lot of courses on various religious topics in undergraduate, but it was something that when I went to get my PhD in economics I never really thought I would pursue. I didn't think that it was something that economists studied. And then in my second year of graduate school, I took a class from who would eventually become my advisor, [...] Wright, who has done work on religion in the past, particularly the role that Islamic and Christian cultural attributes fed into economic development in the medieval period and my mind was blown that you could do this, that some economists took religion seriously. So I went to him, this was probably 2003 and I told him that I wanted to do a dissertation on religion and economic development over time. And at the time, precisely the setup to your question, he told me - that's fine if that's what you want to do, and that's what you're interested in, but know that you're going to have a hard time getting a job?Because there were very few economists at the time that were interested in religion. I mean, you could probably count them on two hands, the economists seriously thought about religion... which in retrospect, is kind of mind-blowing.For me, especially, thinking about medieval Europe, say... I don't understand how you can think about European economic development in the medieval period without thinking of the role of the church. If you think about almost any aspect of Middle Eastern economic history since the spread of Islam, very hard to think through the mechanisms through which growth either happens or doesn't without thinking about the role of Islam, and particularly religious authorities. So I decided to go down this path anyway. I knew that it was something I wanted to do with my career. That's the type of thing that got me really excited about working. And my view on things in general is, you only live once. So if you're fortunate enough to be in a position where you can do what you want, do it! I did eventually find a job, which was fortunate. And as I dug more and more into the history, you know, history was also something that I didn't necessarily think I was going to do... I've always read a lot and it always interested me... start to realize that, you know, something I kind of knew anyway, especially Islam-Christianity comparison, there are way more similarities than there are differences between the religion and religious tenets. Now, clearly, there are differences. But when it comes to the things that impinge on economic development, there's a lot of similarities, especially in history. Now, the question is, has religion played a role at all in economic development and that's what I was trying to think through. And when you start really reading the history, I think one of the things you must immediately latch on to, whether it be medieval European history or medieval Middle Eastern history, is the role that religion played in politics really mattered. And when you start getting a [...] that well, maybe even if these religions are pretty similar, actually, (they're not nearly as different as I think a lot of people think they are) the role they played in politics has diverged a lot over time, and the divergence to some degree coincides with the divergence in economic fortunes in the region. So that was the observation that inspired me to write this book. And to really then think through not just the role that religion has played in politics, but why it might differ across societies, and then how it might evolve over time based on the somewhat initial differences, and then what that might mean for economic development. So I ended up writing a few papers on this. But I decided that the time had come to write a book because I had enough, at least, I saw how the connections were made in my mind and between my papers, and that's where that came from. It's kind of a brief background.Tobi; Yeah, just for the audience, your work on religion is not just limited to the book, you've written numerous papers, and publicly available essays, which I'm going to be putting up links to some of it in the show notes. So I'll start my exploration with the evolution of big gods in society, because religion has been with humanity for as long as we know. But tell me, how did big Gods, monotheistic religion become the most popular flavour of human religious practice? I know you've written about this.Jared; Yeah. So this is something that it's certainly more in the field of anthropology. So there's been some really good anthropological work recently done on this, and actually some work by some economists as well. And this is something that's also, you know, as I was just mentioning, it's intimately related with politics. So small gods, this is not a term that is meant to describe them or anything like that in any way, shape, or form. But it's just meant to say [that] we call small gods, like, gods that have a specific purpose. It might be a god that brings water to a population or heals sickness, things like that. That's a small god, you know, it's a god that has a specific purpose.Big gods are gods that has broader powers. So certainly, when we think about monotheistic gods, those are very big gods, it's the God in a sense, but polytheistic gods can be big gods as well. But what big gods can do is what this literature cites as a purpose of big gods is that it can be a way to legitimate rule. It can be a way that if a ruler has the support of a big god, whatever that means, right? And that can be based on some tenet of the society that whoever's ruling is God-ordained, there might be some clerical class in a society that ordains a ruler as God-ordained. But the idea is that big gods, especially centralized gods (and this is where you kind of get towards a more monotheistic faith) are much better at legitimating rule, at keeping rulers in power, and this is where we get autocracy from too. So a lot of these early societies that had big gods, these were the ones that ended up being a little less fair, that kind of really centralized power in a small group of people because gods like that could be used in that way. You know, when you have a variety of gods you can appeal to, when you have these ''smaller gods'', each group can have their own god. And in that way, it's really hard for any one political group to monopolize divine power. So the recent research on this has mainly connected the origin of these types of gods with political power. And this is something I haven't done my own original research on. But I've written a few things, especially online, we have a blog that I worked for that kind of summarizes this works. I think it's really interesting and not just interesting, but it's a really important precursor to my own work to think about where these gods come from in the first place. Because where my own work comes from is well into monotheism. We're talking about the origins of Christianity and Islam that's well past the point where big gods have formed originally. The real idea is big gods start coming about when humans settle down in society. So, around the Neolithic revolution 8,000-10,000 years ago, so...One other thing that really popped immediately in your book is the role of elites in society. And this is something that has been a bit elusive, at least, in my own experience to define. Tobi; I have a friend [and], I mean, when we talk about Nigeria, and how elites are not really doing enough or talking about the right things or doing the right things, the usual retort is, oh, yeah, well, who are the elites? And I find that it's a surprisingly harder question to answer than it sounds. Jared; Yeah. Tobi; So you describe elites as anyone who can influence how people whom they do not know, act. Can you explain that a bit? Who exactly are the elites in society? How do they emerge?Jared; Yeah, I think this is a really important question. And it's a question that I don't think there's one answer to in the sense, like, I wanted to define elites in a certain way, because I wanted to be able to kind of think through what I described as elites, and this was the commonality. But certainly, if you read other works, they'll define elites in a slightly different way. There are certain people we all know are elite, right, like presidents, or people on the highest courts, things like that. But then there are other people that might not be so obvious whether they're a leader or not, like a local priest or imam or something. Is that person an elite? You know, maybe some people would say yes, some people would say no. So yes, for my book and my work more generally, I use this definition, because it has practical value. So it's this idea that to be an elite, you need to be able to influence the actions of other people, particularly people you don't know. Now, you ask two questions, both of which are really good. One is, how do you become an elite? This is something I've been thinking about a lot for work I'm still doing now is, what is the source of power? Because elites have power, almost by the definition of what I described, if you really want to think about why this matters, it's [that] there's some sorts of power that they have.Now, this differs by the type of elite, some of the ones I'm concerned with in the book of religious elites. Now, the idea here tends to be that religious elites (have) either through their study or through their position or something have access to something people care about. Which is, you know, either the Word of God or some places and times actually begin to connect to the supernatural, something like this. And because they have privileged access to ''we'll just call it the supernatural''... something people really care about, that gives them power to do other things to influence the way people act. And it might be in a way that's consistent with religious tenets and might not. There's been plenty of instances where not. In other cases, there's access to coercive power that can make one elite. This is something where you can say warlords could be considered elite in the sense that at the top level, they have access to coercive power, that because people fear the use of coercive power, it allows them to make people act in a way that they don't want to act.You know, more generally, military elites. And there's a lot of grey area here, you know, so in the military, for instance, who's elite who's not? The lowest rank military person probably isn't, you know, they might be able to be on the street with a gun or something, trying to direct people to do something, but it's not really their actions that is causing this, it's the people above them.Then the very top people are elite. Somewhere in the middle, you just have to kind of make a decision if you're thinking about the social scientific definition. And then this other [group] who I describe as economic elite, who with their access to resources, gives them power. Whether through a formal political process or not, you know, oftentimes, especially in the modern world, it's often through formal political processes. But there's a lot of non-formal processes as well through which this happens, certainly through markets, for instance. You know, market power can be really [a] domineering force. So by this definition, my definition is much more broad than many definitions, especially, in the politicacience literature, because by my definition, there's a lot of elites in many societies. And a reason I think that it's important to consider this idea of there being many elites is that there's many people in general and in societies that can influence the political process. Now, to be clear, it doesn't mean that just because you're elite, you'll influence a political process. The way I've described it in my own work is I do use game theory, or at least is the idea of thinking about the interactions between these various people in societies. And when you go through a Game in Game Theory, you think about how they interact with each other, and what are their motivations? What are the outcomes of their interactions, that's really ultimately what you want to get at. And so I think about the game as being between elites. Now, certainly there are people in the background, right, that aren't elites. The non elites are the people that give elites power in a sense because it's those very non elite states that the elites can influence. And that's the very source of their power. So there is a bit of a tautology here, in a sense that elites power because they can influence people, and then non elites follow elites because they can be influenced. But it's also one of these things. We see it across societies. And I do think that there are many reasons why one can become an elite. And those also differ across societies as well.Tobi; In your book, you also describe a class of people who are still elites, as propagating agents of a ruler. But, one thing became very clear your argument that a ruler seeks to propagate their rule. That's what they desire, you know, isn't this a bit of a public choice assumption, some would question that to say that, Oh, well, just ruling for its sake is not the only desire of a ruler. Some rulers want to do good, some want to, you know, like there are diverse motivations and desires for a ruler. But your mechanism sort of relies on this propagation of rule. What is your argument for choosing to go in that direction?Jared; That's a good question, because this is something that, you know, books have been written on, you know, why do religion? What are the motivations? I mean, you're right, certainly, some have much more altruistic motives, i don't deny that. Some have the exact opposite. Essentially wanting to seek as many rents as possible. And then there are others in the middle. They might be altruistic towards their own ethnic group, and very much the opposite towards others. And this is more of a theoretical concept. Because when we need to think about the interactions between various people or groups in society, we do need to think about what they need, what they want. And what I was trying to do in this book was to think about the most general way of capturing this. And I actually agreed that you can think about it in other ways, and I don't think this captures 100% of motivations, but all of the stuff we've been talking about here, whether it be pure altruism, or you know, something like that, or really wanting to improve society. Or again, on the other hand, wanting to capture as many rents for you or your small group of people. In order to do that, you have to stay in power. And so at its base, I want to minimize the assumptions we make. Because once you make an assumption about, say, wanting to maximize tax revenue, or state revenue or something like that, you know, because certain types of rulers that would really benefit, well then you're you're no longer capturing the type of society where, you know, as you mentioned, maybe the ruler just wants to do best for their society. So what I was trying to do, I was trying to think through a way that we might discuss leadership, rulership in a way that is going to be true of all types of societies. So even in democracies, you have rulers at many levels wanting to be reelected. So they're constrained in ways to do that.Clearly in very autocratic governments, no matter what the autocrat wants to do, they can't do it if they don't stay in power. But yeah, I certainly agree that if you wanted to study, especially, a certain type of rulers or a type of ruler of certain motivation, you could think about this a little different, for sure. Good point.Tobi; Going with your mechanism now, so for a ruler to propagate it's rule, you identify two types of agents. One is legitimizing agents and the other coercive agents. But you see cases, and that transverses many societies... you see cases where there is a sort of overlap between the two where the faction of a ruler has some legitimacy, but also uses force to entrench that legitimacy. So disentangle both types of agents for me slightly.Jared; Yeah, so this is good. Maybe for the sake of listeners, that's a word I use that is not really too common in the literature - this term, propagating agents. To your previous question, I find propagating rulers as staying in power. So a propagating agent is somebody in society that can help you stay in power.If it's a religious agent, they might have access to the Word of God or something like that. A military agent, as you mentioned, is a type of coercive agent - one that has power. And to your question, you're absolutely right and I think nearly every society in human history has had some combination of legitimacy and coercive power. In fact, you know, you really can't have rulership without some degree of coercive power. If a ruler has zero access to coercive power, they will be overthrown quite easily. You can, in theory, have a society that has zero legitimacy, and you know, it's run completely by coercive power. We would say that there have been a few societies that have, at least, come close to that. But again, that ruler is very tenuous in their rule, because there's gonna be a lot of people in society that don't think that they're the rightful ruler. I should also just note quickly that legitimacy is a very complex concept, but we can think about it in a simplistic way, as just that one has political legitimacy when people view that person's having the right to rule. And that can come from a lot of sources. It can come from, certainly, religious elites. It can come from economic elites. It can even come from military elites, depending on, you know, the cultural attributes of the society. So I think, say, certainly, Genghis Khan had this type of legitimacy. And then this was true, at least, in my reading of Mongol societies, that those who could fight have political legitimacy as well as the right to rule. One of the ideas put in my book, to get directly to your question here, is that you can think about it as not necessarily disentangling the two, but what weight do you put on the two. Does the ruler use 95% coercive power, 5% legitimacy or the reverse? Now, one thing that I argue is that there are many types of legitimacy that are relatively inexpensive, from the rulers perspective, you know. So, of course, coercive power is often pretty expensive, for two reasons. One, it's just often expensive in terms of resources, you know, either be outfitting a military or police forces or things like this. And the other thing is that it's expensive in the sense of giving too much coercive power to groups in society is also a threat to your own rule. Because those are the people that are most likely to overthrow you.Now, legitimacy... to gain legitimacy, I think of it as kind of interaction between rulers - I should say, rulers here doesn't necessarily have to be a person, maybe a small group of people [or] something like that... just the ruling elite - and those in society that can provide legitimacy. Again, whether they be religious elites, economic elites, something like that.And we can think about this as a trade-off. There's going to be some types of maybe policies, sometimes it's just pure payments. Like it's certainly in both Christian and Muslim societies that much of their history, religious authorities will say tax-exempt, things like that, you know, as a part of the payoff. They also might want some types of policies. Oftentimes, the religious elite maybe wants suppression of rival religions, things like that. In the grand scheme of things that tends to be relatively inexpensive, relative to other forms of legitimacy. So then it's attractive. And that's one of the outcomes or the way that I'm thinking about it in the interactions between different groups. You know, some kind of basic economic comparison. There's going to be benefits from using different forms of legitimacy or coercion, there are also costs. So we think about what's the cost-benefit trade-offs, and rulers are going to use some types and not others. And that's going to differ by society, it's also going to differ over time. One thing my book tries to do is look at the evolution of these trade-offs over time and why they diverge between the regions.Tobi; You also explained and described something called the rules of the game, as institutions - be it culture, norms and the practices of the society which sort of set the boundaries of what a ruler and the elites can sort of do in a society. So, I mean, describe that to me a bit. How is that a limiting factor? Because a lot of people kind of assume that once you achieve some legitimacy, maybe through religious legitimacy by, say, converting to the most popular religion of population, you can do what you want. But you made it clear that there are some limiting factors in different societies to what rulers and their agents can do. Describe this process.Jared; Yeah, so that term ''the rules of the game'' is a very famous one used by the Nobel Prize-winning economist, Douglass North. And that's, again, even for him, you know... that's like a very simplistic way to think about institutions. And North goes well beyond this. And then they [other economists] have gone even further beyond this. But the way that these work do not mean that actors, or even rulers, can act unilaterally and do whatever they want. They're constrained by various things. And one of the real things that I focus on here is this degree to which religious elites can really legitimate rule and how effective they are at doing this.So in some societies, religious elites are extremely effective at doing this; and this is not just to do with their effort or something like that, it's based on history. It's something that historically, in some societies, religious elites have been very good, so they continue to be very good, at least for the short run. What I do in the book, of course, is you know, look at certain parts of the Middle East. Religious elites can be extremely effective at either propping up rule or the opposite, or challenging rule. Look at the 1979 Iranian Revolution - that's exactly what happened there. On the other hand, religious elites may no longer be powerful where they once were powerful. I mean, Western Europe is like that today. Religious elites tend to not have much power in Western Europe today, in large part because society is not very religious, whereas they used to. So again, that's kind of a constraint that's faced by a ruler at any one given point in time. So maybe a medieval European ruler would have desired to have religious legitimacy because in the medieval period religions are still very effective at legitimating rule. In the modern-day, certainly Prime Ministers, Presidents are going to look elsewhere as they tend to. So when we talk about, you know, the rules of the game, we can think about this as a rule. It kind of sets the stage for how this game as I described it between those who rule and those who can keep them in power, how they interact with each other.So let's get right into the meat of your argument proper, which is how Christianity and Islam emerged when they did, and how the relationship between both religions and their societies and the institutions they propagated, sort of lead to economic divergence, so to speak. Tobi; And so I'm going to ask you two questions. I'm trying not to assume too much knowledge for the audience here. So I'm going to ask you two related questions. So describe for us briefly how the emergence of Islam [happened] when it did, and the emergence of Christianity when and where it did [and] how that came to influence the divergence that was to come later in the society where they sort of propagated these influences. And my second question, just to note, is that you made very clear - which also I should state for the sake of the audience - that you're not arguing that there is something inherently wrong with any religion. Though, some might argue that, well, you kind of have to say that, right? So...Jared; Yeah, no, I think the second question follows from the first question, though, too, because this is actually really important to clarify if the audience hasn't picked up on that yet is, this book doesn't really look at the tenets of religion. In fact, Islam and Christianity are much closer on most fronts than they are apart. So to the extent that religion might have played a role in what ended up becoming a larger economic divergence, it's hard to look at the tenets of religion as the core cause. And moreover, something the book also notes is that a good explanation of any type of divergence...you know, economic divergence in the long run, but especially between Europe and the Middle East has to also account for the fact that the Middle East was far ahead of Europe for a long time. Minimum, 400 years, probably 700 years.[It] doesn't really matter exactly how long in a sense that, you know, it was a while and eventually Europe pulled ahead. But that fact in and of itself suggests that a simplistic argument about there being something about Islam that holds economies back is a foolhardy one. I mean, how do you explain that the Middle East for the first, say, 600 years after the spread of Islam was so far ahead of Western Europe, on every front - economically, scientifically, culturally, technologically, everything? So specifically, your first question, though the book looks at and draws out the implications of one very important difference between not so much the theology or the tenets of the religion but a historical difference between the two that did get involved institutionally into the two regions.This stems from the way that the religions were born and it has to do with their role in legitimating role. And the book argues that, for historical reasons, Islam is more effective at legitimating rule. And it cites numerous passages not just in the Quran, but also the Hadith, which are the kind of the second most important set of religious sayings that's associated with teachings of the Prophet Muhammad. And the reason that the book argues... and I'm not the first person by any means to note this... that Islam is better, or is more effective at legitimating rule is the conditions under which these religions were born. So Christianity was born in the Roman Empire. And for its first 300 years, it was a minority religion, which was essentially trying to survive in the Roman Empire. And for this reason, we see the writings in early Christianity when the real doctrine in the corpus of Christian doctrine is really being formed are not about legitimating rule. In fact, it's quite the opposite. You know, there's the famous quote attributed, at least, to Jesus, you know, ''render unto Caesar what is Caesar's and to God, what is God's''. The idea of being these two separate spheres, and the religious sphere is not part of that of the Caesar, the secular ruler. And then there are plenty of others who at the time, you know, Augustine and numerous Popes that had similar ideas. On the other hand, Islam formed at the same time, what was at the time the world's largest ever empire was formed. Muhammad himself was a political figure, as well as a religious figure.Then, in the first 30 years, the first caliphate, then under the Umayyad Caliphate, within a 100 years of the spread of Islam you have it going from the Atlantic Ocean, you know, in terms of the Iberian Peninsula, all the way to South Asia.This is the largest empire the world has ever seen. And as this empire is expanding, this is the same time that the corpus of Islamic thought is being formed. It's being formed differently in different contexts. But because it's forming alongside a growing empire, there is need for Islamic justification for political rule. So from a very early period, you get Islamic doctrine and this being kind of ingrained institutionally that a rightful ruler is one who follows islam, however that is defined. And again, what this ends up doing is, eventually, after the Islamic clerical classes eventually come about in the ninth and 10th century, this ends up giving them a lot of power because they're the ones who can define whether a ruler is acting like a good Muslim or not. And because of the principles, you know, the kind of what we might call a cultural principle of what makes legitimate rule, it gives religious authorities a lot of power on the one hand, because they can be the ones that describe it. But then, when a ruler has this legitimacy, it gives the ruler a lot of power to act however they like because they're viewed as legitimate and they might not necessarily need as much coercive powers as they otherwise would.Tobi; You sort of answered my second question. I agree with you, by the way. But what I've noticed with people who get defensive about this kind of argument is to insist on the tenets argument and say, Oh, no, one of these two religions, Islam, in particular, is quite politically prescriptive. And because of that you cannot just separate the tenets of each religion from its institutional or social or political influence, right. But you are saying that, because there was a divergence in the rules of the game, so to speak, when these two religions started growing, influenced the text, the tenants, the practices, and how much legitimacy each can command, you know? So I guess my next question would be, at what point... because like you said, the Middle East, the Ottoman Empire was a pretty successful Empire for hundreds of years. Jared; Yes. Tobi; When did it change? When did religious legitimacy and the way it worked in the Middle East become a sort of economic albatross?Jared; So this is the great question. And I think this is the important question to answer because I would actually argue, and I do argue in the book, that initially, this was something that actually was economically beneficial relative to what, say, post-Roman Europe was going through at the time; and even relative to what, you know, societies, especially in the Arabian Peninsula, but even throughout the Middle East North Africa look like, you know, there were empires at the time. But one thing early Islam did was it helped unite these various regions under one rule, which meant fairly consistent rule of law, even though you know, we don't think of these as pure rule of law societies, but there was consistent rule, they use the same currencies, they could expect similar protections. One thing that religion does do, you know, this isn't unique to Islam, but because Islam at least, was mainly initially spread amongst merchants, so this was something that [for] the broader populations of these regions, it took a while for them to more broadly Islamise, but merchants were among the first to convert. And this is something that, at least, brought them into similar social circles, it improved their networks. And I think this helps explain - it's not the only thing, but it helps explain the economic growth of what we might think of as a broader Islamic world for its first 400 years.This is known in the historical literature as the golden age of Islam from the mid-seventh century till about 1000 or so. And I think you can make the case that the fact that these rulers were in fact strong, for the most part, was a reason for this. And certainly, at least up until like the late 9th century, when the Abbasid Empire which was the large empire, beginning the mid 8th century was kind of at its peak. This is a reason I think that Islam plays its role. And again, I mentioned a few minutes ago that I think an explanation that focuses on religion also does need to explain why Islam was associated for so long with a relatively economic successful region. Whereas, you know, this is the same period - that period mid-seventh century to 1000 or so where Europe is not nearly as successful, you know, it's still kind of in its post-Roman doldrums. Even when you get some type of unification like under Charlemagne, the Carolingian Empire, there's no real capacity to rule in most of those places. And I think, in part at least, that's due to differences in the way that these rulers - to use my term of propagating rule. Now to get at your big question, what we really need to explain then is actually a reversal. So the year 800, ironically enough, is often a year that's pinpointed, because on the one hand, in Western Europe, it's kind of a famous year because it's the year that the Pope crowned Charlemagne. But it's also right at the height of the Abbasid Empire in terms of its economic power, in particular. And this is a year that, you know, around this time, early ninth century, that economic divergence between the two regions was probably at its greatest. So we then say, well, what was the source of reversal? Now, I want to make it clear that I'm pinpointing one source, this is by no means the only source. There are many different reasons, I mean, nothing as big as 1000 years of economic history is going to be mono-causal. But one thing I look at is, we can start with the Middle East and North Africa and say, because religion was so effective at propagating rule, there was very little incentive for political authorities to change this. They stayed in power, by ceding relatively little to religious authorities, they certainly had to have access to coercive powers, which they did. There's been a lot of good work that has looked at what access to coercive powers meant for the stability of Muslim empires as well as their economic strength. But it meant that religious authorities remained powerful and, importantly, what I then got to argue is that it meant that economic elites were kept out of the ruling coalition. Before I go too deeply into this, I want to also make it clear that, you know, having a society run by economic elites is generally not a good thing. You know, purely economic elites. Because economic elites, you know, people that are engaged in commerce, maybe merchants, things like that, we should be thinking about them just like we think about all actors as being somewhat selfish.They have their own desires that they want satisfied. And in this case, it may benefit them at the expense of society. One thing I note, though, is that the big things that economic elites want from the political bargain are things that tend to benefit society more broadly.And the two big ones I point out in the book because these come up again and again in our history are some types of protections often for their property. But you know, more broadly for especially commercial interactions, you know, so you have some type of means to appeal when you're being cheated, or certainly when your rights are being infringed in any way. And there's a very large literature in economics that suggests these types of rights are really important for economic development. And the other thing is investment in large scale public goods. Things like transport networks, roads, bridges, canals, things like that. And a whole host of other public goods, eventually education becomes something, even though that's actually quite a bit later. There's a long, long history of economics that suggests that those things are typically most efficiently provided by government. Again, the economic elites want these types of things, because they benefit themselves. They do benefit themselves, but they also happen to benefit society more broadly. So on this front, you could say, Well, if the economic elite really don't have a seat at the bargaining table, in this case they don't have a seat because rulers don't need them. They have plenty of legitimacy, say, through religion and giving up stuff like property rights is among the most expensive things that can be asked for. So rulers really don't want to give that up if they don't have to. On the other hand, in Europe, what ends up happening around the year 1000 or so... it starts in northern Italy, in the low countries, is you start to get some seeds of commercial development. Trade, actually, a lot of the trade at least begins with the Byzantine Empire and the Muslims. And with this, as trade starts to expand, some of the things that the religious authorities might impinge upon, while we look at say like moneyed interest or stuff like that. But that's actually I think less important in the broader scheme of things.What's probably more important is that economic elites gain more power. And, you know, to go back to the broader narrative in the book, because Christian religious authorities actually have less legitimating power, they're less effective at legitimating rule. [And] once there are these other sources of power that come up in a society that can provide rulers with things like tax revenue, rulers seek them out. So this is precisely the period where Europe goes through a major kind of overhaul in its Church-State relations. So the most famous episode and this is called the investiture crisis, where it essentially pits the papacy versus various secular rulers. And this is a period, a medieval period where religious legitimacy remains important, but it loses some of its value and where it loses its power, it's economic elites that gain. I fast forward a little bit to the Reformation, which where it takes place kind of permanently undermines the role of, certainly, the Catholic Church, but just more generally, [the role of] religion in legitimating rule. And in those places, that's where you really start to see economic elites, mainly in the form of Parliaments becoming much more powerful. And there again, that's where you start to see these economic elites bargaining for various things that improve the economic development in the region. Again, they're doing it for their own personal reasons. it's not to say that economic elites are altruistic, kind-hearted people that want what's best for society. Oftentimes, it's quite the opposite, they just want things that benefit themselves. But some of the things they want are the types of things that we think of that portend broader economic success. So in a nutshell, that's kind of the very broad scope of the argument. Certainly, there's historical detail that the book goes into. But yeah...Tobi; Some of the implications of your work are so deep, that I'm not quite sure I can do it enough justice. But one thing I want to now get at is the issue of persistence. I mean, the period you called in the book, and also your research, they are pretty long enough, some will say, for us to see maybe some convergence. I mean, there has been the Industrial Revolution, the first one, the second one, and I mean, now we live in an age of globalization. And some of this divergence can still be observed. So specifically, speaking of religious legitimacy and how growth retarding it can be in certain conditions, how persistent is that effect? And secondly, how does legitimacy wither?Jared; I think that this is kind of a key question in terms of thinking about these long-run processes. And I think one answer to this is that, in part, at least, it comes down to incentives.It comes down to incentives of the ruling elite to continue to use religious legitimacy. And to kind of go back to what we're talking about initially, we can think about this in terms of cost benefits. And what we might think about as the costs here are what economists think about costs as - it includes opportunity cost, the foregone cost of using something, a different form of legitimacy in this case.As long as the costs are relatively low, which we might think of that as broadly being the case with religious legitimacy, then it's likely to persist. This doesn't necessarily entail anything deterministic about... you know, just because a religion is good at legitimating rule, it's definitely going to persist, there might be other things in societies that come about. In fact, you know, we have seen this here and there, you know, so say, after World War One, Turkey became a fairly secular society, at least in terms of its politics. So there's nothing absolute at all here in terms of it persisting, but what we can say, and I think this is where if you do economics correctly enough is strong. But if you use economics in a good way, you never want to say something's definitely going to happen. But you can say things are more likely to happen because people are incentivized to do something in a certain way. And that's what I think I would describe here in terms of persistence. And I think this same logic also helps us understand why in this case, things don't persist. Why the use of religious legitimacy doesn't persist. And these might be things outside of what we might think of as the ruling elite or the religious elite's control. When, you know, what I was just describing... when you have a reemergence of commerce in Europe, for instance, in what is known in the historical literature as the commercial revolution, happening approximately between 1000 - 1300, that changes the cost-benefit calculation. And because the benefits of religious legitimacy were lower, and now the costs are higher, because you're essentially keeping this increasingly powerful economically outside the political circle if you continue to rely on religious legitimacy, that changes the calculation. And maybe you do want to start offering these economic elites political rights, but it would come at the expense of political power for the religious elite. But that's precisely what ends up happening in the medieval period in Europe, is that these economic elites increasingly get rights throughout central Europe and actually in other parts of Europe as well.They start forming communes, which are like the city-states, which are mainly made for merchants by merchants to trade with each other, but they gain a lot of rights and these rights come at the expense of the religious elite. The religious elites have relatively little power in these areas, and these areas become the economic workhorses of medieval Europe. And they benefit the rulers, in some cases, immensely and this becomes one of the primary sources of tax revenue and a whole host of things. So again, you know, I think if we think about it in terms of this cost-benefit framework, we have to know the history, certainly, to know why these costs and benefits might change. But I think it does give us a framework for thinking about why things persist as well.Tobi; Thinking about incentives the way you just described it, especially of the elites, and this is not just about religion, you see some societies that may be too reliant on rent from resource revenue and their struggles to diversify also struggle with this incentive problem. So I guess my point would be, is it fair or, should I say, reasonable to conclude that a lot of modernization projects that we are seeing whether in terms of foreign aid or interventions or setting up democracies in, perhaps, states that have no history of that form of governance, are they all efforts that are doomed to fail if the incentives of local elites remain the same?Jared; Oftentimes, yes. And this is where I think that this question is extraordinarily deep in that this gets at so many different things in human history. And I think, you know, we can broadly say that transporting something that worked, whether it be institutional design, whether it be just funding for certain types of things that worked in one society, it doesn't necessarily work in another society if, in this case, the institutions... and you could even say that there are cultural incentives too that, you know, when people are imbued with a certain view of the world, then they're not just going to be able to adopt new things in a whole host of ways. So yes, I would argue pretty strongly that certainly elites that govern the political process, when incentives don't change, you're unlikely to get a change in political behaviour. So if you really want to think about what might be a driver of societal change, at some point, the incentives of the elites have to change. So this can come from a variety of ways. This can come from certainly international, either pressure or incentives, or, you know, it can be financial incentives. It can come from the ground up. What I just described in Europe was more of a ground up thing, in that the incentive of political elites only changed after commerce really started to reemerge. And on the other hand, talking about commerce reemerging in Europe, it still wasn't flowing, as far as we can tell, nearly as much as it was in the Middle East at the time. So what that indicates is that... at least to me, is that the incentives for Middle Eastern rulers or North African rulers at the time to employ religious legitimacy was just so much stronger that it was going to take a lot more to undermine those incentives. So again, that's where I think to your question, really understanding the incentives that authorities face, [that] the various parts of the ruling coalition face is really important to even begin to understand what is possible in terms of change.Tobi; My final question to you, which is also a bit of a tradition on the show, is what's the one big idea that you would like to see spread everywhere? It may be something you're working on new [or] old, it may be something that you find interesting. So what is it?Jared; By spread everywhere, you mean [the] broader population? Tobi; Yes.Jared; I think it's [the] implications of my work. It's not my work in particular, but it's the type of stuff that got me interested in this in the first place. It is that if you really want to take a grand, grand, grand view, I think with both myself and I think a large fraction of people who go into economics, why we get in the field is to understand both wealth and poverty. Because for me understanding poverty, you have to understand wealth as well, you have to understand how it's created. Because I think what most of us, I would hope one, at least one of the main reasons we're interested in this is because understanding the way economies work as a source to help people.You know, the people that need it the most. And, you know, something I've long been interested in is the role that religion has played in this because I think it's one of many factors. And again, I want to be very clear, I have a book coming out early next year with Mark Koyama. He's been a guest on your show in the past about how the world became rich, and we look at a lot of different reasons in that book. So this is one of the reasons but I do think that there are massive misconceptions in the role that religion has played and can play in the future. And I think that if we want to say think about the broader Muslim world, for instance... you know, what worked to raise the economic profile and improve the economic development of, say Western Europe initially, my argument was that it was in part getting religion out of politics. I don't think that's going to work, though, in large parts of the Muslim world for reasons we just discussed. So an implication of both my work but also something that is long interested me is this idea that tenets of religion themselves are not things that have a massively damaging impact on economic development. And I think that oftentimes, that's something that is easy to pinpoint, especially for people who want to blame religion for something. But when we think about the role that religion plays in politics, and this is not unique to religion, it can be the role that the military plays in politics, can be the role that actually, frankly, certain types of economic elites play in politics. And if we really want to improve the lot of... there's still a billion or so people in the world that live on $3 a day or less...the role of local politics plays a role in depressing the capacity for those people to just get to a point where thinking about what they're going to eat is not dominating their lives.And it differs by society. But I do think that attempts to improve the lots of those people that aren't as concerned with the political are not going to get far. And that's a lot of, you know, especially Western NGO types. And this is not to say, I mean, many of them do extremely good and important work. But if we really want to get at the source of lifting, you know, at least the most dire of poverty out of the world, I think it's the political that we really need to address. And we need to address it in different ways in different societies. This is not by any means to say that all we need to do is impose democracy. It's exactly the opposite in many cases because democracy when it's imposed, and does not arise organically often does not work that well. So it's thinking about local context, it's thinking about how rulers stay in power, it's all of these things, and including religion. This is in part to say, there's no panacea. There's no silver bullet that's going to affect the politics in various places in the same way. But I do think that if we can pull on generality out which, much more importantly, can help alleviate the most dire of poverty, it's to really try to affect the political. That's the thing that I'm frankly hoping to continue to work on for the next 40 or so years to thinking about the historical determinants of this and what that can teach us for the present.Tobi; Thank you so much. My guest today has been Jared Rubin, economic historian and professor of economics at Chapman University. Thank you very much, Jared, for joining me.Jared; Thank you so much. This has been really fun. 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The invasion of Ukraine by Russia - and the ensuing war - has brought food prices back into the news. This is happening on the back of the Covid-19 global pandemic that also disrupted the food supply chain, causing shortages and rising prices in many countries. So how should countries set national food policies in the face of risks and uncertainties? This is the subject of my conversation with agricultural economist Fabien Tondel. He is a researcher and Policy Officer with the European Centre for Development Policy Management - an independent think tank with a focus on making development policy work in Europe and Africa.Fabien's work encompasses research on agri-food value chain development, rural development and food security in Africa, and building sustainable food systems. The background to our conversation is this report (which Fabien co-wrote) on the rice value chain in West Africa. Rice is a staple in the region, it’s a commodity that has been at the heart of diverse food policy approaches (see this essay on the politics of rice policy in Ghana and Nigeria) from Nigeria to Ghana and Senegal. Fabien and I covered many of the subtle but familiar themes in food policy - like the difference between food security and self-sufficiency, whether there is a dilemma in using policy to protect producers or consumers, and the ever-present threat of food inflation.The transcript for the conversation is available below, and you can listen to this and many of our episodes on all popular podcast vendors.TRANSCRIPTTobi; I mean, like you and I were discussing earlier, a lot of the issues we tried to talk about last year, particularly in the report that was released by your institution back then on rice and the rice value chain. But not just that, food policy and production, particularly in Africa, West Africa, generally, are even more relevant today, because a lot has happened, some of the effects from the pandemic policies are really feeding into the system. We are seeing the rise in prices, we are seeing a lot of shortages, we are seeing a lot of supply chain problems. So, I think it's even more relevant to be having this conversation right now. I would like to start by asking you...it might sound a bit trivial, but in your reports released last year, why rice? I'm asking this against the background of Nigeria. Currently, the government is also talking about rice, I mean, it is towards the end of the year, there is a lot of anti-importation reaction from the policy circles. So, I guess, out of sheer curiosity, why Rice, rice is a bit of a political... we call it a political crop here in Nigeria. So why focus on rice, if you can answer that for me briefly?Fabien; Yes, Tobi. Rice is a highly politically charged product in many countries, in African countries, as well as in other parts of the world. Rice is an increasingly important part of the diet of African country populations, particularly in urban centers, where consumers enjoy this product because of its quality in terms of food, its taste, and also the ease of preparation, households find it very practical. And we've seen the consumption of rice increasing rapidly in African countries over the past decades, including in Nigeria. So, this is not a new phenomenon. We have seen it coming now for several decades, and at the same time, the policymakers have put a lot of emphasis on increasing rice production with the idea of satisfying the needs of their populations, with the idea of attaining self-sufficiency. Because up until now, imports of rice coming largely from Asian producers, but also from other countries have played a big role in satisfying the needs of these populations. And so, policymakers have found themselves in a difficult spot to satisfy the needs of the important critical needs of the population, but at the same time to deliver on the promises to boost domestic rice production as part of agricultural development strategies. So yes, it's a very important product politically. And we see that these issues, a bit, come to the surface in times of crisis. We saw it in 2008, during the global economic, financial, and food price crisis. And to a certain extent, we've also seen it during the COVID crisis, with uncertainties in international markets, disruptions in international supply chains, but also domestic food supply chains in many parts of the world that have raised concerns among policymakers, but also, in practical terms, made the life of many people more difficult by lifting food prices. So yes, I think it's still a very good time to talk about this.Tobi; And again, this is the background I'm coming from here. Because I mean, I'm going to be substituting rice policies with agriculture policies a lot. So, Nigeria typically promotes agricultural development as part of pursuing food security. Usually, the go-to policy is to ban importation. But we know it raises food inflation, which has been the experience of Nigerian consumers, and I think even in the region to a certain extent. So, it raises food inflation, food prices go up, either generally or even for that particular product. And then secondly, we don't see much increase in domestic production capacity for that particular product or for food generally. So, I guess my first question on that area would be, what other policy choices do you think exist for policymakers other than this policy of banning the importation, which does not really increase output, and at the same time raises domestic prices for food, which makes even the poorer household more vulnerable?Fabien; To answer your question, we have to consider the specificities of Nigeria. And also, the more general situation in West Africa and beyond Nigeria is significantly dependent on the importation of a number of processed goods, including processed food. So, I think it's good to say that the importation of rice from the point of view of certain policymakers also concerns other products - cooking oil, processed foods, etc. But again, because of the importance of rice for the typical households, including low-income households, I think there's a particular issue of rice. At the same time, the government of Nigeria has been very active over the years in promoting the production of rice. And it's still good to know also that there's a large part of the rice consumed in Nigeria comes from Nigeria. [Rice] is produced in different parts of the country, in particular, in the north and central parts of the country. And there's been progress in production. The question is, how far to go in promoting rice production? Is it economically efficient? Does it benefit rural households and farmers? What is the opportunity cost also of investing in rice production? In the end, you know, what is the best approach to support food security? I think just to go back also, I think to your first question about the study that we conducted, I should say that it all comes from the 2008 food price crisis. And sorry to go back to the past, but I think we should remind the auditors that this crisis caused serious concerns for policymakers, particularly in Western Africa, with the high prices and the protests in some places that it led to. And following these events, policymakers invested a lot of effort in improving rice production in African countries and in pursuing self-sufficiency. And we'll come back to it but there's a number of tools that are relevant for promoting agricultural development. But this situation of high import dependency raises the question of the role of trade policies. And not to conclude before analyzing the problems that trade is the main problem or too liberal policies; not protectionist enough is the problem or that, on the contrary, we should rely even more on trade. But our work really aimed to understand the role of trade policy amongst many factors in ensuring food security and Agricultural and Rural Development, and how this factor - this trade factor - played out in different contexts in the region, and then what policy implication we can draw from that. Now allow me to come back quickly to the case of Nigeria, which I find fascinating. I think we should say also that rice importation also takes place in a particular context, I think the Nigerian government has always been somewhat protective of its domestic market. And there's a rationale for that. And provided that at the same time there's a strong commitment and also an economic rationale for protecting the investments of farmers and industrial actors in this sector. But while Nigeria was more protective than its neighboring countries, this has also had the effect of diverting trade flows with certain quantities of rice still entering the country perhaps in more informal ways. I think we know that in West Africa, borders are largely porous. There's a lot of informal trade, which is, of course, a fact it's not good or bad. But this reality also has played a role in the Nigerian reactions in the trade policy area. We know that other countries in Western Africa have quite different policies than the Nigerian government. And again, this is not necessarily good or bad, it's a fact. But this raises the question of the policy coordination amongst Western African countries to attain food security and rural development objectives. Now, the import ban imposed by the Nigerian governments perhaps two years ago, which has lasted for some time has led to some disruption in the Nigerian market, in the rice market in particular. And as you were hinting, there's been a rise in rice prices [and] also in the context of a general inflation trend.And these rising prices, of course, have undermined the purchasing power of urban households. At the same time, the Nigerian government has been very active in supporting rice farmers, and the central bank has played an important role in making available money to access fertilizer and other inputs, and also to help farmers sell their rice. So, a lot of public support may also have contributed to some extent to inflation trends. And indeed, we see that this policy has had some impacts, some different impacts on different segments of the population. With farmers, at least, in some areas being relatively happy. But of course, urban households [are] suffering from the price increases and general inflation. So, I think it's in this context, also, that we should discuss the role of trade policies. Which again, I think should be a nuanced discussion looking at the different aspects of it.Tobi; So, talking about trade policies and around agricultural development of food policy generally, one thing that usually comes up in my conversation with people, and I've also read or heard so many people argue this point is the issue of domestic producers versus consumers, you know, like some kind of dilemmas that countries face on whose interests you should protect.As you pointed out, through the CBN and various other schemes here in Nigeria, there has been a lot of support for domestic production, in terms of credit facilities, in terms of access to fertilizers, and all that. But sometimes you hear retailers and so many people who are involved in rice particularly will tell you that the market price for rice is double what the price of rice is at the border. So, it is from the border to Nigeria that over half of the price of rice gets added. And now, my thinking is that we really don't see the government do enough domestically in other areas beyond simply supporting cultivation, other supply issues like storage and transportation, which raises domestic prices, which they do not make domestic producers’ price competitive with importers, we don't see a lot of emphasis on this issue.So, I want to ask you, why is that? Is it because these are big problems to solve generally, or because policymakers do not realize that these are problems? Right. So, I guess, ultimately, my point would be that, should domestic consumers pay higher prices to support producers? Because I know that urban consumers particularly are a good source of income for a lot of farmers. So, is this a policy that should be sustained or even actively maintained? Or is there a way to make this a not so difficult adjustment for all involved, including producers and consumers? That's a bit of a long question so don't mind me.Fabien; It's a long question, but it's a complex problem, also. So, I think it's normal to ask it in this way. I think you're talking about a dilemma for policymakers that is seen almost everywhere. Consumers would like to have low food prices, because it's such an important part of their budget, while farmers like to have high prices for agricultural and food products, because it's their revenue, and they need to compensate for their cost. So, there are two things. I think there can be in the short run, perhaps, some imbalance provided that these high prices entice farmers to invest more to increase the supply which should lead then to a decrease in prices which will also be beneficial to consumers. But the problem is not as simple because as you said, between the farmer and the household, there are a lot of steps to aggregate, process, and distribute the food products. And what I am talking [about] here is what we call the value chain. And so, we see that to actually expand the supply of the products, but also to ensure that the quality of these products satisfies the needs and the preferences of the consumer, there is a need for investments in enterprises that will move the products from the farms to the markets, that will process, package and distribute the products. For this to happen, public investment is needed in infrastructure, in roads, in rural areas, in physical markets, in skills, also, to ensure that the sanitary and phytosanitary standards are followed to ensure certain quality norms. And of course, all of these are important for the quality and the safety of the food. And all these different steps in the value chain often depend on multiple different policy areas that need to be coordinated for this value chain to develop. And that's perhaps a bit the technical side of things. In the reality, there are also [the] political and business interests that play a role in the planning and the implementation of these investments. So, it's a complex problem that requires coordination of policies, but also different actors with sometimes diverging business and political interests to work together to develop the whole value chain. And this is not just a problem from Nigeria, because for every country at every stage of development, the context, the technology, trade relations, the market, the preferences of consumers evolve, and it requires adapting the supply chains to these changes. So, in this case, and I can't, you know, talk too much about how well or not Nigerian policies are doing to support the development of these value chains. But yes, perhaps, we could say that a lot of attention has been given to supporting rice farmers, and also in investing in processing units. But it's probably not been enough to develop strong linkages between farmers, processors, and distributors, and in the end with urban markets, for various reasons.And also because of some limitations, a processor needs paddy of a certain quality at a certain time, fulfilling certain criteria to process it efficiently and to break even with its investment cost. A distributor, a trader, also has some constraints. If it's going to distribute local rice to sell it to supermarkets or to street markets, it needs to fulfill certain deals in certain quantities, which he might not be able to do if the linkages higher up in the supply chains are not solid enough. If he does not receive enough rice of a certain quality to fulfil his own contracts. If not, he might actually prefer to import and distribute rice produced in Asia that has a certain quality and for which also the shipments can come quickly and surely. So, we see also how the incentives of all these actors across the value chain play a role. And so, like other sectors, I think the government has a difficult task to do to develop these value chains, and also some choices to be made about to what extent to rely on imported rice versus domestically produced rice.Tobi; Okay, I'll get to my second dilemma in a bit. But to focus more on your last point is, how can countries better increase output? Should they focus more on these linkages in the value chain that you speak of? Because what we see in terms of policy responses is a lot of policy support goes into farming and land cultivation itself. And we have seen the limitations of that in terms of increasing output because, of course, it's a complex problem and there are other areas that are not fulfilling their promise in terms of linkages. On the other hand, policy support can be limited because of the balance of payment crisis that we know that some of these countries like Nigeria suffer. Public resources are not infinite. So, my question essentially is, if the government has to prioritize public support for agricultural development for domestic production, where is it better to focus a lot on resources, knowledge, and support?Fabien; Yes, Tobi. So, I start by saying that there is a consensus among experts and other actors that there's a potential for growth in the rice sector in West Africa, and perhaps even in Nigeria. And this growth can be attained in particular by raising yields and productivity in the production, processing, and distribution of rice. And raising yields is, of course, the key for many agricultural products. And it requires investment in the management of land, in inputs, improved seeds, in particular for rice; and mechanization, skills, and also in processes to reduce post-harvest losses beyond the farm. That's critical for the development of the sector. At the same time, policymakers should not lose sight of broader objectives. In the end, what matters is for farmers and rural populations to have better living conditions to have higher income and access to better public services in rural areas. It also matters to create jobs in and around agri-food value chains. These value chains can generate a lot of jobs in trading, logistics, in processing. And it also matters to ensure the food security of households. So with these broader objectives in mind - and the rice sector is only a small part of this agricultural and food system. It's important also to consider the opportunities for diversification away from staple food commodities, because as the middle class is emerging in Nigeria and other West African countries, as consumers, urban consumers especially gained purchasing power, as we tell also people to eat more fruits and vegetables for health reasons, new economic opportunities appear for farmers and agri-food value chain actors in sectors that are more profitable than rice, probably. So of course, I'm thinking about horticultural products, spices, livestock products, pulses which can provide proteins... and in these sectors, the returns on investment for [not only] farmers, but also for other actors in the value chain can be higher than for rice. So that is something... rice is important, you know, this is what we were saying at the beginning. But the problem of rice has to be seen in the broader context of the agricultural and food systems. And perhaps there is a role to play for trade, for imports, to balance the supply and the consumption in a country like Nigeria... letting farmers but also policymakers invest more resources in these other value chains that are more profitable for all these sectors.Tobi; Going further on that I want to ask you, especially relevant to this conversation, there is also the talk of industrial policy. A lot of domestic agricultural policies take place within the context of domestic industrial policies for countries. I know Nigeria has been on that path for the last six years. My question then would be, what role do exports play in food policy generally? Isn’t the better path to development through exports, and relying maybe slightly more on imports of staple food commodities, such as rice, rather than focus on growing domestically, I mean, rice, what are your thoughts?Fabien; Yes, I think perhaps, just to make sure that we understand each other and that also it's clear to our auditors, there is a rationale for ensuring that a certain part of a population's need for food is supplied by the country's farmers and domestic supply chains. We see also that in less favourable times, like during the food price crisis, the instability of international markets can disrupt domestic markets. But it's only one consideration among others. It also has to be based on the other opportunities for the domestic economy to grow and to lead to shared prosperity. And so, countries have to think also about the way they participate in the international economy, if not the regional economy. And they should not think, at least in our times, of that. So of course, exports are very important to create economic opportunities for domestic producers to generate foreign earnings because any country has to import certain goods that it cannot produce. And within the agricultural and food sectors, that's also the case. I think we see today that whether we are in Europe, in Africa, or any other part of the world, on a daily basis, we consume products produced somewhere else. And by that, I don't mean that this is the most efficient and sustainable way of securing our food security. But I think it's a reality to start with. And so, for Nigerian farmers and the broader Nigerian economy, it's important to be competitive in some sectors that produce exports and generates foreign earnings for tropical products that grow well in Nigeria, perhaps for specialty products, some fruits, and vegetables, cacao, perhaps coffee, medicinal plants, anything, you name it, I think it's important for Nigeria, also to export. And it is also the earnings from the exports that can allow the country to import the staple food commodities that it cannot produce so that policymakers can ensure stable markets and stable access to food for vulnerable households. So, I think, taking into account this reality, that we should think about policy choices, that doesn't mean that we should not change or, you know, actors should not think about the change.Again, there is perhaps a good economic rationale for increasing the production of rice and other staple foods, provided that it makes economic and social sense. And that it is, importantly, I think we haven't mentioned yet, in line with the boundaries of natural resources, with sustainability criteria. Because perhaps you might want to discuss this also, rice is a very demanding crop in terms of water, in terms of land, in terms of nutrients, it also generates greenhouse gases. So, we do also have to take these environmental aspects into consideration when promoting such a crop.Tobi; In the report, which you co-authored, which is kind of like the background to this conversation, generally. I'm going to put up a link - both the long and short version - in the show notes. You used Senegal as an example of how policy on food and in this case, rice, can evolve productively. So, I mean, for the sake of the audience, can you discuss briefly why Senegal stands out? What did it get right?Fabien; Yes, I think that Senegal stands out not only for its policies directed at the rice sector but also in other agricultural and food sectors. In recent years, the Senegalese government made efforts to better regulate agricultural and food markets, and also production. And it has done that, I think, in the context of efforts to modernize the economy while promoting inclusive development. So perhaps I think without going back to the origin of the story, I think, in Senegal, there was a certain potential to improve, to augment rice production and agricultural policies after 2008 promoted this increase in production. But quickly, policymakers were confronted with the fact that it was difficult for farmers to sell rice, to market their rice. And so given this now realized production potential, the government had to think about how to facilitate the access of this rice to the market. And of course, there was then the dilemma, I think, what to do in the situation where the imports are so important to fulfil the needs of the populations. And so, Senegal undertook a process that, for me, is very interesting by bringing together the rice importers and the actors of the domestic value chain to find a way to remedy the problem of difficult sales for locally produced rice. And these actors worked together to promote investments in the local rice value chain, which has produced some positive effects for the farmers and the local value chain actors. But that relied also on a choice, perhaps a difficult choice, to better control imports of rice to create a room in the market for the locally produced price. So currently, the government is trying to make the import licenses for rice based on the amount of locally produced rice that the wholesalers and the importers buy in a way to couple the imports with local purchases, and so, with investments in the domestic rice sector.This, of course, is a complex undertaking. It requires a rigorous approach to calculating the cost and benefits. And it's still uncertain to what extent this initiative will succeed. But we think based on our research that it is a very good experience to learn from and to exchange with other countries in the region that would like to develop the rice sector in a sustainable way, from an economic standpoint in particular. So it is also in the sense that, you know, our study concluded that countries in the ECOWAS area should collaborate more closely with each other to share experiences, to see what works, what doesn't work, for the development of the rice sector. And also, to coordinate their policies, because I come back to the beginning of our conversation, as our analysis showed [and] also as many people know, if one country adopts a certain import policy for rice and if the neighbouring countries have different policies, and the policy of the first one will affect the other ones, because of the transshipment of rice, both formal and informal, that takes place in the region. So, I wouldn't want, not only to emphasize the example of Senegal, but also the interdependencies between rice policies in the region.Tobi; That sort of leads into my next question, because, yeah, you talked about the importance of policy coordination and cooperation, especially in the region, West Africa, a lot in that report. And of course, we know that the African Continental Free Trade Agreement was recently ratified, we know that implementation is not going to be simple. It's a very complex, long process. So, my question is, I know your organization, the European Center for Development, Policy Management [ECDPM], engages a lot of players on policy, what are you guys doing to make sure that there is better policy coordination and cooperation in the area of food policy?Fabien; Yes, it's true, Tobi, that ECDPM is very active as a keen interest in regional economic integration processes, and more generally, regional and continental level cooperation. But I will just say before starting that our ambitions are limited. We are a center based in Europe. And our aim is, I think, primarily to understand economic development dynamics on the African continent, and to facilitate interactions and cooperation between different actors, between European partners, and African actors in particular.It is, you know, with this approach in mind that we've been working on specific sectors that I think are meaningful from a development point of view, I think it's still the case of the rice sector. But of course, rice, like other commodities are traded in a regional context, we could say that there's probably also some rice being traded across borders, beyond the boundaries of ECOWAS. I think there is some trade with Cameroon and with Chad and other countries. So that's also why ultimately, it's also a question that's relevant to the process of the African Continental Free Trade Agreements. But I think also the realities of rice trade, as an example, shows the complexity of economic integration, of designing and implementing common trade policies, and of moving towards better integration of economies in a way that is beneficial for different actors in the value chain. So, I think, already, starting at the level of ECOWAS, it's a relatively old regional organization, which has attained a certain level of maturity. And so, it has a number of sectoral policies that are now relatively well defined, although there's still much to be done in terms of implementation. But I think that's... it's a long-term process, as you said.And I think we should say that the ECOWAS commission is currently leading an initiative to promote production in the trade of rice in the region in a sustainable way. It's actually one of the flagship initiatives of the ECOWAS in the area of agriculture and food security. And so, there are a number of aspects in the rice sector that have to be addressed at the regional level, as we said, there is the transshipment of rice across the region. And in some cases, it leads to reactions, like bans on land imports, which is going to have repercussions for other sectors, including those who don't have much to do with rice. And of course, this can impede the process of regional and continental economic integration. At the same time, rice is a good example...again, there are trade relations within the region that play a role in the development of the domestic rice sector. Locally produced rice is traded within the region. For instance, between Burkina Faso and Mali.Malian consumers appreciate the organoleptic qualities, I mean, the taste of rice grown and parboiled in Burkina Faso, largely by small-scale women enterprises. And despite the fact that Mali is almost self-sufficient for rice, it still imports from Burkina Faso. And this is not just a curiosity, but it's also an opportunity for the development of regional agri-food value chains that can create jobs, generate more income for farmers and ensure food security. And of course, that's also a challenge at the continental level. So these processes at the regional level are one part of the puzzle, but they can play a big role in formulating better trade policies, but also in supporting the work at the national level, as in Senegal, with better regulatory frameworks for the agri-food sectors, and also to share experiences and to coordinate with perhaps the ultimate objective being to go towards like a regional market with some common policies, common norms, that can ensure the good functioning of cross border value chains. So, yes, that's something that we are paying close attention to in partnership with West African think tanks in particular. And I should say that this work of ours that you have mentioned has been done in partnership with IPAR, a think tank based in Senegal and specializing in rural development and food security.Tobi; So, given the situation that countries face today and also particularly in the region as you have said, I know we may not quite be in the same situation as the 2008 crisis, but there are familiar currents of the same problem. My question is you work on policy a lot, so what are some of the automatic policy responses or stabilizers that countries can adopt in the interim that does not make the situation worse, both for consumers and producers, and other stakeholders involved in the food value chain? What policy heuristics or intuitions can policymakers rely on? What tool is available to them to use in a time like this? Fabien; You're right, Tobi, that the COVID crisis has generated a number of disruptions that we should learn from to develop more resilience, agri-food systems in particular, and we've seen in a number of countries disruptions in agricultural and food supply chains, which also meant losses of jobs, livelihoods for certain people. And this also then can really push people back in terms of wellbeing and development. So, the problem of risk management at different levels is probably even more acute after this crisis. But it's good also to see that progress is being made. And again, if I just keep talking about the agricultural and food sector, at the ECOWAS level, there is an interesting initiative to put in place regional food reserves to deal with instability in the agri-food system at the regional level, and especially also to address emergency needs for food assistance for vulnerable populations. So, this regional reserve initiative, which is being piloted by the ECOWAS Commission, was developed as part of the ECOWAS agricultural policy. And it has two components, the physical reserve of staple food commodities that can be quickly mobilized to address the need of vulnerable populations. And there's also a financial reserve to procure food products quickly, either in the regional market or elsewhere on the continent, or even in international markets.To address supply disruptions, this is an important tool that is being developed and that should probably be encouraged in the following years. But that's only one part of the policy instruments to deal with instabilities, with shock. I think what we see in a number of African countries but even well beyond in the global south and also in more advanced countries is the importance of social protection and public services to deal with difficult times, including in the health sector. So why not a specialist of social protection, I think that there's an important role to play for food assistance, but also cash transfers and other forms of social insurance to ensure that vulnerable populations are not left on their own in very difficult situations - when a crisis hits when it disrupts economic activities when people get sick and can't go to work. And of course, one of the basic needs is food. So social protection and food policy should work hand in hand to protect livelihoods and well-being. There are a number of other instruments to deal with risk, to manage risk, I think. We've seen also that part of the problem that you have presented at the beginning is also related to the cost of fertilizer, which has gone up in [the] international market and of course, makes it more difficult for farmers, including in West Africa, to boost production. What I would say just to conclude is that going back to our example of rice, in the end, it's not so much about attaining self-sufficiency, but it's about managing the vulnerabilities that are due to these interdependencies. Whether it's because of the importation of rice, but also the reliance on exports of extractive commodities, as well as movement of populations and with them of Coronaviruses that can destabilize an economy and, of course, health systems.Tobi; You sort of...and I don't know, that has been happening a lot over the course of this conversation, your answer preempted my next question, which is like my final question. So, it is like a big picture question. What is or are the differences between food security and food self-sufficiency? Because this is a debate that has been going on for a while. And the two get mixed up quite a lot. So, you are an agricultural economist, you're an economist... some Agric economists have argued that the policies that countries that have a little more access to ports or the coast, that the policies that they adopt around agriculture should be a little bit different from countries that are landlocked... so many issues and it can be quite confusing. So, I want to hear from you, what is the difference? What are the nuances between food security within the context of a national economy and self-sufficiency?Fabien; Yes, I think it's a difficult question because there are really different views about how things work behind these two notions. But I think we have to go back to what they mean in the first place. I think food security is first in outcome about how well people access food of good quality, in conditions that will ensure good nutrition for children, for women, and for men, and certain stability. So, it's a desirable outcome that depends on a multitude of factors. Now, if we look at self-sufficiency, it's probably seen by policymakers and others as an important means to attain food security. But perhaps it is sometimes confused with an end in itself. And the policy objectives, perhaps, lose sight of the bigger picture and aim to pursue self-sufficiency, even though it's not the best policy that will lead to desirable outcomes.For rice also, you know, we can question, and if we go back to the beginning of our discussion, to what extent it is a good use of public resources to put so much of them into rice production. And if this rice production is not well channeled to the markets or is risky, because of the agro-climatic conditions in some countries, it can actually be a factor of risk, you know, if we cannot rely on the international market as a result.So, we should not confuse means and ends. But I will say that the question is actually more complicated than that because agriculture and the food sector play an important role in economic and rural development. Policymakers also look at these objectives, ensuring that out of agricultural production, rural households can generate some income can lift themselves out of poverty, and then perhaps some of them will move to urban areas, etc. And agriculture is also a sector that plays an important role in the management of natural resources. In taking care of sparsely populated areas, generating economic activities in relation to non-agricultural activities that maintain life and cohesion in rural territories. So, I think we also have to look at this role, and perhaps behind this objective of self-sufficiency, even though perhaps not everything is well thought through, there's also this intent. Now, I think there's perhaps another motivation that we should mention is that agricultural policies aiming at self-sufficiency is also a way for policymakers to gain the support of rural populations - by way of providing subsidies, resources that will improve their popularity for the next election. I think we can say that because it is, you know, it's part of the political game. And it is seen everywhere, I think, not just in developing countries, but also in advanced economies. So, but in the end, I think what's important, especially with all this matter of rice, is to look at the broader agricultural and food systems.And rice self-sufficiency at the national level, you know, if you want my own opinion, based also on my work, it's probably something to be careful with. It might not be the right policy for every country. But I will emphasize the opportunities in the sense that there are other sectors where it's important to invest, you know, where the potential for generating income and job is more important. At the same time, ensuring a good supply of locally produced rice, which can be of better quality than the imported rice, it's important, but it can be done in cooperation with other countries with a greater role for intraregional or even intra African trade. At an even higher level, I think it's important while promoting the production of African rice, where it makes economic sense, you know... it's important also to secure access to the international market. Because we don't know what can happen, especially in the context of climate change, a drought, a shortage of water can decimate the rice production in a certain year, in a certain country. And that country in these circumstances will probably have to rely on the international market to secure the food needs of its population. So, I think we have to keep in mind the multiple factors that contribute to the desired outcome of food security, and also rural development and find the right balance between the different policy objectives. And that's where I think the importance of regional cooperation, but even more so of, you know, inclusive policy dialogue that takes into account different perspectives is critical to achieving this right balance or, at least, a good enough balance between different policy objectives.Tobi; Thank you so much for clarifying that. Bonus question, if I may. We have a bit of a tradition on the show. We call it the one idea. So, what is the one idea that...it may be from your work, it may be from another field which you admire, what's the one idea that excites you so much, you want everybody to know about it, you'd like to see it spread, you'd like to see more people think about it. What is that one idea?Fabien; It's a difficult question Tobi, but I think I like this question. I think if I look forward, I think the role of young farmers and entrepreneurs is very important to solve the questions that we are discussing now. Because these entrepreneurs, farmers, you know, represent the future of agriculture. And I think I very much like how you aim also to target them through this podcast, amongst others. And I think thatI have exciting news to share: You can now read Ideas Untrapped in the new Substack app for iPhone.With the app, you’ll have a dedicated Inbox for my Substack and any others you subscribe to. New posts will never get lost in your email filters, or stuck in spam. Longer posts will never cut-off by your email app. Comments and rich media will all work seamlessly. Overall, it’s a big upgrade to the reading experience.The Substack app is currently available for iOS. If you don’t have an Apple device, you can join the Android waitlist here. you know, we, in general, you know, as policymakers, policy commentators, development partners, have to invest more in the potential of these young people to develop new ideas, new technologies, also new trade linkages to exploit the potential of these agri-food systems.Tobi; Thank you. Thank you so much. My guest today has been Fabien Tondel, the policy officer at the European Centre for Development and Policy Management. It's been an absolute pleasure speaking with you.Fabien; Thank you, Tobi. It was my pleasure as well. This is a public episode. Get access to private episodes at www.ideasuntrapped.com/subscribe

Human cooperation has been one of the most common human experiences, yet one of the most contentiously debated. For some, human cooperation is a unique moral achievement given our multitude of interests and differences. Others proclaim that we are ‘‘selfish’’ individual utility-maximizers - and cooperation is only achieved via separate institutional arrangements. Researchers on human behaviour and biology are also divided on whether our instincts for cooperative behaviour originated from individuals or groups. Hence, it was refreshing to read an account of human cooperation that does not pretend to settle these debates but transcends them by placing cooperation in the mix of other natural human instincts. In her book, The Social Instinct, Nichola Raihani - a professor of Evolution and Behaviour at University College London - traces the trajectory of cooperation from the microcosm of cellular organization to the complexity of human societies. In this conversation, I explored most parts of her book, and what motivated her to write it now. This is a public episode. Get access to private episodes at www.ideasuntrapped.com/subscribe

Welcome to another season of your favourite podcast! We are starting off the season by exploring the many explanations of The Industrial Revolution with economic historian and writer Davis Kedrosky. You can learn more about Davis' work from his excellent newsletter here. You can also listen to this podcast through all the other options here. The transcript of the conversation is below.TRANSCRIPTTobi; So briefly, what is the Industrial Revolution? And what is its significance? I mean, we've all seen the charts, you see these different trend lines charting world living standards from the Middle Ages, and then somewhere in the middle 18th century, there's this huge jump, you know, that is generally termed as around the time the Industrial Revolution started. So what's the Industrial Revolution, basically? And why is it significant? Davis; Right. So I guess what you've asked here is two impossibly three questions. So what is the Industrial Revolution? The Industrial Revolution is actually multiple events, which is the bad historian answer. But essentially, you first have the British Industrial Revolution. This is a period that starts around 1760 and continues for about a century until 1860. That's sort of the standard periodization and basically consists of the structural transformation of one economy, the British economy, from a largely agrarian country to one based on manufacturing, especially in a couple of key sectors, those being textiles, iron, and various types of steam goods. So this event is transformative in a number of ways. It's not transformative, in that it brings about a titanic increase in living standards. Because really, for most of the period, living standards in Britain do not rise. It's significant because it is really the first true stirring of economic dynamism anywhere in the world, with the possible exception of the Netherlands in the 17th century. But in this case, in Britain, the industrial revolution is truly sustained. And that brings us to the second part of the question, what is the Industrial Revolution? Because there's first the British Industrial Revolution, and then a European and then a Global Industrial Revolution. By the middle of the 19th century, the technologies that sustain the British Industrial Revolution are spreading to the European continent, and Britain's rivals - France, Germany, parts of Eastern Europe, and Northern Europe and southern Europe - are all starting to take part. And this becomes a continental phenomenon. And this is occurring toward the middle and the latter half of the 19th century, eventually spreading to North America, and is based on new technologies. Primarily based on the application of science to the growth process. And this growth, unlike, perhaps the British industrial revolution, and certainly unlike any growth episode in world history was sustained. Because we are where we are today. It was the beginning of modern economic growth. And so that actually gets into why this episode is significant because it is the spontaneous transformation of a largely stagnant, slow-growing economy, perhaps less so in Britain, but certainly the case in Europe and the rest of the world until something that increasingly approach the relatively rapid pace that we're seeing today, and learn to apply technological advances in a consistent fashion to the improvement of human welfare.Tobi; I'm curious, yeah, like you said, the data is usually put somewhere around 1760, to about 1860, for the first Industrial Revolution. Why did it happen when it did? Because usually, you get two sides of this story, where some scholars will argue it was a really long, slow buildup; while you get the impression from some other scholars that was a sudden discontinuity from a previous, longer trend. So why that period in time, what was different?Davis; If I said that I believe that the Industrial Revolution was a discontinuity from a long trend, I would have historians barking at my door for the next year, and I, you know, might not ever have a career in this discipline. But what I will say is that there are a number of theories about why the industrial revolution happened and how it happens. And this paints me as a historian, but I think it's sort of irresponsible to settle on one. So I borrow from all of them. But I'll just, you know, for the benefit of the listener, I will lay out as many as I can, that I think are relevant. So I guess in the classic phase of the debate, starting in the 19th century when people realize starting with people like Karl Marx... realized that the changes that had been occurring over the previous century in the economy of Britain had been of truly historic magnitude. Two competing theories for why the industrial revolution happens: and I'm borrowing from Deirdre McCloskey here - the conservative approach, which is to say, basically capitalists saved, they were frugal, they built up a larger capital stock, and eventually learned to make whatever gains and growth that they were achieving self-perpetuating. And of course, more capital per person means more productivity, more productivity means greater income per head. So that's the conservative interpretation. The Socialist interpretation is that of Marx, which is that the industrial revolution is based on expropriation, that a process of force was involved in first, the primitive accumulation of capital by capitalists and by capitalist farmers; in dispossessing the peasantry from the countryside and driving them into the factories where they could serve as low wage labour. This increase the profits of the capitalists, and in turn created the self-perpetuating growth process that we are observing continuing today. Both of those continue to be influential, and certainly, their strains have been incorporated into the modern economic history discourse. But so far as we're concerned in talking about economic history, I think that there are really three main theories. And so one of them is definitely the slow growth over time take. And that's the unified growth theory of people like Oded Galor and David Weil, and they essentially argue that an evolutionary process occurs over time whereby a combination of selection and population growth leads to the accumulation of technologies, increase in the rate of innovation. And then this innovation in turn leads to economic growth. And that is also abetted by fertility transition, such that population growth is no longer correlated with economic growth. And that leads to a growth in income per head. Then we have... I think it's about the same year - the end of the first decade of this millennium, we had two theories that have really transformed economic history come out that really set the terms for the causes of the Industrial Revolution debate.The one that's been, I think, most influential among economists is that of Bob Allen. And in his book, The British Industrial Revolution and Global Perspective, he argues that Britain had a unique combination of factor prices - that wages were extremely high in Britain, and capital and energy were extremely cheap. And so what this led producers to do was to substitute labour for capital and also make innovations that would have this labour-saving effect by using lots of capital and energy. The prime example is the steam engine, which used cheap British coal to perform the work that would otherwise have been performed by muscle power. And so the continual creation of these labour-saving inventions is sort of the basis for the Industrial Revolution and increases worker productivity. This is the Allen theory. The Allen theory has received some very strong critiques. People like Jane Humphries and Judy Stevenson have really attacked the empirical basis of Allen's work. They've suggested that wages in Britain were not nearly as high as Allen had computed and that his series made some improper assumptions that led it to be inflated and this really changed the sorts of profits to technological innovation that Allen had to suppose would be driving this process. And so that's where the Allen theory stands today. It's sort of the cleanest mechanism for describing the industrial revolution in an economic sense, but it faces some factual challenges. The other one that occurred about the same time is that of Joel Mokyr. He wrote a book called The Enlightened Economy, I believe in 2009, in which he argued that it was rather ideas rather than economic incentives that led to the transformation of Britain. That it was industrial enlightenment that occurred, and a culture of improvement that swept Britain and led many people of the intellectual class of the country to start taking an interest in practical matters, devising innovations that would improve society, that would make doing practical tasks easier, and then crucially, sharing them with the people around them in a sort of Republic of Letters - in which intellectuals across England and across the continent all communicated to iterate upon each other's technical ideas. And this, in turn, provided the creative spark for modern economic growth and crucially incorporates the sort of scientific aspects that is the foundation of the second or European Industrial Revolution. These are the two main competing theories and people like Nicholas Crafts have attempted to synthesize them into a single argument suggesting that, you know, one explains the demand and one explains the supply of inventions. But others hold that they're incompatible. But you can kind of pick and choose your favourite aspects as Crafts did.Tobi; Yeah, I mean, I get that. But from a global perspective, you're looking at other parts of the world like India, Africa. There are other - I'd say, maybe within the economic history profession - not so popular, but quite popular with the lay public. For example, the institutionalist view of Acemoglu and Robinson who claim in their book and also in some of their papers that the Glorious Revolution laid the foundation for the Industrial Revolution. That's one, I'll like you to address some critiques of that. And secondly, what's the difference between Galor's Unified Growth Theory and sort of the Neo Malthusian story that people like Gregory Clark are constructing?Davis; Okay, I'll start with the Acemoglu and Robinson theory about the Glorious Revolution. So [what] they essentially argue is that the Glorious Revolution is a watershed event that turns England into a participatory democracy, in which people are free to possess, transfer and use private property without fear of expropriation from the supposedly tyrannical monarchy that existed beforehand. And in the institutionalist view, the security of property rights and participatory democracy are both crucial for economic growth because they allow people to transfer assets to their most productive uses. And these sort of efficiency gains also lead to investment and modern economic growth is supposed to follow from that. Yeah, so Acemoglu and Robinson are sorts of making a distinction between inclusive and extractive institutions. Extractive institutions are supposed to be the sort of, European and broadly global pattern whereby elites have no incentive to promote economic growth and do not allow participation by the common citizen in the political discourse. Whereas inclusive institutions are very much the exception but are established in Britain in the sense that I've previously described, in both the economic and political spheres.They allege that, and I quote, "the industrial revolution started and made its biggest strides in England because of her uniquely inclusive economic institutions. These, in turn, were built on the foundations laid by the inclusive political institutions brought about by the Glorious Revolution, and that they gave man of talent and vision such as James Watt, the opportunity and incentive to develop their skills and ideas and influence the system in ways that benefited them and the nation". So yeah, that's the Acemoglu and Robinson view. Um... I'm not so fond of this one. Tobi; Why? Davis; I have to be careful because there are many people who see a sort of, attack on Acemoglu and Robinson, or even a critique of Acemoglu and Robinson as a critique of institutionalism itself, and I am by no means an anti institutionalist. Because I mean, it's painfully obvious that institutions are extremely important in explaining differential development. But some empirical flaws with the Acemoglu and Robinson contention, especially in its "Why Nations Fail" iteration is that the Glorious Revolution really didn't actually bring about the sort of sweeping political changes that they suppose occurred. British Parliament was still corrupt, the electorate was tiny and dominated by landed elites rather than merchants. Certainly, industrialists come [in the] early part of the 18th century. So those sorts of sweeping changes couldn't really have had a very big influence on the beginning of Britain's economic transformation. Second of all, Parliaments just do not guarantee economic growth anyway, there are plenty of examples of Parliaments filled with wealth holders and merchants who use their political powers in order to just extract rents from the economy at large. So this happens in places like Poland, for example, where parliament is so strong that the ruler cannot issue any legislation without its consent. But that power is then used by the Polish parliament to support the feudal rights of landowners over their serfs and that leads to agricultural stagnation rather than economic growth. So parliament is not necessarily the keystone of economic transformation. Finally, private property in England was already quite secure by the time of the Glorious Revolution. And that event did not bring about any kind of radical transformation in the way that property was treated in England. The Bill of Rights that was passed in 1689 did not impose any limits on Parliament's ability to confiscate property. So you basically see the replacement of the monarch's despotic power over property such as it existed, which was in curtailed form by Parliament. So it's not clear to me that you can attach an economic discontinuity to a political discontinuity in this way. I mean, indeed, in the century following the Glorious Revolution, there really isn't an economic discontinuity. There is perhaps an acceleration in the rate at which the British population is moving out of agriculture, but that had been occurring for over a century in Britain. Those are some of the main difficulties with the Acemoglu and Robinson theory. Then I believe you asked about...um...Tobi; Yeah, Greg Clark and...Davis; Right. So this is not an area that I've really worked with very much. And by the way, there are a number of iterations on the Unified Growth Theory. But as best as I understand it, unified growth theory is concerned with the sort of, the transition between a Malthusian regime and a post-Malthusian regime through the lens of the demographic transition and the returns to innovation. And in their model, population growth tends to increase the rate of technological progress, and technological progress, in turn, increases the returns to investing in human capital. And there's sort of a positive feedback loop between investment in human capital and the rate of technological growth, which has the additional effect of decreasing fertility and a sort of quality versus quantity trade-off. Clark's hypothesis is a little bit different. So Clarke, as I recall, argues most famously in the Farewell to Arms, sorry, A Farewell to Alms. (That is quite a slip there). His argument there is that, basically, the differential reproductive rates of the wealthy lead people of their habits and mindset to become the dominant subset of the population in certain advanced regions, and their behaviour - the behaviour that made them wealthy - is sort of the basis for growth-inducing economic interaction. Those are the main differences. I guess they don't interact with one another that directly, in my point of view.Tobi; So I mean, as long as we are interrogating several theories of the causes of the Industrial Revolution, I read McCloskey's trilogy, right? And I mean, she spent a lot of time criticizing all these other theories about the causes of the Great Enrichment, as she called it. And at the end of the day, she basically, well, I'm not an expert, but in my opinion, she resorted to a bit of a sleight of hand as well, which is to say that well, the cause of this Great Enrichment is liberalism. The spread of freedom, and basically attributed that to luck. Do you buy that? And how does that differ from say, Acemoglu and Robinson, you know... Feels a bit arbitrary.Davis; As I understand it, liberalism is only a part of the McCloskey hypothesis. There's also an aspect to which it has to do with the spread of the bourgeois virtues among the people of Britain and an economic mentality that had not previously existed, and that these sorts of behaviours are the key to an efficiently transacting and innovating culture. Yeah, so there's not just liberalism uber alles. But as far as liberalism is concerned, it's clearly not a sufficient condition for economic growth, it has to be combined to be even beneficial with certain kinds of state capacity such as the provision of some kinds of basic essential services, especially infrastructure, and the provision of social overhead capital in order for the benefits of industrialization not to be winnowed away. I mean, a good example is Britain, in fact, where certain kinds of laissez-faire behaviour by the state are actually detrimental to the British economy. British cities grow much too fast for their infrastructure, and in many ways, they really are the sort of hives of scum, filth, and overcrowding they're drawn up as in your standard Charles Dickens novel. And part of the reason for that is because much of the investment in public infrastructure was shunted away from the state and toward private individuals and this process did not occur as seamlessly as it might have. And so, you know, there's poor sanitation, improper access to good drinking water, inadequate housing stocks, and all these social bads, actually, probably, reduced the rate of economic growth. So if liberalism is to be helpful, it has to be an appendage of a larger growth process. And I really do not think it's either sufficient or necessary for industrialization. You can look straight to one of the foremost industrializing countries of the last four decades in China, where industrialization has occurred apace in, really, the absence of political liberalism. And you can make arguments about whether that growth will be sustained. But there is certainly dynamism and there is certainly an improvement in per capita living standards and convergence with the West. You can even make the argument for Soviet Russia and its early years as Bob Allen has - that from about the late 1920s until 1970, Soviet Russia under a planning regime grew quickly enough to have some measure of convergence with the West, and certainly an increase in living standards.Tobi; Two final questions before I let you go. One of which would be, as you mentioned in the introduction, after the 1760 or thereabout event, a lot of economies in Europe, France, and of course, Germany, caught up with the British economy and, of course, by the end of the Second World War, America had become the preeminent global economic power. Why did the British economy decline?Davis; That's a question that some economic historians don't accept at all, and that I'm hoping to explore in the relatively near future. But the old Edwardian argument that Britain has just matured, and that it's had its spell as the leading industrial nation, but there are inevitable limits to growth, and that they've reached the limit of their possibilities and handed over the torch to the United States and to Britain's European rivals. You know, the answer here is obviously a little bit more complicated. But one of the standard responses is to say, well, the kind of growth that Britain experienced from 1760 to 1860, was of a fundamentally different character than that that made the United States and Western Central Europe successful during the 19th century. And that's basically down to this distinction between tinkering and engineering-based innovation that is responsible for the creation of many of the main inventions of the British Industrial Revolution and the application of science to technology, drives innovation during the Second Industrial Revolution. So in the first industrial revolution, you see, particularly in the textile sector, a range of innovations arising from learning by doing, from people within the industry solving problems that occur to them in the production process and making incremental improvements, really, without the aid of any kind of formal knowledge. Not all of these improvements are incremental, like inventions like the flying shuttle, the water frame, the spinning jenny, all these things bring about colossal improvements in productivity, and they make Britain by 1850 the world's leading textile exporter, but none of them required deep formal knowledge of how to construct machinery of the physics of the engineering process. Whereas by the end of the 19th century, some of the leading sectors like steel, electricity, the construction of automobiles, chemicals, all of these industries require significant scientific knowledge in order to advance to an appreciable degree. So there's the argument that Britain's success in tinkering-based innovation-led it to undervalue the importance of investment in human capital, specifically through an education system. And consequently, there was sort of an inadequate generation of young scientists and professional engineers coming through the ranks just at the time when they were most needed in transitioning the British economy toward the modern industries that we're taking hold in Germany and the United States. That's probably true to an extent. But there's also a degree to which Britain is simply following its comparative advantage in other kinds of industries in the face of the industrialization of the United States and the Central European powers. Britain is always going to have an advantage in the provision of financial services and shipping, and that is really one of the directions that the British economy takes in the years before World War One. And so the economic historian Simon Carly has argued that this isn't senescence, this is not the ageing and stagnation of the British economy, but really a movement in a new direction to conform with her resource possibilities and comparative advantages. Obviously, the United States is always going to have a much larger advantage in heavy resource-based industrialization, because of the massive reserves of ores, minerals, timber at its disposal.Tobi; Final question before I let you go, if we look at contemporary economic growth and policies, especially in countries that are still behind income-wise, what can we learn from the Industrial Revolution? Because a lot of people project different things depending on the causal story that they buy, or that they want to believe. Advocates of industrialization and the East Asian style of industrial policy take different lessons, people who favour the Institutionalists also use that to give their own sort of policy advice. People who favour liberalism will say, well, it's about political freedom. So what are we supposed to learn from the Industrial Revolution, so to speak, does that particular period of history have anything to teach us at all?Davis; You and every sort of public, economic intellectual in every country that has tried to develop ever since the Industrial Revolution wonders the same thing. And the thing that's really interesting and unique about the British Industrial Revolution is not just that it's the first of its kind, but that it's the only Industrial Revolution that occurs without a model. Because every other industrialization process in history looked back on the British experience, and said, you know, we should imitate this aspect and that aspect. And that where Britain has been successful, we should expect to be successful too. They've taken Britain's successes and applied them to their own, to some extent. The British Industrial Revolution is unique because there is no precedent, there is no model for what occurred. It really did happen spontaneously, because even though there may have been some elements in the British government that wanted to promote economic growth, that's the famous mercantilism of the 17th and 18th centuries and really, one of the reasons why Adam Smith writes his great book, The Wealth of Nations in 1776, is because these are all people interested in making the country wealthier. But they had no idea that industrialization was sort of what could or would follow. And so, in terms of the lessons that we can draw from this, they are to some extent limited. We know that because of the degree to which all of these countries that have attempted to follow the British model have either successfully or unsuccessfully failed to do so. The United States, for example, was moderately successful at industrializing, say, in New England, along British lines, but immensely successful in going its own way in a variety of Heavy Industries toward the end of the 19th century. Partly because of the simple scale, but also because of the human capital and skill advantages that we've been talking about. You know, it's quite reasonable to argue that many of the East Asian countries would have struggled to industrialize in the spontaneous fashion that Britain did because they were situated in a position in the global economy in which they did not have a comparative advantage in the industries that would end up transforming them until they employed industrial policy in order to break free and to get out of low level local agrarian traps. And I know that people will shout at me and say that Meiji Japan was already growing prior to the world wars. But I don't think it was necessarily true that Meiji Japan was set to grow in the spectacular fashion that Japan did after 1945. But all this is debatable. But what is certainly true from the British example, is that it demonstrates, in some respects, the extent to which a different combination of political liberalism and state capacity can make a difference in producing some economic separation. So if you have the right political economy, by comparison with your neighbours, you can have a bit of a growth advantage. This is not to say that if you have had Britain's political economy from the 18th century, you would somehow grow faster today. Rather, if you had Britain's advantage in political economy, you might have. But in my opinion, and this is not to sound too down, the genesis of the Industrial Revolution is primarily in the long process of the transformation of productive forces from the 16th century onward. And no hand was taken really by any institution in shaping them. And that spontaneity, and that mystery really, is what makes the Industrial Revolution so interesting. And so also just why it has been so difficult to copy. And why nations that have intentionally industrialized have needed to find their own recipes for doing so.Tobi; Finally, what are you working on right now? And why are you excited about it?Davis; Yeah, so I'm planning on obviously continuing with my Substack and blog, I never really know what to call it. I don't know if it's a newsletter or a blog, or what? I guess it just depends on...Tobi; I think it's both. Davis; Yeah, I guess it depends on how you access it. But yeah, I've got a couple of projects in various stages of production. I have an economic history paper that is presumably being refereed at the moment, so we'll see how that's received and whether major transformations will be needed to bring that toward publication. And then I also am in some of the very early stages of what could be an exciting project in Canadian economic history. But I don't want to reveal too much about that at the present. I'm not exactly like throwing spaghetti at the wall and hoping that it sticks because I have way too much time in order to, sort of, incentivise desperation like that.But I do think it's, at this point, beneficial to engage in a diverse array of possibilities for work that I can consider doing.Tobi; It's been great talking to you, Davis, and I wish you all the best.Davis; Yeah, thanks. Fun conversation. This is a public episode. Get access to private episodes at www.ideasuntrapped.com/subscribe

Supply chains have been in the news a lot lately - because there have been shortages of many important things like food, semiconductor microchips, heating and cooking gas, and even shipping containers. Prices of many commodities have gone through the roof because of these shortages, and policymakers globally are scrambling to find a solution especially with the holiday season coming around. I tried to unpack some of the issues with Decision Scientist Oliver Beige. We also revisit some of the themes from our last conversation (note that this was recorded before the new Omicron variant!). It is always informative to talk to Oliver, and many thanks to him for his time. The transcript for the conversation is available below for everyone.TRANSCRIPTTobi; My guest, who is making his second appearance on the show, is Oliver Beige. He is a decision scientist and, welcome back to the show.Oliver; [A] pleasure to be on your podcast.Tobi; Yeah. So, the last time we talk pretty much about the pandemic. Mostly about some of the predictions that experts were making about the patterns of infection, and fatality, and so many of the public health implications of that. But one thing we are now seeing, that as is quite becoming so clear, is some of the other I should say secondary "effects" of some of the measures that were taken because of the pandemic policy-wise. One metaphor you use which I like so much - it pumps my intuition in all the right ways - is like the lockdown is like telling half of the cars on the route to stop instantly and the other half to just speed right ahead. You know, and there is a global shortage of so many things. Supply chain is so much in the news now, from shipping costs going up about over 400%, food inflation is high. It's crazy in Nigeria, India is experiencing hunger, poverty has definitely worsened for a lot of vulnerable demography. There is also the issue of joblessness, businesses have gone under. Again, I'll ask you and this may seem like picking up from the theme of where we stopped the last time. Could some of these problems we are now seeing, which we are going to delve into, could it have been prevented?Oliver; Clearly, like most of the policy has been over the last year and a half were not taking this into account. And the analogy you're saying about half of the cars on the highway, like being forced to stop and the other half being forced to speed up - the situation in 2020 was basically a lot of people were calling for a complete shutdown of the global economy until we're done with fighting this virus. I remember like the prominent German economist, I think, probably two [to] three weeks into the lockdown was making fun of the German government's decision to bring in asparagus harvesters - so [who] usually [do] not come from Germany, they usually come from Czech [Republic] or Poland. This particular economist [was like] whatever, asparagus is not important enough, we cannot let people in that might bring in the virus or something like that. Of course, very, very, very quickly, we had massive problems on both food production and, of course, we had food shortages very, very quickly. So we basically had harvests dying on the field, and shortages within the supply chain in between the production and the consumption of things. We have, like, abattoirs and [...], [...], and so on. So we are very much into a severe food crisis very quickly, and always a predictable food crisis very, very quickly. And so then we had fairly massive measures taken in order to alleviate that [by] giving people money, at least, in the Western world here. That seemed to have stopped it. And suddenly people had got the feeling really [that] the economy is working again, and we can still buy our car and we can still consume, and people had money to spend and use the money to buy products because there was not a lot of other things they could spend it on. The movie theatres were closed. So this is the situation. It looked like we're good for a while. Seemed like we had resolved this quickly emerging problem of a stopped economy. And of course, that's not how it works. And we've seen increasing numbers of reports of an economy that is not working anymore, because of the basic things we take for granted like, basically, shipping containers. The basic things are not where they should be. We not only have severe shortages, we also have the situation where we're piling up empty shipping containers in certain ports, and they cannot be moved anywhere else because we don't have the shipping capacity.And the current situation that things are not what they should be. Things we take for granted are in short supply which has all kinds of effects on other things. So, basically, we're having a global supply chain that is locking down just in time for Christmas and next year, you know, Chinese new year, sort of the highest capacity, highest load times. Always the situation in supply chain is that it affects the most vulnerable parts of the supply chain the most. And that is usually the ports part, right? So the ones that don't have the alternatives… if you are a rich participant in a supply chain, if you are a big carmaker [or] something like that [and] you cannot get shipping capacities, you're currently moving your raw materials by airplane. It's more expensive, far more expensive, of course, but you need to stop to build your cars. The worst thing you can have is... no, the second-worst thing you can have is an almost finished product, 99% of [a] finished product that sits on your parking lot and it's still missing one part. And this one part is like three months away from being delivered. Companies that are rich enough [and] that can afford it are using any means possible to get these missing pieces. But what we're also seeing now, you have in automotive (it's not only in automotive, it's general but automotive fits very much) is missing microchips. Microchip supply chain topic is the production topic. We don't have enough production capacity to fulfil demand. But of course, now that we see car manufacturers closing down plants - they used to close down for (a) week[s], now they're closing down for months. Now you have a whole dependent supply chain that feeds into these plants that had nothing to do with microchips. They're doing whatever... glove compartments, plastic, glass, paint, everything else; they're not being used because [this] particular facility is not producing anymore [and] now they're being affected by this. And this is the situation we have right now and this is something I've been predicting for a long time, basically, since last February [which] is that we're running into a situation where basically the whole thing goes out of control. And the one thing I just posted like last week, I think, is Northern Europe, especially the UK is experiencing a gas shortage, which affects flower production. Flowers are usually grown in greenhouses in Europe, and Ireland and UK, apparently. But they're closing down, which opens an opportunity for Kenya, which is also a flower producer to have less competitors (who are now in the situation to put fewer flowers on the market, of course), but they can't because they don't have the shipping containers they need to bring flowers to Europe or North America. And this is a situation where basically the whole thing freezes up. I heard for the longest time, especially coming from something like the politically relevant economists said, Okay, "markets tend to self regulate," which is true for most of the time. "All of this is basically driven by capitalism and we should see all of these problems being short term. So we should see all of this to be temporary, and then it is just going back to normal eventually." Now they have to admit that it's probably not gonna go away anytime soon. Basically, everything I see in global shipping assumes that these problems are with us through 2022 talking 2023 already. So, yeah, this was foreseeable. And it was like a situation where people who did not want to predict this for whatever ideological reason, like, basically, ignoring the pointers we had all along.Tobi; That's just depressing. But a bit of a trivia, well, maybe not so trivial question. You work on supply chains, I don't want to name names of some of the firms you work for, but like right now, who are the people calling you the most demanding for your expertise and help [in] understanding or solving this problem? Where I'm going with that question is, where exactly are the bottlenecks?Oliver; I don't currently work on a supply chain. This is some, just basically, 25 years of expertise. I think basically, where the most interest comes from right now is actually startups. I think, of course, from what I see, [a] lot of current procurement managers, also logistics managers, they do everything they can to handle the situation, they're not really the ones that need my expertise. They have, what, 25 years logistics[of] experience, they don't really need me.But what I see and what I'm trying to help [with] is sort of like resolve the underlying information problem we have and this is not something we can resolve within a couple months. Basically, people who are supply chain bottleneck managers do whatever they can with the tools they have. Really to give better tools to be better prepared for these crises is all about having the information, shifting information across five, six tiers within the supply chain for someone with at the end of a supply chain to see what's happening at the beginning in order to make better plans. Also, like, if we have a surplus of shipping containers in the Port of Auckland, New Zealand, while the rest of the world is in severe shortage, how can we resolve these problems? Yeah, this is definitely something that has to happen that I normally don't work on, like trying to come up with quick fixes. I'm usually working with people that sort of try to resolve this in the long term.Tobi; So there are two explanations that I've seen in the media and which I want you to help assess. So one explanation goes like [this] "We had the lockdown. Everybody stay at home. You work from home. You order whatever it is you want at home." A lot of countries give stimulus in form of money to households, though we weren't very successful with that in Nigeria, it was a massive failure and had its own problems. But you know, so the theory goes, that demand for most items went through the roof and that is what we are seeing feeding through the supply chain now. But another explanation goes that what we are experiencing now is the result of economies starting to open up and that is where the surge in demand is coming from and that's why companies are struggling to meet this demand, you know, but usually, I don't see anything about the massive restriction on supply that also was policy during the pandemic, because, companies that had no house delivery capacity basically shut down or went out of business. So, I mean, how do you assess some of these explanations, perhaps there are others that we've seen in the media, from The Economist to the Financial Times to so many people trying to explain this?Oliver; They're not mutually exclusive, the explanations. This is probably definitely a combination of all of it that's coming all at the same time. For one, both on the supply and the demand side, we had an expectation that the economy will shut down for a long time. So people stopped whenever... ordering cars, and then like two, three weeks, months on, they realize that so okay, it's still going on, I can actually order my car. And of course, all the manufacturers have to catch up with this. This has been going on two, three months of no production had to be produced in double triple shifts afterwards. Stimulus money, the interesting thing is not so much word [about] where the stimulus money went to but where we see it now, which is actually popping up in venture capital. Happy for all the startups that are [a] beneficiary of this money, but stimulus money should not go to venture capital. So something went wrong here.But money, people were able to spend, which they did. And the third thing [is] we have a shift from money spent on things you can do outdoors - entertainment is an obvious one - to money being shifted on things you can do indoors, which is like stationary bicycles, bread makers, or PlayStations, all these things. Basically physical goods that have to be shipped. And in general, we had a shift from shopping in stores to things being delivered by deliveries and this has put its strain on the whole supply chain and our supply chain is built to run at 90% capacity. And so pushing this over that limit, over a 100% limit, well there will be points where it gives out.This is just [like] taking a leaky old pipeline system and you're putting like whatever, whether 100% of liquid you want to run through this pipeline, and [the] pipeline will burst in certain points. And that's exactly what happened. And it's usually the most vulnerable point of the pipeline system where it bursts. We're seeing that it emanates out from there.Tobi; One other thing (which is a point you've also made, albeit in different words), that the pandemic also, sort of, exposes is the pattern of economic specialization of the global economy. Because for one, I didn't know how Malaysia was important to the supply of hand gloves before the pandemic and so many other things like tissue paper, and so many other overlooked everyday household commodities that we found out through shortages and empty shelves, you know, [to] how important and how the supply chain is configured. And I mean, this brings up issues around the theories of economic trade and the geopolitics of that, you know, and so many people have been - although for political reasons - talking about a reconfiguration of the supply chain. Joe Biden is talking about putting money in bringing America's supply chain closer to its borders, South Korea is spending so much money. There's so much talk of developing domestic capability. We've seen that too with the supply of vaccines, you know, so are politicians or I mean, local stakeholders just having an overreaction, or can the economics of [the] supply chain be reconfigured? Basically?Oliver; Yes, basically, we can think of the last 70 years as, what, the post-war economy which we had until like [the] late 80s, early 90s. If you look at the post World War, we had two very distinct periods, which was like the post-war, Cold War era, where every country had a strategic reserve on things they thought they needed in terms of a future war.So, like, a lot of production was still in the country even if it was not economically efficient for those reasons. And then we had the end of the Cold War and economic efficiency overruled all kinds of strategic considerations. And we had the period of global sourcing, which matched the time, basically, I think, the mid-80s… sort of the time when we started having the enterprise systems that allowed us to source everything globally. We need to take from wherever it's cheapest, or wherever we get the best quality for the least money and transportation cost, logistics, is not a concern. I wrote a thing like two years ago, as I said, we cannot simply ignore the rumblings of global supply in our considerations because, in comparison to production costs, or marketing costs, logistic costs are negligible, right? So you can see very, very weird things that basically is being produced in say, Lebanon, and then it's being shipped to China where it's being manufactured and being brought back to Europe, because it's just cheaper.Of course, we are in a situation where the supply chain layer, which basically nobody paid any attention to other than the operation and logistics people is the thing that's causing the problem and realizing that okay, we should probably be producing our own chips because the global chip manufacturers (microchip manufacturers) are not taking our urgent calls, they're taking others' calls. So, they are basically sorting their customers by considerations which are not aligned with ours. I see this as a global trend going up, and probably over the next 20 years. Largely being connected to manufacturing trends like 3d printing, but also economies of scale becoming less important. But this bringing production back home thinking is really at the root of what's happening in the United Kingdom now, because they basically decided that if they sort of disconnect themselves from the EU, they can do this by helping production back home. And that did not turn out to be correct in this case. So this is like a major trend we're seeing overall. But this is something that will unfold over the next 20 years.Tobi; A bit of a side question, I'll say, on that point. I remember my operations research professor telling me in school that one of the wrong assumptions economists have is thinking that prices always clear markets. So which brings me to the question that, why does economics as opposed to other important parts on this particular issue, like operations research and the like...why does economics have so much influence on policy and the nature of public discourse?Oliver; The discipline is tasked with setting the ground rules for capitalism, in a way. So like, usually, if you get an operations research degree, you work for a company and you do like production or logistic stuff we're talking about and if you get an economics degree you end up in the white hallways in Washington, DC or similar. And of course, it's always more attractive to set policy than to work in the trenches of manufacturing or logistics or the other operational stuff that is clearly not as appealing. In the United States, we have very clearly the shift in operations research where they were, like, really world-leading to economics. I think one reason is because there's a Nobel Prize for Economics and not a Nobel prize for operations research. Like, the operational stuff became less attractive, less interesting and sort of moved on to others. And of course, if you're very important, you always want to capture the strategic things. So something I did not like seeing, um, I went to the United States and study operations research at a time when the United States [factories] were just shedding their manufacturing base. This was like the mid-90s. So it's a clearly recognizable decline. Then [on] the other hand you saw economics on the ascendancy, but economists really don't know very much about production, or logistics, as we've seen. They're basically caught completely by surprise by this whole supply chain thing. I remember having discussions "is this is a supply shock? Or is this demand shock? And I was like "it's an in-between shock, it's the stuff that happens in between supply and demand, and this is stuff, economists don't usually pay any attention to." For me, the problem is really these very adjacent fields, right? If you're studying operations research, you're automatically studying economics along. But if you're studying economics, you're not studying operations research.Tobi; How is that possible?Oliver; Exactly. This is the problem of academic specialization [...], right? If you don't know how things are being made, and if you don't know how things are being shipped, that's a huge gap in your knowledge.Tobi; I think we've gotten to where I'd say [is] the most uncomfortable part of this conversation for me...Oliver; Okay...Tobi; Which is something that you and I have talked about so many times - which is, there are actual, real-life consequences or effects for some of these problems and the decisions that were made in terms of policy during the pandemic. And I do not think it would be an exaggeration - even though that's where the world is currently fixated, but I don't think it would be an exaggeration to say that the fatality or the welfare consequences of some of the measures taken in terms of the pandemic response, lockdowns particularly, would have more cost in human lives than the pandemic itself. I can certainly speak for Nigeria. Not as any kind of expert, but we see in the news every day [how] 2020 was a very tragic year both in terms of poverty, hunger, insecurity, that were all exacerbated by the measures during the lockdown. And I've seen so many other stories from all around the world, India, Kenya, Congo, Brazil, of the real-life consequences of lockdowns, you know, in terms of jobs, in terms of livelihoods. Now, are we ever... this is like asking you to play a psychologist, I'm sorry I'm always asking you to put on so many hats. Are we have are going to get a reckoning from some of the experts who gave legitimacy to some of these policies that I would say were not well thought out, or maybe were developed in panic... Or, like you've also copiously documented were based on wrong models, wrong assumptions, are we ever going to get to a point where there will be a public reckoning for some of these policies?Because what I see is a lot of these same people are sort of taking a victory lap, you know, we save the world, the curve is flattening, we are vaccines, you know, and are we ever going to discuss these other problems that we've relegated as secondary, but which may actually have more effects and even lasting consequences for people? Are we ever going to get to that point?Oliver; Sadly, I think, also a couple of weeks ago this career academic columnist, you had two career-defining events, and that's like 2007 and it's like 2020 and quite a remarkable majority of economists got both wrong. Basically in 2007, they just didn't see it coming and in 2020, economics had a large part in actually triggering the event we were talking about, and none of them will lose their jobs over this. None of them will lose tenure over this.Usually, the reckoning is generational - if incoming economists after 2007 came in to also understand and, sort of, have knowledge that is hopefully enough to avoid another 2007.And I think emerging countries - Africa - in balance was much more negatively affected by all kinds of hapless attempts to stop the pandemic. There's also young people, basically young people [globally] got dropped off the two years of their lives, but severely restricted for something that they had really no part in. And, of course, Africa is a very young continent too. So a lot of younger Africans were robbed of opportunities. Yes, but reckoning is generational. Young emerging generation basically realizing that they were shortchanged in this situation. So it's gonna unfold over 20 years. Yeah. So but in the immediate, we will expect that, like they did in 2007, I remember Kirkman saying basically, "we did almost everything right, in a great financial crisis. We missed out on this big event. But afterwards, we did everything right." We'll see same things, just as normal. I predicted that the tenure system will crumble over this, but I'll wait [to see] if that happens. Yeah.But there's definitely a problem if you have highly paid experts being so wrong on these momentous events, they should be trained to be able to predict.Tobi; For a layperson...Because I think there was this metaphor by the venture investor Naval. And I don't agree with him on a lot but I sort of agree with him on this one where he said, "the pandemic created a situation where epidemiologists were running the economy and economists were doing public health," you know? And I don't know if that's exactly correct but that creates this miasma of confusion for the public. And we know with social media, there is so much talk about misinformation, disinformation campaign right now, and people just generally have a hard time telling what's what sometimes, or knowing basically sometimes what is good advice. And even for some of us who would like to be a bit more active in our local political process, we also struggle to know where to demand accountability or even common sense. So, again, I'll ask you, like I did in the last podcast when we're talking about the infection models. Again, regarding associated policies for public health crisis, whether it is how to run the economy, how to run the transportation system, how to tell people what to do and what not to do, how should the public approach expert advice? Are there heuristics?Oliver; There was a lot of like reaching out from one's own expert domain into others. And then, of course, the incumbents trying to fend them off. My view of the problem is that we allowed people to get prominent positions, both academically and in the public discussions, who are very good at that and not very good at their field. Like my field is highly mathematical, I would not be able to deal without having fairly in-depth math knowledge, but I have to understand what's happening in the ground. This is expertise, right? And we have people who are very good at math and have very little understanding of how does math translate into the real world. This is something to stop, right? If I can contradict mathematical prediction models with 20 minutes of Excel work, then we have a problem. Because someone is living in their very very cloistered mathematical world with very little interaction with the real world they should be dealing with. So we have to have people who are good at being actual epidemiologists and epidemiologists as modellers, you have to understand how the economy works. And not only what the academic knowledge [or] mathematical knowledge of economics portends to be. And this was the problem, we basically handed the control over to people who have extremely little exposure to how things work.Tobi; One last question though, one last question. And I may or may not put this in the podcast, it depends. The delta. Which I know you were tracking for the UK, and I mean, maybe possibly for other places...for a while it seemed like the delta is actually the strain that many people have predicted, you know, but you were also saying that It holds pretty much with the previous pattern. But now, talk of the Delta has pretty much faded in the same media. What did you learn from that brief experience tracking the data?Oliver; We still continue to track the [...] virus more closely than we did before. I mean, it's been like testing procedures, like the amount of testing we do are still going up. In terms of predicting outbreak pattern, I was wrong...at least the ones that was like, the first time England happens up and down, we say this was over which is not over, it's like going up and down again. It's definitely not going exponential but it didn't stop at the point with the others. Poland, Scotland, a good rate. India is not going through the roof. Yeah, I don't really see the predictive significant difference between what we're seeing with Delta and what we saw before.What you should expect in the course of the pandemic if you think in terms of population heterogeneity, which is something we should always think about, is sort of, like, variants that emerge later are trying to capture the parts of the population that have not been affected yet. So they're basically closing the pocket. And this is like, basically, a new vulnerable part of the population that were shielded from the variants before that's vulnerable to this particular new variant. And that goes up very quickly. It reaches this part of the population very quickly. And that's what happened with delta. And of course, then you had the modellers who ignore population heterogeneity just extrapolating this as though it's gonna capture the whole population extremely quickly and this is definitely not.I mean, India was the first obvious contradiction to that theory and, of course, India was ignored. And then we had the UK. The UK was like the first time where a government refused to take action. So you cannot retroactively attribute it to whatever kind of [...] action we took.Of course, Boris Johnson said, "we're gonna open anyway." And most of the exponentialist modellers got it horribly wrong. They're still in the media, I'm still reading guarded articles about their dire predictions, it has not stopped. I think the general population is slowly catching up with the pattern. Yeah, I expect more to come. We have a world population [and] there are still pockets that have not been affected by this. And this is like my claim from the very beginning [which] is the best strategy we can run is not hurt [halt] all interaction. We've seen that it doesn't work in Australia and New Zealand, that's another thing I predicted. At least for Australia that the virus will make a comeback in the southern winter, which it did. But that we reduced the point of interaction to situations where we kind of have a buildup of the virus. So basically go away from close indoor events with crowded people until enough people are vaccinated. And the big supply chain task we have, as of now, is like this massive surplus in vaccines we're building up in the developed Western world. I think we have more than 200 million charges of vaccines coming into Germany with a population of 80 million. So we should not be talking about registered Shot boosters until we get the rest of the world vaccinated. And hopefully, we do this on a voluntary basis. Voluntary vaccination. That's the other major problem we have that we try to force the... I don't know what the number is 10% of [...] to also get vaccinated by stupid, exclusionary measures. This is not our primary concern, in a way. I think in Germany, we're good. We're just starting to realize that we are undercounting, as usual. So our much much more urgent target is to get the vaccine to people who want or need them. This is a public episode. Get access to private episodes at www.ideasuntrapped.com/subscribe

Surely the biggest development in the last year is the record speed with which vaccines were discovered for the Covid-19 virus that shut down the entire world. I spoke to medicinal chemist and science blogger Derek Lowe about the many issues surrounding drug discovery like regulatory constraints, funding, and many other issues in the industry.Enjoy the conversation with Derek Lowe - and the transcript is available for paid subscribers. This is a public episode. Get access to private episodes at www.ideasuntrapped.com/subscribe

I spoke to Christopher Ogunmodede about some of the major themes from the events in Nigeria over the past year. We also talked about some of his more radical ideas - like the abolition of the nation-state. Talking to Chris always leaves me more informed and perceptive - and I want to thank him for being always willing to share his knowledge. This is a public episode. Get access to private episodes at www.ideasuntrapped.com/subscribe

''Rule of law'' is the generally accepted description for how well a political system conforms to formal rules - rather than functioning through the whims of the most powerful social or political agents. For a society to be described as one functioning under rule of law - there must be rules and those rules must be equally applied to everyone in the society. Let us call this Letter of the Law. These rules are usually expressed through the constitution of a country and enforced through the courts. But simply having rules and enforcing them does not suffice in the making of the rule of law - and it is an incomplete (however accurate) conception of it. Some rules can be drafted in bad faith or with the express purpose of protecting the interest of the political elites responsible for governance. This is why many scholars have argued that the rule of law can only be said to exist in a state that functions under rules designed to protect the civil liberties (individual rights, freedom of speech, freedom of association, etc.) of the people living within its territory. Let us call this the Character or Spirit of the Law. The character of the law understood as the fulfilment of constitutionally-guaranteed civil liberties is the most common standard by which governance is judged to conform or deviate from the rule of law. For example, countries that routinely violate the rights of citizens in whatever form cannot be said to be governed by the rule of law, even if it has a written constitution. Consideration of the character of the law is the context to understanding the work of my guest on this episode, Paul Gowder.He is a professor of law at NorthWestern university with a broad research interest and expertise. Paul departs from this common derivation of the character of the law as rooted in liberty - and argued that for the rule of law to be broadly applicable in different societies (not dependent on the political institutions and ethical ideals of any specific society) with varying cultures and traditions of governance, it must be rooted in Equality. To understand Paul's argument, I will briefly state two important aspects that set the tone for our conversation - this should not be taken as an exhaustive summary of his work and I encourage you to check out his website and book. The first is that the rule of law as a principle regulates the actions of the state (government), and it is not to be conflated with other rules that regulate the actions of citizens. This is such an important point because one of the most egregious expressions of the law is when a government uses it to oppress citizens. Secondly, Paul outlines three components of the rule of law based on equality as 1) regularity - the government can only use coercion when it is acting in ''good faith'' and under ''reasonable interpretation'' of rules that already exist and are specific to the circumstances. 2) publicity - the law has to be accessible to everyone without barriers (''officials have a responsibility to explain their application of the law, ...failure to do so commits hubris and terror against the public"). 3) generality - the law must be equally applicable to all. Putting all these elements together gives us a rule of law regime where everyone is equal before the law, and the state does not wantonly abuse citizens or single out particular groups for systematic abuse.I enjoyed this conversation very much, and I want to thank Paul for talking to me. Thank you guys too for always listening, and for the other ways you support this project.TRANSCRIPTTobi; I greatly enjoyed your work on the rule of law. I've read your papers, I've read your book, and I like it very much. I think it's a great public service if I can say that because for a lot of time, I am interested in economic development and that is mostly the issue that this podcast talks about. And what you see in that particular conversation is there hasn't really been that much compatibility between the question of the rule of law or the laws that should regulate the actions of the state, and its strategy for economic development. Most of the time, you often see even some justification, I should say, to trample on rights in as much as you get development, you get high-income growth for it. And what I found in your work is, this does not have to be so. So what was your eureka moment in coming up with your concept, we are going to unpack a lot of the details very soon, but what motivated you to write this work or to embark on this project?Paul; Yeah, I think for me, part of the issue that really drives a lot of how I think about the rule of law and you know, reasons behind some of this work is really a difference between the way that those of us who think about human freedom and human equality, right? I think of it as philosophers, right. So they're philosophers and philosophers think about the ability of people to live autonomous lives, to sort of stand tall against their government, to live lives of respect, and freedom and equality. And that's one conversation. And so we see people, like, you know, Ronald Dworkin, thinking about what the rule of law can deliver to human beings in that sense. And then, you know, there's this entire development community, you know, the World Bank, lots of the US foreign policy, all of the rest of those groups of people and groups of ideas, talk about the rule of law a lot and work to measure the rule of law and invest immense amounts of money in promoting what they call the rule of law across the world. But mostly, it seems to be protecting property rights for multinational investment. And I mean, that makes some kind of sense, if you think that what the rule of law is for is economic development, is increasing the GDP of a country and integrating it into favourable international networks of trade. But if you think that it's about human flourishing, then you get a completely different idea of what the rule of law can be, and should be. And so this sort of really striking disjuncture between the two conversations has driven a lot of my work, especially recently, and especially reflecting even on the United States, I think that we can see how domestic rule of law struggles - which we absolutely have, I mean, look at the Trump administration, frankly, as revolving around this conflict between focusing on economics and focusing on human rights and human wellbeing.Tobi; It's interesting the polarization you're talking about. And one way that I also see it play out is [that] analyst or other stakeholders who participate in the process of nation-building in Africa, in Nigeria… a lot of us that care about development and would like to see our countries grow and develop and become rich, are often at opposite ends with other people in the civil society who are advocating for human rights, who are advocating for gender equality, who are advocating for so many other social justice issues. And it always seems like there's no meeting ground, you know, between those set of views, and I believe it does not have to be so. So one thing I'm going to draw you into quite early is one of the distinctions you made in so many of your papers and even your book is the difference between the conception of the rule of law that you are proposing versus the generally accepted notion of the rule of law based on individual liberty in the classical liberal tradition. I also think that's part of the problem, because talking about individual liberty comes with this heavy ideological connotation, and giving so many things that have happened in Africa with colonialism and so many other things, nobody wants any of that, you know. So you are proposing a conception of the rule of law that is based on equality. Tell me, how does that contrast with this popularly accepted notion of the rule of law [which is] based on individual liberty?Paul; So I think the way to think about it is to start with the notion of the long term stability of a rule of law system. And so here is one thing that I propose as a fact about legal orders. Ultimately, any kind of stable legal order that can control the powerful, that is, that can say to a top-level political leader, or a powerful multinational corporation, or whomever, no, you can't do this, this violates the law and make that statement stick depends on widespread collective mobilization, if only as a threat, right. And so it's kind of an analytic proposition about the nature of power, right? If you've got a top-level political leader who's in command of an army, and they want to do something illegal, it's going to require very broad-based opposition, and hence very broad-based commitment to the idea of leaders that follow the law in order to prevent the person in charge of an army from just casually violating it whenever they want. Okay, accept that as true, what follows from that? Well, what follows from that is that the legal system has to actually be compatible with the basic interests of all. And what that tends to mean and I think this is true, both historically, and theoretically, is leaving aside the philosophical conceptual difference between liberty and equality, which I'm not sure is really all that important. Like I think, ultimately, liberty and equality as moral ideas tend to blur together when you really unpack them. But practically speaking, any stable legal order that can control the powerful has to be compatible with the interests of a broad-based group of the human beings who participate in that legal order. And what that entails is favouring a way of thinking about the rule of law that focuses on being able to recruit the interests of even the worst off. In other words, one that's focused on equality, one that's focused on protecting the interests of the less powerful rather than a laissez-faire libertarian conception of the rule of law that tends to be historically speaking, compatible with substantial amounts of economic inequality, hyper-focus on ideas - like property rights, that support the long-standing interests of those who happen to be at the top of the economy, often against the interests of those that happened to be at the bottom of the economy, right. That's simply not a legal order that is sustainable in the long run. Lately, I've been thinking a lot about the way that this has played out in [the] United States history, in particular. I might have a book that's coming out in December that focuses on a historical account of the development of the rule of law, particularly in the United States. I mean, it's my own country. And so at some point, I had to get talked into writing that book. And we can see that in our history right at the get-go, you know, in the United States, at the very beginning, the rule of law dialogue tended to be focused on protecting the interests of wealthy elite property holders. And this actually played a major part, for example, in the United States' most grievous struggle, namely the struggle over slavery, because slaveholders really relied on this conception of the Rule of Law focusing on individual freedom and property rights to insist on a right to keep holding slaves against the more egalitarian idea that “hey, wait a minute, the enslaved have a right to be participants in the legal system as well.” And so we can see these two different conceptions of legality breaking the United States and breaking the idea of legal order in the United States right at the get-go. And we see this in country after country after country. You know, another example is Pinochet's Chile, which was the victim of [the] United States' economics focused rule of law promotion efforts that favoured the interests of property holders under this libertarian conception over the interests of ordinary citizens, democracy and mass interests. In other words, over the egalitarian conception, and again, you know, devolved into authoritarianism and chaos.Tobi; Yeah, nice bit of history there, but dialling all the way, if you'll indulge me... dialling all the way to the present, or maybe the recent past, of course; where I see another relevance and tension is development, and its geopolitical significance and the modernization projects that a lot of developed countries have done in so many poor and violent nations, you know, around the world. I mean, at the time when Africa decolonized, you know, a lot of the countries gravitated towards the communist bloc, socialism [and] that process was shunted, failed, you know, there was a wave of military coups all over the continent, and it was a really dark period.But what you see is that a lot of these countries, Nigeria, for example, democratized in 1999, a lot of other countries either before then or after followed suit. And what you see is, almost all of them go for American-style federal system, and American-style constitutional democracy, you know. And how that tradition evolved... I mean, there's a lot you can explain and unpack here... how that tradition evolved, we are told is the law has a responsibility to treat people as individuals. But you also find that these are societies where group identities are very, very strong, you know, and what you get are constitutions that are weakly enforced, impractical, and a society that is perpetually in struggle. I mean, you have a constitution, you have rules, and you have a government that openly disregards them, because the constitutional tradition is so divorced from how a lot of our societies evolve. And what I see you doing in your work is that if we divorce the rule of law from the ideal society, you know [like] some societies that we look up to, then we can come up with a set of practical propositions that the rule of law should fulfil, so walk me through how you resolve these tensions and your propositions?Paul; Well, so it's exactly what you just said, right? I mean, we have to focus on actual existing societies and the actual way that people organize their lives, right. And so here's the issue is, just like I said a minute ago, the rule of law fundamentally depends on people. And when I say people, I don't just mean elites. I don't just mean the wealthy, I don't just mean the people in charge of armies, and the people in charge of courthouses, right? Like the rule of law depends, number one, on people acting collectively to hold the powerful to the law. And number two, on people using the institutions that we say are associated with the rule of law. And so just as you describe, one sort of really common failure condition for international rule of law development efforts - and I don't think that this is a matter of sort of recipient countries admiring countries like the US, I think this is a matter of international organizations and countries like the US having in their heads a model of what the law looks like and sort of pressing it on recipient countries.But you know, when you build institutions that don't really resemble how the people in a country actually organize their social, political and legal lives, you shouldn't be surprised when nobody uses them. You shouldn't be surprised when they're ineffective. But I mean, I think that it's been fairly compared to a kind of second-generation colonialism in that sense where countries like the US and like Germany, attempt to export their legal institutions to other countries, without attending to the ways that the people in those countries already have social and legal resources to run their lives. And so I'll give you an example that's interesting from Afghanistan. So in Afghanistan, sort of post the 2000s invasion, and so forth, some researchers, mostly affiliated with the Carnegie Institution, found that the really effective rule of law innovations, the really effective interventions were ones that relied on existing social groups and existing structures of traditional authority. And so, you know, you could build a courthouse and like, ask a formal centralized state to do something, maybe it would work, maybe it wouldn't, maybe people would use it, maybe they wouldn't. But if you took local community leaders, local religious leaders, gave them training, and how to use the social capital they already have to help do things like adjudicate disputes, well, those would actually be effective, because they fit into the existing social organization that already exists. So I'll give you another example. I have a student who... I had… I just graduated an S.J.D student from Uganda who wrote a dissertation on corruption in Uganda. And one of the things that he advocated for I think, really sensibly was, “ okay, we've got this centralized government, but we've also got all of these traditional kingdoms, and the traditional kingdoms, they're actually a lot more legitimate in the sociological sense than the centralized government.People trust the traditional kingdoms, people rely on the traditional kingdoms for services, for integrating themselves into their society. And so one useful way of thinking about anti-corruption reforms is to try and empower the traditional kingdoms that already have legitimacy so that they can check the centralized government. And so that kind of work, I think, is where we have real potential to do global rule of law development without just creating carbon copies of the United States. Tobi; The process you describe, I will say, as promising as it may sound, what I want to ask you is how then do you ensure that a lot of these traditional institutions that can be empowered to provide reasonable checks to the power of the central government also fulfil the conditions of equality in their relation to the general public? Because even historically, a lot of these institutions are quite hierarchical...Paul; Oh, yeah... and I think in particular, women's rights are a big problem.Tobi; Yeah, yeah and there's a lot of abuses that go on locally, even within those communities, you know. We have traditional monarchies who exercise blanket rights over land ownership, over people's wives, over so many things, you know, so how then does this condition of equality transmit across the system?Paul; Yeah, no, I think that's the really hard question. I tell you right now that part of the answer is that those are not end-state processes. By this I mean that any realistic conception of how we can actually build effective rule of law institutions, but also genuinely incorporate everyone's interests in a society is going to accept that there's going to be a kind of dynamic tension between institutions.You know, sometimes we're going to have to use the centralized state to check traditional institutions. Sometimes we're going to have to use traditional institutions to check the centralized state. Elinor Ostrom, Nobel Prize-winning political scientist and her sort of the Bloomington School of Political Economy, emphasized for many years this idea that they called Polycentrism. That is the idea that multiple, overlapping governance organizations that are sort of forced to negotiate with one another, and forced to learn from one another, and really integrate with one another in this sort of complex tension-filled kind of way, actually turns out to be a really effective method of achieving what we might call good governance. And part of the reason is because they give a lot of different people, in different levels of [the] organization, ways to challenge one another, ways to demand inclusion in this decision, and let somebody else handle that decision, and participate jointly in this other decision. And so I think that neither the centralized state alone, nor traditional institutions alone is going to be able to achieve these goals. But I think efforts to integrate them have some promise. And India has done a lot of work, you know, sort of mixed record of success, perhaps, but has done a lot of work in these lines. I think, for example, of many of the ways that India has tried to promote the growth of Panchayats, of local councils in decision making, including in law enforcement, but at the same time, has tried to do things like promote an even mandate, the inclusion of women, the inclusion of Scheduled Castes, you know, the inclusion of the traditionally subordinated in these decision making processes. And as I said, they haven't had complete success. But it's an example of a way that the centralized state can both support traditional institutions while pushing those institutions to be more egalitarian.Tobi; Let's delve into the three conditions that you identified in your work, which any rule of law state should fulfil. And that is regularity, publicity, and generality. Kindly unpack those three for me.Paul; Absolutely. So regularity is...we can think of it as just the basic rule of law idea, right? Like the government obeys the law. And so if you think about this notion of regularity, it's... do we have a situation where the powerful are actually bound by legal rules? Or do we have a situation where, you know, they just do whatever they want? And so I'd say that, you know, there's no state that even counts as a rule of law state in the basic level without satisfying that condition, at least to some reasonable degree. The idea of publicity really draws on a lot of what I've already been saying about the recruitment of broad participation in the law. That is, when I say publicity, what I mean is that in addition to just officials being bound by the law, ordinary people have to be able to make use of the law in at least two senses. One, they have to be able to make use of the law to defend themselves. I call this the individualistic side of publicity, right? Like if some police officer wants to lock you up, the decision on whether or not you violated the law has to respond to your advocacy, and your ability to defend yourself in some sense. And then there's also the collective side of this idea of publicity, which is that the community as a whole has to be able to collectively enforce the boundaries of the legal system. And you know, we'd talk a lot more about that, I think that's really the most important idea. And then the third idea of generality is really the heart of the egalitarian idea that we've been talking about, which is that the law has to actually treat people as equals. And one thing that I think is really important about the way that I think about these three principles is that they're actually really tightly integrated. By tightly integrated, I mean you're only going to get in real-world states, regularity (that is, officials bound by the law) if you have publicity (that is, if you have people who aren't officials who actually can participate in the legal system and can hold officials to the law). We need the people to hold the officials in line. You're only going to get publicity if you have generality. That is, the people are only going to be motivated to use the legal system and to defend the legal system if the legal system actually treats them as equals. And so you really need publicity to have stable regularity, you really need generality to have stable publicity.Tobi; Speaking of regularity, when you say what constrains the coercive power of the state is when it is authorised by good faith and reasonable interpretation of pre-existing reasonably specific rules. That sounds very specific. And it's also Scalonian in a way, but a lot of people might quibble a bit about what is reasonable, you know, it sounds vague, right? So how would you condition or define reasonable in this sense, and I know you talked about hubris when you were talking about publicity. But is there a minimum level of responsibility for reasonability on the part of the citizen in relation to a state?Paul; That's, in a lot of ways, the really hard philosophical question, because one of the things that we know about law is that it is inherently filled with disagreement, right? Like our experience of the legal system and of every state that actually has something like the rule of law is that people radically disagree about the legal propriety of actions of the government. And so in some sense, this idea of reasonableness is kind of a cop-out. But it's a cop-out that is absolutely necessary, because there's no, you know, what [Thomas] Nagel called a view from nowhere. There's no view from nowhere from which we can evaluate whether or not on a day to day basis, officials are actually complying with the law in some kind of correct sense. But again, I think, you know, as you said, to some extent, that implies that some of the responsibility for evaluating this reasonableness criterion falls down to day to day politics, falls down to the judgment of ordinary citizens. Like, my conception of the rule of law is kind of sneakily a deeply democratic conception, because it recognizes given the existence of uncertainty as to what the law actually requires of officials both on a case by case basis. And, broadly speaking, the only way that we're ever going to be able to say, Well, you know, officials are more or less operating within a reasonable conception of what their legal responsibilities are, is if we empower the public at large to make these judgments. If we have institutions like here in the US, our jury trials, if we have an underlying backstop of civil society and politics, that is actively scrutinizing and questioning official action.Tobi; So speaking of publicity, which is my favorite...I have to say...Paul; Mine too. You could probably tell. Tobi; Because I think that therein lies the power of the state to get away with abusive use of its legitimacy, or its power, so to speak. When you say that officials have a responsibility to explain their application of the law, and a failure to do so commits hubris and terror against the public. So those two situations - hubris and terror, can you explain those to me a bit?Paul; Yeah. So these are really, sort of, moral philosophy ideas at heart, particularly hubris. The idea is there's a big difference, even if I have authority over you, between my exercising that authority in the form of commands and my exercising that authority in the form of a conversation that appeals to your reasoning capacity, right. So these days, I'm thinking about it in part with reference to... I'm going to go very philosophical with you here... but in reference to Kant's humanity formulation of the categorical imperative, sorry. But that is a sense in which if I'm making decisions about your conduct, and your life and, you know, affecting your fundamental interests, that when I express the reasons to you for those decisions, and when I genuinely listen to the reasons that you offer, and genuinely take those into account in my decision making process, I'm showing a kind of respect for you, which is consistent with the idea of a society of equals.As opposed to just hi, I'm wiser than you, and so my decision is, you know, you go this way, you violated the law, right? Are we a military commander? Or are we a judge? Both the military commander and the judge exercise authority, but they do so in very different ways. One is hierarchical, the other I would contend is not.Tobi; Still talking about publicity here, and why I love it so much is one important, should I say… a distinction you made quite early in your book is that the rule of law regulates the action of the state, in relation to its citizens.Paul; Yes.Tobi; Often and I would count myself among people who have been confused by that point as saying that the rule of law regulates the action of the society in general. I have never thought to make that distinction. And it's important because often you see that maybe when dealing with civil disobedience, or some kind of action that the government finds disruptive to its interests, or its preferences, the rule of law is often invoked as a way for governments to use sometimes without discretion, its enforcement powers, you know.So please explain further this distinction between the rule of law regulating the state-citizen relation versus the general law and order in the society. I mean, you get this from Trump, you get this from so many other people who say, Oh, we are a law and order society, I'm a rule of law candidate.Paul; Oh, yeah.Tobi; You cannot do this, you cannot do that. We cannot encourage the breakdown of law and order in the society. So, explain this difference to me.Paul; Absolutely, then this is probably the most controversial part of my account of the rule of law. I think everybody disagrees with this. I sort of want to start by talking about how I got to this view. And I think I really got to this view by reflecting on the civil rights movement in the United States in particular, right. Because, you know, what we would so often see, just as you say about all of these other contexts, is we would see officials, we would see judges - I mean, there are, you know, Supreme Court cases where supreme court justices that are normally relatively liberal and sympathetic, like, you know, Justice Hugo Black scolding Martin Luther King for engaging in civil disobedience on the idea that it threatens the rule of law. It turns out, and this is something that I go into in the book that's coming out in December... it turns out that King actually had a sophisticated theory of when it was appropriate to engage in civil disobedience and when it wasn't. But for me, reflecting on that conflict in particular, and reflecting on the fact that the same people who were scolding peaceful lunch-counter-sit-ins for threatening the rule of law and, you know, causing society to descend into chaos and undermining property rights and all the rest of that nonsense, were also standing by and watching as southern governors sent police in to beat and gas and fire hose and set dogs on peaceful protests in this sort of completely new set of like, totally unbounded explosions of state violence. And so it seems to me sort of intuitively, like these can't be the same problem, right, like ordinary citizens, doing sit-ins, even if they're illegal, even if we might have some reason to criticize them, it can't be the same reason that we have to criticize Bull Connor for having the cops beat people. And part of the reason that that's the case, and this is what I call the Hobbesian property in the introduction to the rule of law in the real world...part of the reason is just the reality of what states are, right? Like, protesters don't have tanks and police dogs, and fire hoses, right? Protesters typically don't have armies. If they do, then we're in a civil war situation, not a rule of law situation, the state does have all of those things. And so one of the features of the state that makes it the most appropriate site for this talk about the rule of law is this the state has, I mean, most modern states have, at least on a case by case basis, overwhelming power. And so we have distinct moral reasons to control overwhelming power than we do to control a little bit of legal disobedience, right, like overwhelming power is overwhelming. It's something that has a different moral importance for its control. Then the second idea is at the same time what I call the [...] property... is the state makes claims about its use of power, right? Like ordinary people, when they obey the law or violate the law, they don't necessarily do so with reference to a set of ideas that they're propagating about their relationship to other people. Whereas when modern states send troops in to beat people up, in a way what they're doing is they're saying that they're doing so in all of our names, right, particularly, but not exclusively in democratic governments. There's a way in which the state represents itself as acting on behalf of the political community at large. And so it makes sense to have a distinctive normative principle to regulate that kind of power.Tobi; I know you sort of sidestepped this in the book, and maybe it doesn't really fit with your overall argument. But I'm going to push you on that topic a bit. So how does the rule of law state as a matter of institutional design then handles... I know you said that there are separate principles that can be developed for guiding citizen actions, you know...Paul; Yes. Tobi; I mean, let's be clear that you are not saying that people are free to act however they want.Paul; I'm not advocating anarchy.Tobi; Exactly. So how does the rule of law state then handle citizens disagreements or conflicting interests around issues of social order? And I'll give you an example. I mentioned right at the beginning of our conversation what happened in Nigeria in October 2020. There's a unit of the police force that was created to handle violent crimes. Needless to say that they went way beyond their remit and became a very notoriously abusive unit of the police force. Picking up people randomly, lock them up, extort them for money. And there was a situation where a young man was murdered, and his car stolen by this same unit of the police force and young people all over the country, from Lagos to Port Harcourt to Abuja, everywhere, felt we've had enough, right, and everybody came out in protest. It was very, very peaceful, I'd say, until other interests, you know, infiltrated that action. Paul; Right. Tobi; But what I noticed quite early in that process was that even within the spirits of that protests, there were disagreements between citizens - protesters blocking roads, you know, versus people who feel well, your protest should not stop me from going to work, you know, and so many other actions by the protesters that other people with, maybe not conflicting interests, but who have other opinions about strategy or process feel well, this is not right. This is not how to do this. This is not how you do this, you know, and I see that that sort of provided the loophole, I should say, for the government to then move in and take a ruthlessly violent action. You know, there was a popular tollgate in Lagos in the richest neighbourhood in Lagos that was blocked for 10 days by the protesters. And I mean, after this, the army basically moved in and shot people to death. Today, you still see people who would say, Oh, well, that's tragic. But should these people have been blocking other people from going about their daily business? So how does the rule of law regulate issues of social order vis-a-vis conflict of interest?Paul; So I think this is actually a point in favour of my stark distinction between state action and social action as appropriate for thinking about the rule of law. Because when you say that the state used...what I still fundamentally think of as like minor civil disobedience...so, like blocking some roads, big deal! Protesters block roads all the time, right, like protesters have blocked roads throughout human history, you know, like, sometimes it goes big, right? Like they love blocking roads in the French Revolution. But oftentimes, it's just blocking... so I blocked roads.I participated in, you know, some protests in the early 2000s. I participated in blocking roads in DC, right, like, fundamentally "big deal!" is the answer that the state ought to give. And so by saying to each other and to the government, when we talk about the rule of law, we mean, the state's power has to be controlled by the law, I think that gives us a language to say... even though people are engaging in illegal things, the state still has to follow legal process in dealing with it, right.The state still has to use only the level of force allowed by the law to arrest people. The state can't just send in the army to shoot people. And the principle that we appeal to is this principle of the rule of law. Yeah, maintaining the distinction between lawbreaking by ordinary people and law-breaking by the state helps us understand why the state shouldn't be allowed to just send in troops whenever people engage in a little bit of minor lawbreaking and protests.Tobi; So how does the law... I mean, we are entering a bit of a different territory, how does the law in your conception handles what... well, maybe these are fancy definitions, but what some people will call extraordinary circumstances. Like protests with political interests? Maybe protesters that are funded and motivated to unseat an incumbent government? Or in terrorism, you know, where you often have situations where there are no laws on paper to deal with these sort of extraordinary situations, you know, and they can be extremely violent, they can be extremely strange, they're usually things that so many societies are not equipped to handle. So how should the rule of law regulate the action of the state in such extraordinary circumstances?Paul; Yeah, so this is the deep problem of the rule of law, you know, this is why people still read Carl Schmitt, right, because Carl Schmitt's whole account of executive power basically is, hey, wait a minute emergencies happen, and when emergencies happen, liberal legal ideas like the rule of law dropout, and so fundamentally, you just have like raw sovereignty. And that means that the state just kind of does what it must. Right. So here's what I feel about Schmitt. One is, maybe sometimes that's true, right? And again, I think about the US context, because I'm an American and you know, I have my own history, right? And so in the US context, I think, again, about, Abraham Lincoln and the Civil War, right.Like Abraham Lincoln broke all kinds of laws in the Civil War. Like today, we'd call some of the things that he did basically assuming dictatorial power in some respects. I mean, he did that in the greatest emergency that the country had ever faced and has ever faced since then. And he did it in a civil war. And sometimes that happens, and I think practically speaking, legal institutions have a habit of not standing in the way in truly dire situations like that. But, and here's why I want to push back against Carl Schmitt... but what a legal order can then do is after the emergency has passed...number one, the legal order can be a source of pressure for demanding and accounting of when the emergency has passed, right. And so again, I think of the United States War on Terror, you know, we still have people in United States' custody imprisoned at Guantanamo Bay.September 11 2001, was almost 20 years ago. It's actually 20 years ago and a month, and we still have people locked up in Guantanamo Bay. That's insane. That's completely unjustifiable. And one of the jobs of the legal system is to pressure the executive to say, okay, buddy, is the emergency over yet? No, really, we think that the emergency is over yet. I want reasons, right, publicity again, I want an explanation from you of why you think the emergency is still ongoing. And the legal system can force the executive to be accountable for the claim that the emergency is still ongoing. That's number one. Number two is that law tends to be really good at retroactively, sort of, retrofitting things into legal order, right. And so again, I think about the Civil War. You know, after the US Civil War, lots of civil wars, sorry. American-centric person trying to fight against it. But after the US Civil War, you know, the courts took a pause. And then we have a lot of cases where they took a lot of the things that Lincoln did, they said, okay, some of them at least were illegal, some of them were legal, but only under very specific circumstances. And so they actually built legal doctrine that took into account the emergency that Lincoln faced, and then later wars, such as in the Second World War, the courts took the lessons from the experience in the American Civil War, and used that to impose more constraints. So to bring it about that the emergency actions that Franklin Roosevelt took in the Second World War weren't completely sui generis, sort of like right acts of sovereignty, but were regulated by legal rules created during the Civil War, and after the Civil War. And again, they weren't perfect, right? You know, during the Second World War, the United States interned Japanese Americans, you know, again, sort of completely lawless, completely unjustifiable, but you know, it's an ongoing process. The point is that the legal system is always... the law is always reactive in emergencies. But the reactive character of the law can nonetheless be used as a way to control and channel sovereign power, even in these sort of Schmittian emergency situations.Tobi; So two related questions, your work is interdisciplinary, because you try to blend a lot of social science into legal philosophy. But speaking of legal order and your primary profession, I mean.. for the sake of the audience parties into a lot of other cool stuff, I'm going to be putting up his website in the show notes. But speaking of legal order, and the legal profession, why is so much of the legal profession fascinated with what I would say the rule by law, as opposed to the rule of law. A lot of what you get from lawyers, even some law professors in some situations is [that] the law is the law, and you have to obey it. And even if you are going to question it, however unjustified it may seem, you still have to follow some processes that maybe for ordinary citizens are not so accessible or extremely costly, you know, which I think violate regularity, right, the way you talk about it retrospective legislation, and so many other things. So why is the legal profession so fascinated with the law, as opposed to justification for the law?Paul; Yeah, I think that question kind of answers itself, right. It's unfortunate... I mean, it's sort of natural but it's unfortunate that the people who most influence our dialogue about the way that we, you know, live in [the] society together with a state, namely by organizing ourselves with law happen to be people who are the specialists who find it easiest, right? And so I think the simple answer is right on this one, at least in countries like the United States, I'm not sure how true this is in other countries. But in the United States, the domination of legal discourse by lawyers necessarily means that the sort of real practical, real-world ways in which ordinary people find interacting with anything legal to be difficult, oppressive, or both just aren't in view, right? This is hard for them to understand.But I think in the US, one of the distortions that we've had is that we have an extremely hierarchical legal profession, right. So we have very elite law schools, and those very elite law schools - one of which I teach at - tend to predominantly produce lawyers who primarily work for wealthy corporations and sort of secondarily work for the government. Those lawyers tend to be the ones that end up at the top of the judiciary, that end up in influential positions in academia, that end up, you know, in Congress. The lawyers that, you know, see poor people, see people of subordinated minority groups and see the very different kinds of interactions with the legal system that people who are worse off have, that see the way that the law presents itself, not as a thing that you can use autonomously to structure your own life. But as a kind of external imposition, that sort of shows up and occasionally inflicts harm on you. Those lawyers aren't the ones who end up in our corridors of power. And it's very unfortunate, it's a consequence of the hierarchical nature of, at least in the US, our legal profession. And I suspect it's similar in these other countries as well.Tobi; In your opinion, what's the... dare I say the sacrosanct and objective - those are rigid conditions sorry - expression of the rule of law? The current general conception of the rule accedes to the primacy of the Constitution, right. I've often found that problematic because in some countries you find constitutional provisions that are egregious, and in other cases, you find lawyers going into court to challenge certain actions that they deem unjust, or that are truly unjust on the basis of the same constitution. Right. So what do you think is the most practical expression of the rule of law? Is it written laws? Is it the opinion of the judges? Is it how officials hold themselves accountable? What's the answer?Paul; So I think I'm gonna like sort of twist this a little bit and interpret that question is like, how do you know the extent to which the rule of law exists in a particular place? And my answer is, can ordinary people look officials in the eye, right, you know... if you're walking down the street, and you see a police officer, you know, are you afraid? Or can you walk past them and confidently know you're doing nothing wrong so there's nothing really effectively but they can do to you, right? If you're called in to deal with some kind of bureaucratic problem, like the tax office, can you trust that you exist in a relationship of respect? You know, can you trust that when you show them, actually here are my receipts, I really did have that expense, that that's going to be taken seriously? You know, if people, everybody, feels like they can stand tall, and look government officials in the eye, then to that extent, I think that the rule of law exists in a society.Tobi; Final question, what's the coolest idea you're working on right now?Paul; Oh, gosh. So like I said, I've got two books under contract right now. The first book is a history/theoretical constitutional law account of the development and existing state of the rule of law in the United States. The second book, which I'm more excited about, because it's the one that I plan to write this year, but it's also a lot harder, is I'm trying to take some of the governance design ideas that we see from the notion of rule of law development, and others such as governance development things and apply them to Private Internet platforms, right? Like, basically to Facebook. Um, I was actually involved in some of the work, not at a super high level, but I was involved in some of the work in designing or doing the research for designing Facebook's oversight board. And I'm kind of trying to expand on some of those ideas and think about, you know, if we really believe that private companies, especially in these internet platforms are doing governance right now, can we take lessons from how the rest of the world and how actual governments and actual states have developed techniques of governing behaviour in highly networked, large scale super-diverse environments and use those lessons in the private context? Maybe we can maybe we can't I'm not sure yet. Hopefully, by the time I finish the book, I'll know.Tobi; That's interesting. And I'll ask you this, a similar, I'll say a related situation is currently happening in Nigeria right now, where the President's Twitter handle or username, tweeted something that sounded like a thinly veiled threat to a particular ethnic group. And lots of people who disagreed with that tweet reported the tweet, and Twitter ended up deleting the tweet in question, which high-level officials in Nigeria found extremely offensive, and going as far as to assert their sovereign rights over Twitter and say, well, it may be your platform, but it is our country and we are banning you. How would you adjudicate such a situation? I mean, there's the question of banning Donald Trump from the platform and so many other things that have come up.Paul; Yeah, I mean, it's hard, right? So there are no easy answers to these kinds of problems. I think, ultimately, what we have to do is we have to build more legitimate ways to make these decisions. I mean, here are two things that we cannot do, right?Number one is we can't just let government officials, especially when, you know, as with the Donald Trump example, and so many others, the government officials are the ones who are engaging in the terrible conduct make these decisions. Number two is we also just can't let a bunch of people sitting in the Bay Area in California make those decisions. Like, ultimately, this is on, you know, property in some abstracted sense of like the shareholders of these companies. But we cannot simply allow a bunch of people in San Francisco, in Menlo Park, and you know, Cupertino and Mountain View, and all of those other little tech industry cities that have no understanding of local context to make the final decisions here. And so what we need to do is we need to build more robust institutions to include both global and local and affected countries, grassroots participation, in making these decisions. And I'm trying to sort of sketch out what the design for those might look like. But, you know, talk to me in about a year. And hopefully, I'll have a book for you that will actually have a sketch.Tobi; You bet I'm going to hold you to that. So, a year from now. So still on the question of ideas, because the show is about ideas. What's the one idea you'd like to see spread everywhere?Paul; Oh, gosh, you should have warned me in advance... that... I'm going to go back to what I said at the very beginning about the rule of law. Like I think that the rule of law depends on people, right? Like there is no such thing as the rule of law without a society and a legal system that genuinely is equal and advantageous to ordinary people enough to be the kind of thing that people actually support. Like ordinary people... if you cannot recruit the support of ordinary people for your legal political and social system, you cannot have the rule of law. That's true whether you're a developing country, that's true whether you're the United States, right. Like I think, you know, part of the reason that we got Donald Trump in the United States, I think, is because our legal system and with it our economy, and all the rest are so unequal in this country, that ordinary voters in the United States didn't see any reason to preserve it. Right and so when this lunatic and I mean, I'm just going to be quite frank here and say Donald Trump is a complete lunatic, right... when this lunatic is running for office who shows total disregard for existing institutions, like complete willingness to casually break the law. An electorate that actually was full of people who felt (themselves) treated respectfully and protected and supported by our legal and political institutions would have sent that guy packing in a heartbeat. But because the American people don't have that experience right now, I think that's what made us vulnerable to somebody like Donald Trump.Tobi; Thank you so much, Paul. It's been so fascinating talking to you.Paul; Thank you. This has been a lot of fun. Yeah, I'm happy to come back in a year when I've got the platform thing done.Tobi; Yeah, I'm so looking forward to that. This is a public episode. Get access to private episodes at www.ideasuntrapped.com/subscribe

The problem of the rule of law is inescapable in any society - and even more especially in the context of economic development. Policies that promote prosperity cannot be devoid of considerations for the rights of people who make up the society and the economy, regardless of all technocratic pretensions otherwise. Adam Smith himself stated that economic prosperity thus requires ''a tolerable administration of justice''. Some readers might already start objecting to my treatment of the rule of law as merely an ''instrumental variable'' of a more desirous economic end-state, whereas the more familiar treatment is that of a society governed by the rule of law as an end-state in itself. There are merits to such quibbles, but there is also plenty of evidence in modern history that the rule of law is an essential cog in the wheel of prosperity.WHAT IS ''RULE OF LAW''?''Rule of law'' is the generally accepted description for how well a political system conforms to formal rules - rather than functioning through the whims of the most powerful social or political agents. For a society to be described as one functioning under rule of law - there must be rules and those rules must be equally applied to everyone in the society. Let us call this Letter of the Law. These rules are usually expressed through the constitution of a country and enforced through the courts. But simply having rules and enforcing them does not suffice in the making of the rule of law - and it is an incomplete (however accurate) conception of it. Some rules can be drafted in bad faith or with the express purpose of protecting the interest of the political elites responsible for governance. This is why many scholars have argued that the rule of law can only be said to exist in a state that functions under rules designed to protect the civil liberties (individual rights, freedom of speech, freedom of association, etc.) of the people living within its territory. Let us call this the Character or Spirit of the Law. The character of the law understood as the fulfilment of constitutionally-guaranteed civil liberties is the most common standard by which governance is judged to conform or deviate from the rule of law. For example, countries that routinely violate the rights of citizens in whatever form cannot be said to be governed by the rule of law, even if it has a written constitution. Consideration of the character of the law is the context to understanding the work of my guest on this episode, Paul Gowder.He is a professor of law at NorthWestern university with a broad research interest and expertise. Paul departs from this common derivation of the character of the law as rooted in liberty - and argued that for the rule of law to be broadly applicable in different societies (not dependent on the political institutions and ethical ideals of any specific society) with varying cultures and traditions of governance, it must be rooted in Equality. To understand Paul's argument, I will briefly state two important aspects that set the tone for our conversation - this should not be taken as an exhaustive summary of his work and I encourage you to check out his website and book. The first is that the rule of law as a principle regulates the actions of the state (government), and it is not to be conflated with other rules that regulate the actions of citizens. This is such an important point because one of the most egregious expressions of the law is when a government uses it to oppress citizens. Secondly, Paul outlines three components of the rule of law based on equality as 1) regularity - the government can only use coercion when it is acting in ''good faith'' and under ''reasonable interpretation'' of rules that already exist and are specific to the circumstances. 2) publicity - the law has to be accessible to everyone without barriers (''officials have a responsibility to explain their application of the law, ...failure to do so commits hubris and terror against the public"). 3) generality - the law must be equally applicable to all. Putting all these elements together gives us a rule of law regime where everyone is equal before the law, and the state does not wantonly abuse citizens or single out particular groups for systematic abuse.I enjoyed this conversation very much, and I want to thank Paul for talking to me. Thank you guys too for always listening, and for the other ways you support this project.TRANSCRIPTTobi; I greatly enjoyed your work on the rule of law. I've read your papers, I've read your book, and I like it very much. I think it's a great public service if I can say that because for a lot of time, I am interested in economic development and that is mostly the issue that this podcast talks about. And what you see in that particular conversation is there hasn't really been that much compatibility between the question of the rule of law or the laws that should regulate the actions of the state, and its strategy for economic development. Most of the time, you often see even some justification, I should say, to trample on rights in as much as you get development, you get high-income growth for it. And what I found in your work is, this does not have to be so. So what was your eureka moment in coming up with your concept, we are going to unpack a lot of the details very soon, but what motivated you to write this work or to embark on this project?Paul; Yeah, I think for me, part of the issue that really drives a lot of how I think about the rule of law and you know, reasons behind some of this work is really a difference between the way that those of us who think about human freedom and human equality, right? I think of it as philosophers, right. So they're philosophers and philosophers think about the ability of people to live autonomous lives, to sort of stand tall against their government, to live lives of respect, and freedom and equality. And that's one conversation. And so we see people, like, you know, Ronald Dworkin, thinking about what the rule of law can deliver to human beings in that sense. And then, you know, there's this entire development community, you know, the World Bank, lots of the US foreign policy, all of the rest of those groups of people and groups of ideas, talk about the rule of law a lot and work to measure the rule of law and invest immense amounts of money in promoting what they call the rule of law across the world. But mostly, it seems to be protecting property rights for multinational investment. And I mean, that makes some kind of sense, if you think that what the rule of law is for is economic development, is increasing the GDP of a country and integrating it into favourable international networks of trade. But if you think that it's about human flourishing, then you get a completely different idea of what the rule of law can be, and should be. And so this sort of really striking disjuncture between the two conversations has driven a lot of my work, especially recently, and especially reflecting even on the United States, I think that we can see how domestic rule of law struggles - which we absolutely have, I mean, look at the Trump administration, frankly, as revolving around this conflict between focusing on economics and focusing on human rights and human wellbeing.Tobi; It's interesting the polarization you're talking about. And one way that I also see it play out is [that] analyst or other stakeholders who participate in the process of nation-building in Africa, in Nigeria… a lot of us that care about development and would like to see our countries grow and develop and become rich, are often at opposite ends with other people in the civil society who are advocating for human rights, who are advocating for gender equality, who are advocating for so many other social justice issues. And it always seems like there's no meeting ground, you know, between those set of views, and I believe it does not have to be so. So one thing I'm going to draw you into quite early is one of the distinctions you made in so many of your papers and even your book is the difference between the conception of the rule of law that you are proposing versus the generally accepted notion of the rule of law based on individual liberty in the classical liberal tradition. I also think that's part of the problem, because talking about individual liberty comes with this heavy ideological connotation, and giving so many things that have happened in Africa with colonialism and so many other things, nobody wants any of that, you know. So you are proposing a conception of the rule of law that is based on equality. Tell me, how does that contrast with this popularly accepted notion of the rule of law [which is] based on individual liberty?Paul; So I think the way to think about it is to start with the notion of the long term stability of a rule of law system. And so here is one thing that I propose as a fact about legal orders. Ultimately, any kind of stable legal order that can control the powerful, that is, that can say to a top-level political leader, or a powerful multinational corporation, or whomever, no, you can't do this, this violates the law and make that statement stick depends on widespread collective mobilization, if only as a threat, right. And so it's kind of an analytic proposition about the nature of power, right? If you've got a top-level political leader who's in command of an army, and they want to do something illegal, it's going to require very broad-based opposition, and hence very broad-based commitment to the idea of leaders that follow the law in order to prevent the person in charge of an army from just casually violating it whenever they want. Okay, accept that as true, what follows from that? Well, what follows from that is that the legal system has to actually be compatible with the basic interests of all. And what that tends to mean and I think this is true, both historically, and theoretically, is leaving aside the philosophical conceptual difference between liberty and equality, which I'm not sure is really all that important. Like I think, ultimately, liberty and equality as moral ideas tend to blur together when you really unpack them. But practically speaking, any stable legal order that can control the powerful has to be compatible with the interests of a broad-based group of the human beings who participate in that legal order. And what that entails is favouring a way of thinking about the rule of law that focuses on being able to recruit the interests of even the worst off. In other words, one that's focused on equality, one that's focused on protecting the interests of the less powerful rather than a laissez-faire libertarian conception of the rule of law that tends to be historically speaking, compatible with substantial amounts of economic inequality, hyper-focus on ideas - like property rights, that support the long-standing interests of those who happen to be at the top of the economy, often against the interests of those that happened to be at the bottom of the economy, right. That's simply not a legal order that is sustainable in the long run. Lately, I've been thinking a lot about the way that this has played out in [the] United States history, in particular. I might have a book that's coming out in December that focuses on a historical account of the development of the rule of law, particularly in the United States. I mean, it's my own country. And so at some point, I had to get talked into writing that book. And we can see that in our history right at the get-go, you know, in the United States, at the very beginning, the rule of law dialogue tended to be focused on protecting the interests of wealthy elite property holders. And this actually played a major part, for example, in the United States' most grievous struggle, namely the struggle over slavery, because slaveholders really relied on this conception of the Rule of Law focusing on individual freedom and property rights to insist on a right to keep holding slaves against the more egalitarian idea that “hey, wait a minute, the enslaved have a right to be participants in the legal system as well.” And so we can see these two different conceptions of legality breaking the United States and breaking the idea of legal order in the United States right at the get-go. And we see this in country after country after country. You know, another example is Pinochet's Chile, which was the victim of [the] United States' economics focused rule of law promotion efforts that favoured the interests of property holders under this libertarian conception over the interests of ordinary citizens, democracy and mass interests. In other words, over the egalitarian conception, and again, you know, devolved into authoritarianism and chaos.Tobi; Yeah, nice bit of history there, but dialling all the way, if you'll indulge me... dialling all the way to the present, or maybe the recent past, of course; where I see another relevance and tension is development, and its geopolitical significance and the modernization projects that a lot of developed countries have done in so many poor and violent nations, you know, around the world. I mean, at the time when Africa decolonized, you know, a lot of the countries gravitated towards the communist bloc, socialism [and] that process was shunted, failed, you know, there was a wave of military coups all over the continent, and it was a really dark period.But what you see is that a lot of these countries, Nigeria, for example, democratized in 1999, a lot of other countries either before then or after followed suit. And what you see is, almost all of them go for American-style federal system, and American-style constitutional democracy, you know. And how that tradition evolved... I mean, there's a lot you can explain and unpack here... how that tradition evolved, we are told is the law has a responsibility to treat people as individuals. But you also find that these are societies where group identities are very, very strong, you know, and what you get are constitutions that are weakly enforced, impractical, and a society that is perpetually in struggle. I mean, you have a constitution, you have rules, and you have a government that openly disregards them, because the constitutional tradition is so divorced from how a lot of our societies evolve. And what I see you doing in your work is that if we divorce the rule of law from the ideal society, you know [like] some societies that we look up to, then we can come up with a set of practical propositions that the rule of law should fulfil, so walk me through how you resolve these tensions and your propositions?Paul; Well, so it's exactly what you just said, right? I mean, we have to focus on actual existing societies and the actual way that people organize their lives, right. And so here's the issue is, just like I said a minute ago, the rule of law fundamentally depends on people. And when I say people, I don't just mean elites. I don't just mean the wealthy, I don't just mean the people in charge of armies, and the people in charge of courthouses, right? Like the rule of law depends, number one, on people acting collectively to hold the powerful to the law. And number two, on people using the institutions that we say are associated with the rule of law. And so just as you describe, one sort of really common failure condition for international rule of law development efforts - and I don't think that this is a matter of sort of recipient countries admiring countries like the US, I think this is a matter of international organizations and countries like the US having in their heads a model of what the law looks like and sort of pressing it on recipient countries.But you know, when you build institutions that don't really resemble how the people in a country actually organize their social, political and legal lives, you shouldn't be surprised when nobody uses them. You shouldn't be surprised when they're ineffective. But I mean, I think that it's been fairly compared to a kind of second-generation colonialism in that sense where countries like the US and like Germany, attempt to export their legal institutions to other countries, without attending to the ways that the people in those countries already have social and legal resources to run their lives. And so I'll give you an example that's interesting from Afghanistan. So in Afghanistan, sort of post the 2000s invasion, and so forth, some researchers, mostly affiliated with the Carnegie Institution, found that the really effective rule of law innovations, the really effective interventions were ones that relied on existing social groups and existing structures of traditional authority. And so, you know, you could build a courthouse and like, ask a formal centralized state to do something, maybe it would work, maybe it wouldn't, maybe people would use it, maybe they wouldn't. But if you took local community leaders, local religious leaders, gave them training, and how to use the social capital they already have to help do things like adjudicate disputes, well, those would actually be effective, because they fit into the existing social organization that already exists. So I'll give you another example. I have a student who... I had… I just graduated an S.J.D student from Uganda who wrote a dissertation on corruption in Uganda. And one of the things that he advocated for I think, really sensibly was, “ okay, we've got this centralized government, but we've also got all of these traditional kingdoms, and the traditional kingdoms, they're actually a lot more legitimate in the sociological sense than the centralized government.People trust the traditional kingdoms, people rely on the traditional kingdoms for services, for integrating themselves into their society. And so one useful way of thinking about anti-corruption reforms is to try and empower the traditional kingdoms that already have legitimacy so that they can check the centralized government. And so that kind of work, I think, is where we have real potential to do global rule of law development without just creating carbon copies of the United States. Tobi; The process you describe, I will say, as promising as it may sound, what I want to ask you is how then do you ensure that a lot of these traditional institutions that can be empowered to provide reasonable checks to the power of the central government also fulfil the conditions of equality in their relation to the general public? Because even historically, a lot of these institutions are quite hierarchical...Paul; Oh, yeah... and I think in particular, women's rights are a big problem.Tobi; Yeah, yeah and there's a lot of abuses that go on locally, even within those communities, you know. We have traditional monarchies who exercise blanket rights over land ownership, over people's wives, over so many things, you know, so how then does this condition of equality transmit across the system?Paul; Yeah, no, I think that's the really hard question. I tell you right now that part of the answer is that those are not end-state processes. By this I mean that any realistic conception of how we can actually build effective rule of law institutions, but also genuinely incorporate everyone's interests in a society is going to accept that there's going to be a kind of dynamic tension between institutions.You know, sometimes we're going to have to use the centralized state to check traditional institutions. Sometimes we're going to have to use traditional institutions to check the centralized state. Elinor Ostrom, Nobel Prize-winning political scientist and her sort of the Bloomington School of Political Economy, emphasized for many years this idea that they called Polycentrism. That is the idea that multiple, overlapping governance organizations that are sort of forced to negotiate with one another, and forced to learn from one another, and really integrate with one another in this sort of complex tension-filled kind of way, actually turns out to be a really effective method of achieving what we might call good governance. And part of the reason is because they give a lot of different people, in different levels of [the] organization, ways to challenge one another, ways to demand inclusion in this decision, and let somebody else handle that decision, and participate jointly in this other decision. And so I think that neither the centralized state alone, nor traditional institutions alone is going to be able to achieve these goals. But I think efforts to integrate them have some promise. And India has done a lot of work, you know, sort of mixed record of success, perhaps, but has done a lot of work in these lines. I think, for example, of many of the ways that India has tried to promote the growth of Panchayats, of local councils in decision making, including in law enforcement, but at the same time, has tried to do things like promote an even mandate, the inclusion of women, the inclusion of Scheduled Castes, you know, the inclusion of the traditionally subordinated in these decision making processes. And as I said, they haven't had complete success. But it's an example of a way that the centralized state can both support traditional institutions while pushing those institutions to be more egalitarian.Tobi; Let's delve into the three conditions that you identified in your work, which any rule of law state should fulfil. And that is regularity, publicity, and generality. Kindly unpack those three for me.Paul; Absolutely. So regularity is...we can think of it as just the basic rule of law idea, right? Like the government obeys the law. And so if you think about this notion of regularity, it's... do we have a situation where the powerful are actually bound by legal rules? Or do we have a situation where, you know, they just do whatever they want? And so I'd say that, you know, there's no state that even counts as a rule of law state in the basic level without satisfying that condition, at least to some reasonable degree. The idea of publicity really draws on a lot of what I've already been saying about the recruitment of broad participation in the law. That is, when I say publicity, what I mean is that in addition to just officials being bound by the law, ordinary people have to be able to make use of the law in at least two senses. One, they have to be able to make use of the law to defend themselves. I call this the individualistic side of publicity, right? Like if some police officer wants to lock you up, the decision on whether or not you violated the law has to respond to your advocacy, and your ability to defend yourself in some sense. And then there's also the collective side of this idea of publicity, which is that the community as a whole has to be able to collectively enforce the boundaries of the legal system. And you know, we'd talk a lot more about that, I think that's really the most important idea. And then the third idea of generality is really the heart of the egalitarian idea that we've been talking about, which is that the law has to actually treat people as equals. And one thing that I think is really important about the way that I think about these three principles is that they're actually really tightly integrated. By tightly integrated, I mean you're only going to get in real-world states, regularity (that is, officials bound by the law) if you have publicity (that is, if you have people who aren't officials who actually can participate in the legal system and can hold officials to the law). We need the people to hold the officials in line. You're only going to get publicity if you have generality. That is, the people are only going to be motivated to use the legal system and to defend the legal system if the legal system actually treats them as equals. And so you really need publicity to have stable regularity, you really need generality to have stable publicity.Tobi; Speaking of regularity, when you say what constrains the coercive power of the state is when it is authorised by good faith and reasonable interpretation of pre-existing reasonably specific rules. That sounds very specific. And it's also Scalonian in a way, but a lot of people might quibble a bit about what is reasonable, you know, it sounds vague, right? So how would you condition or define reasonable in this sense, and I know you talked about hubris when you were talking about publicity. But is there a minimum level of responsibility for reasonability on the part of the citizen in relation to a state?Paul; That's, in a lot of ways, the really hard philosophical question, because one of the things that we know about law is that it is inherently filled with disagreement, right? Like our experience of the legal system and of every state that actually has something like the rule of law is that people radically disagree about the legal propriety of actions of the government. And so in some sense, this idea of reasonableness is kind of a cop-out. But it's a cop-out that is absolutely necessary, because there's no, you know, what [Thomas] Nagel called a view from nowhere. There's no view from nowhere from which we can evaluate whether or not on a day to day basis, officials are actually complying with the law in some kind of correct sense. But again, I think, you know, as you said, to some extent, that implies that some of the responsibility for evaluating this reasonableness criterion falls down to day to day politics, falls down to the judgment of ordinary citizens. Like, my conception of the rule of law is kind of sneakily a deeply democratic conception, because it recognizes given the existence of uncertainty as to what the law actually requires of officials both on a case by case basis. And, broadly speaking, the only way that we're ever going to be able to say, Well, you know, officials are more or less operating within a reasonable conception of what their legal responsibilities are, is if we empower the public at large to make these judgments. If we have institutions like here in the US, our jury trials, if we have an underlying backstop of civil society and politics, that is actively scrutinizing and questioning official action.Tobi; So speaking of publicity, which is my favorite...I have to say...Paul; Mine too. You could probably tell. Tobi; Because I think that therein lies the power of the state to get away with abusive use of its legitimacy, or its power, so to speak. When you say that officials have a responsibility to explain their application of the law, and a failure to do so commits hubris and terror against the public. So those two situations - hubris and terror, can you explain those to me a bit?Paul; Yeah. So these are really, sort of, moral philosophy ideas at heart, particularly hubris. The idea is there's a big difference, even if I have authority over you, between my exercising that authority in the form of commands and my exercising that authority in the form of a conversation that appeals to your reasoning capacity, right. So these days, I'm thinking about it in part with reference to... I'm going to go very philosophical with you here... but in reference to Kant's humanity formulation of the categorical imperative, sorry. But that is a sense in which if I'm making decisions about your conduct, and your life and, you know, affecting your fundamental interests, that when I express the reasons to you for those decisions, and when I genuinely listen to the reasons that you offer, and genuinely take those into account in my decision making process, I'm showing a kind of respect for you, which is consistent with the idea of a society of equals.As opposed to just hi, I'm wiser than you, and so my decision is, you know, you go this way, you violated the law, right? Are we a military commander? Or are we a judge? Both the military commander and the judge exercise authority, but they do so in very different ways. One is hierarchical, the other I would contend is not.Tobi; Still talking about publicity here, and why I love it so much is one important, should I say… a distinction you made quite early in your book is that the rule of law regulates the action of the state, in relation to its citizens.Paul; Yes.Tobi; Often and I would count myself among people who have been confused by that point as saying that the rule of law regulates the action of the society in general. I have never thought to make that distinction. And it's important because often you see that maybe when dealing with civil disobedience, or some kind of action that the government finds disruptive to its interests, or its preferences, the rule of law is often invoked as a way for governments to use sometimes without discretion, its enforcement powers, you know.So please explain further this distinction between the rule of law regulating the state-citizen relation versus the general law and order in the society. I mean, you get this from Trump, you get this from so many other people who say, Oh, we are a law and order society, I'm a rule of law candidate.Paul; Oh, yeah.Tobi; You cannot do this, you cannot do that. We cannot encourage the breakdown of law and order in the society. So, explain this difference to me.Paul; Absolutely, then this is probably the most controversial part of my account of the rule of law. I think everybody disagrees with this. I sort of want to start by talking about how I got to this view. And I think I really got to this view by reflecting on the civil rights movement in the United States in particular, right. Because, you know, what we would so often see, just as you say about all of these other contexts, is we would see officials, we would see judges - I mean, there are, you know, Supreme Court cases where supreme court justices that are normally relatively liberal and sympathetic, like, you know, Justice Hugo Black scolding Martin Luther King for engaging in civil disobedience on the idea that it threatens the rule of law. It turns out, and this is something that I go into in the book that's coming out in December... it turns out that King actually had a sophisticated theory of when it was appropriate to engage in civil disobedience and when it wasn't. But for me, reflecting on that conflict in particular, and reflecting on the fact that the same people who were scolding peaceful lunch-counter-sit-ins for threatening the rule of law and, you know, causing society to descend into chaos and undermining property rights and all the rest of that nonsense, were also standing by and watching as southern governors sent police in to beat and gas and fire hose and set dogs on peaceful protests in this sort of completely new set of like, totally unbounded explosions of state violence. And so it seems to me sort of intuitively, like these can't be the same problem, right, like ordinary citizens, doing sit-ins, even if they're illegal, even if we might have some reason to criticize them, it can't be the same reason that we have to criticize Bull Connor for having the cops beat people. And part of the reason that that's the case, and this is what I call the Hobbesian property in the introduction to the rule of law in the real world...part of the reason is just the reality of what states are, right? Like, protesters don't have tanks and police dogs, and fire hoses, right? Protesters typically don't have armies. If they do, then we're in a civil war situation, not a rule of law situation, the state does have all of those things. And so one of the features of the state that makes it the most appropriate site for this talk about the rule of law is this the state has, I mean, most modern states have, at least on a case by case basis, overwhelming power. And so we have distinct moral reasons to control overwhelming power than we do to control a little bit of legal disobedience, right, like overwhelming power is overwhelming. It's something that has a different moral importance for its control. Then the second idea is at the same time what I call the [...] property... is the state makes claims about its use of power, right? Like ordinary people, when they obey the law or violate the law, they don't necessarily do so with reference to a set of ideas that they're propagating about their relationship to other people. Whereas when modern states send troops in to beat people up, in a way what they're doing is they're saying that they're doing so in all of our names, right, particularly, but not exclusively in democratic governments. There's a way in which the state represents itself as acting on behalf of the political community at large. And so it makes sense to have a distinctive normative principle to regulate that kind of power.Tobi; I know you sort of sidestepped this in the book, and maybe it doesn't really fit with your overall argument. But I'm going to push you on that topic a bit. So how does the rule of law state as a matter of institutional design then handles... I know you said that there are separate principles that can be developed for guiding citizen actions, you know...Paul; Yes. Tobi; I mean, let's be clear that you are not saying that people are free to act however they want.Paul; I'm not advocating anarchy.Tobi; Exactly. So how does the rule of law state then handle citizens disagreements or conflicting interests around issues of social order? And I'll give you an example. I mentioned right at the beginning of our conversation what happened in Nigeria in October 2020. There's a unit of the police force that was created to handle violent crimes. Needless to say that they went way beyond their remit and became a very notoriously abusive unit of the police force. Picking up people randomly, lock them up, extort them for money. And there was a situation where a young man was murdered, and his car stolen by this same unit of the police force and young people all over the country, from Lagos to Port Harcourt to Abuja, everywhere, felt we've had enough, right, and everybody came out in protest. It was very, very peaceful, I'd say, until other interests, you know, infiltrated that action. Paul; Right. Tobi; But what I noticed quite early in that process was that even within the spirits of that protests, there were disagreements between citizens - protesters blocking roads, you know, versus people who feel well, your protest should not stop me from going to work, you know, and so many other actions by the protesters that other people with, maybe not conflicting interests, but who have other opinions about strategy or process feel well, this is not right. This is not how to do this. This is not how you do this, you know, and I see that that sort of provided the loophole, I should say, for the government to then move in and take a ruthlessly violent action. You know, there was a popular tollgate in Lagos in the richest neighbourhood in Lagos that was blocked for 10 days by the protesters. And I mean, after this, the army basically moved in and shot people to death. Today, you still see people who would say, Oh, well, that's tragic. But should these people have been blocking other people from going about their daily business? So how does the rule of law regulate issues of social order vis-a-vis conflict of interest?Paul; So I think this is actually a point in favour of my stark distinction between state action and social action as appropriate for thinking about the rule of law. Because when you say that the state used...what I still fundamentally think of as like minor civil disobedience...so, like blocking some roads, big deal! Protesters block roads all the time, right, like protesters have blocked roads throughout human history, you know, like, sometimes it goes big, right? Like they love blocking roads in the French Revolution. But oftentimes, it's just blocking... so I blocked roads.I participated in, you know, some protests in the early 2000s. I participated in blocking roads in DC, right, like, fundamentally "big deal!" is the answer that the state ought to give. And so by saying to each other and to the government, when we talk about the rule of law, we mean, the state's power has to be controlled by the law, I think that gives us a language to say... even though people are engaging in illegal things, the state still has to follow legal process in dealing with it, right.The state still has to use only the level of force allowed by the law to arrest people. The state can't just send in the army to shoot people. And the principle that we appeal to is this principle of the rule of law. Yeah, maintaining the distinction between lawbreaking by ordinary people and law-breaking by the state helps us understand why the state shouldn't be allowed to just send in troops whenever people engage in a little bit of minor lawbreaking and protests.Tobi; So how does the law... I mean, we are entering a bit of a different territory, how does the law in your conception handles what... well, maybe these are fancy definitions, but what some people will call extraordinary circumstances. Like protests with political interests? Maybe protesters that are funded and motivated to unseat an incumbent government? Or in terrorism, you know, where you often have situations where there are no laws on paper to deal with these sort of extraordinary situations, you know, and they can be extremely violent, they can be extremely strange, they're usually things that so many societies are not equipped to handle. So how should the rule of law regulate the action of the state in such extraordinary circumstances?Paul; Yeah, so this is the deep problem of the rule of law, you know, this is why people still read Carl Schmitt, right, because Carl Schmitt's whole account of executive power basically is, hey, wait a minute emergencies happen, and when emergencies happen, liberal legal ideas like the rule of law dropout, and so fundamentally, you just have like raw sovereignty. And that means that the state just kind of does what it must. Right. So here's what I feel about Schmitt. One is, maybe sometimes that's true, right? And again, I think about the US context, because I'm an American and you know, I have my own history, right? And so in the US context, I think, again, about, Abraham Lincoln and the Civil War, right.Like Abraham Lincoln broke all kinds of laws in the Civil War. Like today, we'd call some of the things that he did basically assuming dictatorial power in some respects. I mean, he did that in the greatest emergency that the country had ever faced and has ever faced since then. And he did it in a civil war. And sometimes that happens, and I think practically speaking, legal institutions have a habit of not standing in the way in truly dire situations like that. But, and here's why I want to push back against Carl Schmitt... but what a legal order can then do is after the emergency has passed...number one, the legal order can be a source of pressure for demanding and accounting of when the emergency has passed, right. And so again, I think of the United States War on Terror, you know, we still have people in United States' custody imprisoned at Guantanamo Bay.September 11 2001, was almost 20 years ago. It's actually 20 years ago and a month, and we still have people locked up in Guantanamo Bay. That's insane. That's completely unjustifiable. And one of the jobs of the legal system is to pressure the executive to say, okay, buddy, is the emergency over yet? No, really, we think that the emergency is over yet. I want reasons, right, publicity again, I want an explanation from you of why you think the emergency is still ongoing. And the legal system can force the executive to be accountable for the claim that the emergency is still ongoing. That's number one. Number two is that law tends to be really good at retroactively, sort of, retrofitting things into legal order, right. And so again, I think about the Civil War. You know, after the US Civil War, lots of civil wars, sorry. American-centric person trying to fight against it. But after the US Civil War, you know, the courts took a pause. And then we have a lot of cases where they took a lot of the things that Lincoln did, they said, okay, some of them at least were illegal, some of them were legal, but only under very specific circumstances. And so they actually built legal doctrine that took into account the emergency that Lincoln faced, and then later wars, such as in the Second World War, the courts took the lessons from the experience in the American Civil War, and used that to impose more constraints. So to bring it about that the emergency actions that Franklin Roosevelt took in the Second World War weren't completely sui generis, sort of like right acts of sovereignty, but were regulated by legal rules created during the Civil War, and after the Civil War. And again, they weren't perfect, right? You know, during the Second World War, the United States interned Japanese Americans, you know, again, sort of completely lawless, completely unjustifiable, but you know, it's an ongoing process. The point is that the legal system is always... the law is always reactive in emergencies. But the reactive character of the law can nonetheless be used as a way to control and channel sovereign power, even in these sort of Schmittian emergency situations.Tobi; So two related questions, your work is interdisciplinary, because you try to blend a lot of social science into legal philosophy. But speaking of legal order and your primary profession, I mean.. for the sake of the audience parties into a lot of other cool stuff, I'm going to be putting up his website in the show notes. But speaking of legal order, and the legal profession, why is so much of the legal profession fascinated with what I would say the rule by law, as opposed to the rule of law. A lot of what you get from lawyers, even some law professors in some situations is [that] the law is the law, and you have to obey it. And even if you are going to question it, however unjustified it may seem, you still have to follow some processes that maybe for ordinary citizens are not so accessible or extremely costly, you know, which I think violate regularity, right, the way you talk about it retrospective legislation, and so many other things. So why is the legal profession so fascinated with the law, as opposed to justification for the law?Paul; Yeah, I think that question kind of answers itself, right. It's unfortunate... I mean, it's sort of natural but it's unfortunate that the people who most influence our dialogue about the way that we, you know, live in [the] society together with a state, namely by organizing ourselves with law happen to be people who are the specialists who find it easiest, right? And so I think the simple answer is right on this one, at least in countries like the United States, I'm not sure how true this is in other countries. But in the United States, the domination of legal discourse by lawyers necessarily means that the sort of real practical, real-world ways in which ordinary people find interacting with anything legal to be difficult, oppressive, or both just aren't in view, right? This is hard for them to understand.But I think in the US, one of the distortions that we've had is that we have an extremely hierarchical legal profession, right. So we have very elite law schools, and those very elite law schools - one of which I teach at - tend to predominantly produce lawyers who primarily work for wealthy corporations and sort of secondarily work for the government. Those lawyers tend to be the ones that end up at the top of the judiciary, that end up in influential positions in academia, that end up, you know, in Congress. The lawyers that, you know, see poor people, see people of subordinated minority groups and see the very different kinds of interactions with the legal system that people who are worse off have, that see the way that the law presents itself, not as a thing that you can use autonomously to structure your own life. But as a kind of external imposition, that sort of shows up and occasionally inflicts harm on you. Those lawyers aren't the ones who end up in our corridors of power. And it's very unfortunate, it's a consequence of the hierarchical nature of, at least in the US, our legal profession. And I suspect it's similar in these other countries as well.Tobi; In your opinion, what's the... dare I say the sacrosanct and objective - those are rigid conditions sorry - expression of the rule of law? The current general conception of the rule accedes to the primacy of the Constitution, right. I've often found that problematic because in some countries you find constitutional provisions that are egregious, and in other cases, you find lawyers going into court to challenge certain actions that they deem unjust, or that are truly unjust on the basis of the same constitution. Right. So what do you think is the most practical expression of the rule of law? Is it written laws? Is it the opinion of the judges? Is it how officials hold themselves accountable? What's the answer?Paul; So I think I'm gonna like sort of twist this a little bit and interpret that question is like, how do you know the extent to which the rule of law exists in a particular place? And my answer is, can ordinary people look officials in the eye, right, you know... if you're walking down the street, and you see a police officer, you know, are you afraid? Or can you walk past them and confidently know you're doing nothing wrong so there's nothing really effectively but they can do to you, right? If you're called in to deal with some kind of bureaucratic problem, like the tax office, can you trust that you exist in a relationship of respect? You know, can you trust that when you show them, actually here are my receipts, I really did have that expense, that that's going to be taken seriously? You know, if people, everybody, feels like they can stand tall, and look government officials in the eye, then to that extent, I think that the rule of law exists in a society.Tobi; Final question, what's the coolest idea you're working on right now?Paul; Oh, gosh. So like I said, I've got two books under contract right now. The first book is a history/theoretical constitutional law account of the development and existing state of the rule of law in the United States. The second book, which I'm more excited about, because it's the one that I plan to write this year, but it's also a lot harder, is I'm trying to take some of the governance design ideas that we see from the notion of rule of law development, and others such as governance development things and apply them to Private Internet platforms, right? Like, basically to Facebook. Um, I was actually involved in some of the work, not at a super high level, but I was involved in some of the work in designing or doing the research for designing Facebook's oversight board. And I'm kind of trying to expand on some of those ideas and think about, you know, if we really believe that private companies, especially in these internet platforms are doing governance right now, can we take lessons from how the rest of the world and how actual governments and actual states have developed techniques of governing behaviour in highly networked, large scale super-diverse environments and use those lessons in the private context? Maybe we can maybe we can't I'm not sure yet. Hopefully, by the time I finish the book, I'll know.Tobi; That's interesting. And I'll ask you this, a similar, I'll say a related situation is currently happening in Nigeria right now, where the President's Twitter handle or username, tweeted something that sounded like a thinly veiled threat to a particular ethnic group. And lots of people who disagreed with that tweet reported the tweet, and Twitter ended up deleting the tweet in question, which high-level officials in Nigeria found extremely offensive, and going as far as to assert their sovereign rights over Twitter and say, well, it may be your platform, but it is our country and we are banning you. How would you adjudicate such a situation? I mean, there's the question of banning Donald Trump from the platform and so many other things that have come up.Paul; Yeah, I mean, it's hard, right? So there are no easy answers to these kinds of problems. I think, ultimately, what we have to do is we have to build more legitimate ways to make these decisions. I mean, here are two things that we cannot do, right?Number one is we can't just let government officials, especially when, you know, as with the Donald Trump example, and so many others, the government officials are the ones who are engaging in the terrible conduct make these decisions. Number two is we also just can't let a bunch of people sitting in the Bay Area in California make those decisions. Like, ultimately, this is on, you know, property in some abstracted sense of like the shareholders of these companies. But we cannot simply allow a bunch of people in San Francisco, in Menlo Park, and you know, Cupertino and Mountain View, and all of those other little tech industry cities that have no understanding of local context to make the final decisions here. And so what we need to do is we need to build more robust institutions to include both global and local and affected countries, grassroots participation, in making these decisions. And I'm trying to sort of sketch out what the design for those might look like. But, you know, talk to me in about a year. And hopefully, I'll have a book for you that will actually have a sketch.Tobi; You bet I'm going to hold you to that. So, a year from now. So still on the question of ideas, because the show is about ideas. What's the one idea you'd like to see spread everywhere?Paul; Oh, gosh, you should have warned me in advance... that... I'm going to go back to what I said at the very beginning about the rule of law. Like I think that the rule of law depends on people, right? Like there is no such thing as the rule of law without a society and a legal system that genuinely is equal and advantageous to ordinary people enough to be the kind of thing that people actually support. Like ordinary people... if you cannot recruit the support of ordinary people for your legal political and social system, you cannot have the rule of law. That's true whether you're a developing country, that's true whether you're the United States, right. Like I think, you know, part of the reason that we got Donald Trump in the United States, I think, is because our legal system and with it our economy, and all the rest are so unequal in this country, that ordinary voters in the United States didn't see any reason to preserve it. Right and so when this lunatic and I mean, I'm just going to be quite frank here and say Donald Trump is a complete lunatic, right... when this lunatic is running for office who shows total disregard for existing institutions, like complete willingness to casually break the law. An electorate that actually was full of people who felt (themselves) treated respectfully and protected and supported by our legal and political institutions would have sent that guy packing in a heartbeat. But because the American people don't have that experience right now, I think that's what made us vulnerable to somebody like Donald Trump.Tobi; Thank you so much, Paul. It's been so fascinating talking to you.Paul; Thank you. This has been a lot of fun. Yeah, I'm happy to come back in a year when I've got the platform thing done.Tobi; Yeah, I'm so looking forward to that. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.ideasuntrapped.com/subscribe

I had a great conversation with David Roodman - researcher and senior adviser at Open Philanthropy. He played an important role in helping us understand and interpret the evidence on the microfinance phenomenon that was sweeping through the development community a little while back. We also talked about his work in evaluating foreign aid, how his background in mathematics has helped him throughout his career, and why he writes so well.The transcript for this episode is available for paid subscribers. This is a public episode. Get access to private episodes at www.ideasuntrapped.com/subscribe

Listen now (52 min) | A Conversation with Nathan Lane This is a public episode. Get access to private episodes at www.ideasuntrapped.com/subscribe

Many low-income countries confront the challenge of transforming from an agrarian or resource-based economy to an industrial economy. We can see this in how countries struggle to diversify their exports and sources of public revenues. Nurturing a policy environment for economic transformation - despite the abundance of literature and example for the recent East Asian experience - is often the hardest part of the challenge.Joining me on today's episode to explore this and many more is economist Pritish Behuria. He is a Professor of Politics, Governance, and Development at the University of Manchester. He has contributed immensely to the study of the political economy of many development policy paradigms like economic transformation, diversification, and import substitution. I started by asking Pritish whether “Leapfrogging” (growth through bypassing manufacturing into services) is a promising idea or a fad.You may consider becoming a paying subscriber to this podcast and get access to transcripts, and early episode releases. Or become a patron (on Patreon) and enjoy the same and more benefits. This is a public episode. Get access to private episodes at www.ideasuntrapped.com/subscribe

Welcome to another episode of Ideas Untrapped podcast, where we discuss ideas that promote progress, prosperity, and economic development. We do this by speaking to academics, industry experts, and other creative social thinkers. My guest on this episode is Robert Frank, professor of economics at Cornell University, New York. Robert is my favourite economist because he presents complex ideas in simple intuitive details. His works straddle the nexus of economics, psychology, and biosocial ecology. He has written many interesting books - of which I have read three - and I picked the central themes of those books for our conversation. We started by discussing his latest book - Under The Influence - where Robert explored the idea of “behavioural contagion’’ and its many implications.There are many ways to listen to the podcast, and you can find links to most of the popular platforms here. You can also listen and download directly from the player on this page. You can rate us on any platform of your choice (or here), as it helps other people find the podcast. If you are a regular listener - and we have inspired you in any way - you may consider supporting what we do by becoming a paid subscriber. Many of the benefits include exclusive contents that we are certain will make you think about the world and your country armed with better insight. This is a public episode. Get access to private episodes at www.ideasuntrapped.com/subscribe

I spoke to macroeconomic analyst Karthik Sankaran about many of his brilliant insights on economic development process. Karthik long and broad experience working on emerging markets shines through our entire conversation. His gift of wit and summarizing complex economic into understandable bits is one of the best I have encountered - as you can tell from his Twitter feed and blog.You can listen directly on this page or through any of the links here. You can also listen to a longer version of the conversation by becoming a paid subscriber or by becoming a patron. This is a public episode. Get access to private episodes at www.ideasuntrapped.com/subscribe

The full conversation with Ricardo Hausmann - now with Transcript. This is a subscriber-only post.TranscriptOpening musicYou are listening to ideas Untrapped with Tobi Lawson. Tobi Lawson (intro) Welcome to another episode of ideas Untrapped and my guest today is Ricardo Hausmann, who is a professor of economic development at Harvard University, he is a former director of centre for International Development, and is currently the Director of the center's growth lab. Ricardo pioneered an approach of looking at economic development called economic complexity. My brief synopsis of the central idea is that an economy only grows and develop by learning to do many things by expanding its productive capabilities. I start by asking Ricardo, what we can learn, particularly from the East Asian experience, and what has happened in economic development over the last few decades. Thank you for always listening to the show and I hope you enjoy this one. Tobi Lawson You've been one of the most important thinkers in economic development throughout my adult life. So, it's a pleasure to speak to you. Ricardo Hausmann Pleasure to be with you. Tobi LawsonFrom Around 1990, when the results of the economic trajectory of East Asia became apparent, so many policy propositions have been developed by scholars. But, in your opinion, what do you think has been the most important lesson from that East Asian growth episode? Ricardo Hausmann I think the general experience of development is really, that development is about the growth of productive capabilities In a society, it's what our society is capable of doing and, what a society is capable of doing depends a little bit on, what are the tools and machines it has available to do things nd what are the recipes and formulas and routines and protocols it's aware of, but it's mostly about what is the know-how that it's people have and this idea of know-how is not just, you know, low and high. It's mostly How different is what each member of society knows. Because if everybody knows a lot of the same thing, the whole doesn't know much more than each individual. But if each individual knows different than the whole can know a lot, even if each individual doesn't know that much. So this division of know how in society allows for individuals to specialise and society to diversify, that a society is able to do more, because it's individuals are all different. I am originally from Venezuela, and we're Nigeria. And we all think that we are rich because we have¹ oil. And then something bad happened to explain why, given that we're rich, we're not so rich, but we're rich, because we have our, our society is rich, not because of what it has. But because of what it knows how to do. And the growth and development of a society is the growth and development of what it knows how to do well. That's the core of things. And so if you ask about East Asia, well, they started in agriculture, they move to garments, then they move to textiles, then they move to electronics, then they move to cars, and move to chemicals and shapes, and so on. So, if you look at what they have been good at, that is something that has been very rapidly changing. They become good at more things. And they can become sufficiently good at those things that they can sell them outside of the country. And if you look at their export baskets, they have been evolving dramatically. In the directions I just mentioned, if you look at the export basket of Nigeria, or the export basket or Venezuela, the only thing you'll find there is oil. But when you look at the amount of oil we're talking about, it's really peanuts. It's really, so it's not that we have a lot of oil, it's that it's the only game in town. You know, Nigeria is a society of about 200 million people, cruises about 2 million barrels of oil a day. That's like a 100th of a barrel of oil per capita. That's 100th of a $60. That's 60 cents. That's not much money that's coming out of here, right? So it's not that you have a lot of oil, it's that it's the only game in town. And that's a reflection of how little The company has got more things with the possible exception of Nollywood. Tobi Lawson You've finished Nigeria, I wouldn't just say Nollywood, sectors like telecommunications have been booming in the last 20 years. But looking broadly.... Ricardo Hausmann Wait, one second, one second, one second, that has allowed Nigerians to call each other. But that opens an enormous opportunity now, because one of the things that COVID has taught us is that many things that we used to do in the office, we can do from home. But anything that can be done from home, can be done from abroad. So there are many, many tasks that are currently done in rich countries. But that could be done by zoom in poor countries, in less developed countries. And that opens up new avenues for diversification, it will open up, you know, the possibility to participate in value chains that were unthinkable before, because people thought that, you know, the people doing those tasks had to live there. Now, we know that they don't have to live there. So you know, one message for all the youth in Nigeria, is that there's plenty of work in platforms like Upwork, and other such platforms where you can find jobs to do on the web. And that's thanks to the fact that you have you know, ICT information communication technology that has diffuse, but so far, that  diffusion has not changed what Nigeria is able to sell abroad. And that's, I think, where we have to aim, I mean, forms of livelihood, for Nigerians in Nigeria, by selling to people in the rest of the world Tobi Lawson Looking at your economic complexity approach to development, from your writings, and the writings of other scholars in that school, a society that knows how to do many things will grow rich, but how do we square that with the works of people like Robert Wade, who stressed the importance of manufacturing and industrialization in achieving growth and development? How should policymakers think about the knowledge we are getting from the sub discipline of economic developmentRicardo Hausmann Manufacturing was a very, very important stepping stone, for many of the societies that became rich, it was a very important stepping stone, because manufacturing require relatively low skilled labour. So it was easy to take people out of agriculture, with little education, put them in manufacturing, and manufacturing was, you know, generating much higher levels of productivity in agriculture at the time, and the levels of productivity manufacturing worldwide. So, for East Asia, this movement of people from agriculture to manufacturing was a very important stepping stone in the process of development. Some people think that manufacturing has become less unskilled labour intensive, it has become more skill intensive and more capital intensive. So it doesn't necessarily generate as many jobs as before and there aren't that many sort of like entry level jobs as as before. But I think they're still there. They're still there. So I think that, you know, a prosperous Nigeria would have much more manufacturing than it has today and creating the ecosystem for that manufacturing to happen is very important. And for that, I think that creating the ecosystem means what? It means that needs spaces where people can locate their factories, say, so that workers can go in and out efficiently and not spend two hours going there and two hours back home, that the materials can get in and out that you're relatively close to an efficient port, where you can bring materials from the rest of the world or send materials to the rest of the world, that you can participate in global value chain so that you give up on this idea that everything that you want to manufacture has to be manufactured with locally available raw materials, which is one of the most destructive ideas that is very popular in Africa that you want to, as you say, what's the term that you use there "beneficiate" your raw materials locally, and that that's like the angle of development. We can elaborate but that's a very, very dangerous and counterproductive idea. So you will need you know, a place that has electricity, water, security. So creating those spaces where manufacturing can thrive definitely is a path going forward and I would I would put the less attention to some of the things that goes by the older industrial policy name, and more attention to just making sure that you create spaces where a Nigerian manufacturer can be very, very productive. Tobi Lawson Let's talk a bit about the political economy of this. What exactly is the role of the state because what mostly obtains in countries like Nigeria, and the rest is heavy state involvement in trying to industrialise and doing industrial policy, allocate resources and credit and, there isn't more emphasis on the role of the private sector and even in the market. So how important is the state in this process, and what exactly is the role of the state in nurturing a growing economy? Ricardo Hausmann So, I think that the role of the state is huge. But it has to be smart, it has to be complimentary, it has to enhance the possibilities of the rest of society and not substitute the possibilities of the rest of society. So let me give you an example. Every technology you can imagine, is a combination of some things that you can buy in the market, and some things that cannot be purchased in the market that either they are provided by the state, or they're not provided. So you know, there is a market for cars, and you can go out and buy a car and different kinds of cars. There's no market for roads, or for traffic lights, or for driving rules, or for traffic police. So a car is a private good, it exists in a universe full of public goods. If the state does not provide the roads, the cars are not very useful, right? That's what I mean by the state complementing the rest of society. So society can organise some things and not others. So it's very important that the state be very good at providing the things that cannot be provided by markets. And those are quite a few. So for example, electricity penetration in Nigeria is still very low and remains a very, very significant obstacle to progress in spite of massive investments in that area. So electricity, you know, an efficient port system and efficient road system, and efficient urban transportation system, public education, you know no public health, there are so many so many tasks. Now in learning, things that can be done by markets, there's also a lot that can be done, let me tell you a little bit of a secret of the US success. If you look at Silicon Valley, for example, well, let's look first at the US as a whole, the US as a whole 14% of the population of the US is foreign born. But, if you look at the entrepreneurs in the US, 29% are foreign born. So the foreign born represent you know double the share of the entrepreneurs, than they represent the share of the population. If you look in Silicon Valley, and everybody's trying to imitate Silicon Valley, 54% of the science, technology, engineering and math workers of Silicon Valley, the stem workers 54% are foreign born, and the other 46% were not born in California, even though California is a state that has 40 million people. So the secret of Silicon Valley, is not that they have fantastic school systems and fantastic universities, and so on and so forth. It is really that they're able to attract global talent and one of the things that Africa has done in general, is that it has closed itself to the attraction of foreign talent. In many countries, it's very hard to get a visa to become a permanent resident or work permit. There is no path to citizenship. There are restrictions in how many foreigners a firm can hire, etc, etc. So, you know, in Africa, many countries cannot stop their citizens from going and working abroad. But the countries are very effective in preventing foreigners to come in, except at the very low end. So, one of the things that you want to think about in order to industrialise and to get into other things is to be able to attract talent, global talent that is capable of enhancing the capabilities you have. There's no shame in doing that. That's how it's being done in the in the rich countries. You know, everybody wants to become Singapore. But they don't know that Singapore is 45% foreign born. Singapore is what it is because it's able to attract global talent. So, you know, a lot of the improvements in the South African financial system is because they were able to attract all the Zimbabweans that were leaving Mugabe and get jobs, you know, all the educated Zimbabweans moved to South Africa. And that was very good for South Africa. So there's a lot in terms of attracting new know-how that can be done by trying to attract foreign talent. Another thing that you can do is to leverage your diaspora. Most African countries have a very significant diaspora. Much of that diaspora is in richer countries more developed countries and that diaspora is being exposed to new ways of doing business, to new industries, to new ideas, they can become a very, very important source of diversification of progress that has been documented by analysts at cellion, for the case of Taiwan, for the case of India, for the case of Israel, for many instances in which diasporas were very important in transforming the opportunities of the country. So, you want to leverage all of these things that can allow society to become more productive, more capable, more able to do more things. And no, the role of the government is in some sense not to prevent that from happening, to complement that with all the things that cannot be organised through markets, through private firms, and then, you know, maybe here and there, there's an additional space for, you know, focusing things, you know, just if there were good industrial zones, well connected by infrastructure ports, were supplied by electricity and water, well connected to places where workers live through an urban transport system, and so on. I'm sure that a lot of people would look into doing manufacturing in Nigeria. Tobi LawsonI want to get more from your answer by extending that question to state capacity. So many scholars have argued that state capacity is even the secret sauce, so to speak, of the success of East Asia, including China, and you get the impression that a state has to have fully formed capacity to deliver on so many things before it can then nurture growth and development. But you have argued in one of your lectures that I just saw that there is a coevolution, that happens between the state and the economy in terms of capabilities. So how does this co evolution work in practice, as opposed to the standard view of a fully formed capable state? Ricardo Hausmann Some people would like to say, Well, you know, first you have to have a capable state, and then you can have development. But until you get a capable state, you cannot get development. So focus on getting a capable state. But then you ask yourself the question, and how is that capable state going to rise? What's going to find that capable state if it's not a society that is able to pay the taxes and so on to feed that capable state. So So in fact, what you ended up having is a society that needs to develop in order to feed a more capable state, and a more capable state that is able to help society continuous development process. So at every point in time, you have states of very different capacities. And as a consequence, societies have a certain level of capacity consistent with that capacity of the state. So what you end up having is, the more society develops, the more resources can be put available to the state for it to do its thing. And the more the state does its thing, the more the society can develop. So these things are growing at the same time, or they're growing together. But a very important important question that you have to ask yourself, when you're thinking about the state, you're thinking about the Nigerian state. Now, what does it mean to be Nigerian? Who is Nigerian? Who is included in being Nigerian? When the state acts on behalf of Nigerians? It acts on behalf of whom? Is that on behalf of the Hausa? Does it act on behalf of the Yoruba? Does it act on behalf of the ibo? What does it mean to be Ibo and Nigerian or Hausa and Nigeria? How many things do you want to be decided in Abuja? And how many things we want to have decided at the different states, state government? So you have a relatively federal structure in Nigeria? Is that because you think that people have stronger regional identities than they have for a national identity? When you talk about Japan, or you talk about Korea, you're talking about societies that are internally very homogeneous. A Japanese person is somebody who speaks Japanese. A Korean person is somebody who speaks Korean. How many languages are spoken in Nigeria? Tobi Lawson (interjects) About 500… Ricardo Hausmann So obviously, it's not having a state is somebody's state, whose state is it? So I think one of the things that is a challenge is the construction of a Nigerian identity that can support the state. Right? Because the state is underpinned by a certain sense of us. The state is our state, it is done for us. It is how we do things collectively and it's Very important to clarify what do we mean by that we, who is inside the way, who's not inside the we, who is us, who's not us and those things are what makes often no state development difficult. Because, you know, if some people think that the state is going to be favouring some other group, then you would rather have a weak state than a state controlled by somebody who's not you and those things makes statecraft harder. Tobi LawsonI mean, devolution of powers from the centre is one of the conversations that Nigeria is having right now, especially in the light of the recent insecurity, issues and poverty, we would see how that works. But let me quickly pick up on another theme. Politicians usually valourize the role of small businesses in our economy, but in one of your essays that has made a very big impression on me. You took a different approach by looking at the role of big businesses in nurturing development and enrichment. Can you expatiate a bit on the role of big businesses in an economy. Ricardo HausmannSo I think when you have a very developed society, you tend to have, you know, markets for every possible input you want. You want electricity, somebody sells electricity, you want to photocopy or you want to print this stuff, there is a store that prints stuff for you, you want to design a campaign ad or television ad or cover it, you know, there's some people that design that. So you can start a business and buy everything else from the stuff that people produce around you. Right, so all of your possible inputs are things that other firms can do for you. So you can start small, and buy everything you need from everybody else. When you start in a less developed society. Many of those things that you wish you could buy from everybody else are just not there. And maybe you have to self provide your own electricity, maybe you'll have to print your own stuff, maybe you'll have to design your own covers, maybe we'll have to have all of these things done inside the company, because there are no reliable suppliers outside the company. So as a consequence, you know, modern firms tend to start bigger in less developed countries than in more developed countries, in more developed countries, you can just rely on other people doing stuff for you. As a consequence, no existing Corporation, or in some sense, organisations that have developed the capacity to provide internally things that markets cannot do for them. So once they exist, they have typically financial capital, they have a managerial capital, they have a reputational capital, that allows them to make it much easier for them to start a new line of business. You know, the Silicon Valley way to start a new line of business is that you create a startup, a startup is very easy to create in Silicon Valley, or in a very advanced place, because everything that the startup needs they can buy out there. But in the place where you cannot buy everything out there. You cannot start that small. But a corporation, a conglomerate, if it were to decide to diversify into more line of business, it could just reallocate some of its managers, it could reallocate some of its cash flows. It could because of its reputation, it could do joint ventures with other companies, maybe some foreign company or something that can bring in some technology and they can do things as a group that a startup cannot do. So that's why I wrote this piece saying, you know, a conglomerates can be and war in the case of Japan and Korea, a fundamental story of the growth process. Japan and Korea diversified because Toyota, Mitsubishi, di Woo, Samsung diversified internally as conglomerates. Right? It's not that just more companies appeared, it's that those companies diversified. So, I think that it's an important avenue for growth that a country should consider, but,  conglomerates can come You know, can be a force for good or they can be a force for bad either. conglomerates can just become you know, monopolist in one industry move to the next industry and become a monopolist there move to next industry and become a monopolist there and then suddenly become a huge barrier to entry for other people. It's very important that the conglomerates do well and this was the case of Japan and Korea, They are exporters, you tolerate conglomerates because they are exporters', a conglomerate that only sells domestically. It's like one of the local football teams. A conglomerate that exports is like the the national team. It's like the one that's playing at the World Cup. It's facing massive competition from other companies in other countries. So it deserves all the support of society. But a conglomerate that only sells domestically, you know, it has the danger of just becoming the local monopolist and stifling everybody else from competing against them. So, conglomerates can be a stepping stone, can be an avenue for growth, but they have to be good conglomerates. Tobi Lawson Let's talk about trade and I will set the scenario this way, a little over a year ago, about a year and a half. Nigeria closed its borders to all forms of trade. The justification was that the country is far too much of a dumping ground, especially for agricultural products, which we can actually produce locally. They were extreme measures to prevent imports of some of these products and the result, some would argue, as they argued against the move at the time, has been disastrous. Food inflation is through the roof, people became poorer. People are having to spend more on food than anything else, mostly vulnerable households. But you still hear people, either policymakers or even intellectuals, say that these are necessary sacrifices that developing countries have to make in order to industrialise. You have people like Ha Joon Chang, who provide intellectual guidance for this view, and that the West in its own process of industrialization went through much of the same thing, as a scholar who has also done a lot of work on trade for a poor developing country. What is the right way to think about trade policy? Ricardo HausmannOkay, first of all, let's separate trade from just macro-economic mismanagement. Because a lot of the problem of Nigeria comes not from trade mismanagement, but from the trade consequences of macro-economic mismanagement, you have exchange controls, dual exchange rate regimes, etc. That's not because you want to have an industrial policy. That's because you have messed up your macro policies. That is you have a government that has a deficit that is insufficiently finance. So it has to print money to finance it. As it prints the money, the dollar goes through the roof, the naira tanks, right. And then the government doesn't like that, And it wants to say that, you know, it's running out of foreign exchange. So it puts exchange controls, it tries to limit people's access to dollars, and so on. And in that context, it creates an environment where it's very hard for companies to get tools and machines from abroad, it's very hard for them to get raw materials, intermediate inputs, spare parts from abroad and it just makes them extremely unproductive and as a consequence, they have uncompetitive products that they cannot sell anywhere else, but in Nigeria, through enormous protection. Now, trying to do things without importing the tools, the raw materials, the intermediate inputs, the spare parts, is just trying to do things in a very, very difficult way. It's trying to, you know, as my father likes to say, "Why make things difficult if you can make them impossible," the way the world works, is that you don't have to make everything yourself. You just have to do some steps that add value to the things that they that you're going to put together. I remember having a conversation with Governor Fashola in Legos. And he's saying, you know, we want to have a furniture industry. So we want to prohibit the imports of foreign wood for furniture, we want it done with Nigerian wood, and said, You know, you're the governor of Lagos, not all furniture has to be made out of wood, could be made out of metals, it could be made out of plastics, it could be made out of other materials, right and all of the materials you want for furniture industry, or as far as the Lagos sport. So if you want a furniture industry, by all means have a furniture industry, but don't dump on the furniture industry the responsibility of only making furniture by buying inputs in Nigeria, because that's a recipe for disaster. If for some reason your inputs you couldn't buy in Nigeria for x or y or you could buy some inputs and not the others. Like you can buy two legs of the chair but not the other two legs. Well, then that's not a chair. So focus on making sure that your units of production have what it takes for them to succeed and that often implies access to the raw materials that intermediate inputs, the tools, spare parts that no Nigeria doesn't currently make. But that's fine. That's how East Asia did it. If you look at, you know, they started exporting garments, they weren't making the textiles, and they weren't making the fibres, and they weren't making the cotton. They started cutting and sewing and then they move from cutting and sewing to designing the shirts and so on, then they move to making the textiles then they move to maybe making the artificial threads that went into new forms of textiles and they did that gradually. But they did not start by closing themselves off from all the inputs that the world produces, and that you could use to make stuff in Nigeria. So I would say the problem in Nigeria, is that you have a fiscal problem that is being solved by printing too much money that generates an exchange rate mess, that exchange rate mess, creates an environment that makes it very difficult for companies to operate. And in that process, it generates an overvalued exchange rate, which makes manufacturing artificially uncompetitive, and you get less of it, not more of it, less of it because you want, you know, you're constraining the exchange rate at which they could be exporting. And you're constraining their access to raw materials and intermediate inputs. So if anything, you're hurting the chances for growth, not helping them. Tobi Lawson Part of the reasons asscribed to countries like Nigeria, finding it impossible to industrialise, or even diversify their sources of income is the "resource curse" hypothesis. First of all,  is this a real thing, are countries like Venezuela and Nigeria poor because of the so called Dutch disease? And secondly, how do countries that are also resource rich like Norway and Australia, who are rich and highly developed? How did they manage to break out of the "resource curse." Ricardo Hausmann So there are different interpretations of the resource curse when the Dutch disease was coined. It was coined because there was a boom in the Netherlands of a natural gas exports. And those natural gas exports meant that they were exporting a lot, generating a lot of foreign exchange, and their local currency strengthened and that strengthening of the local currency made the rest of the economy uncompetitive. So, if that were the problem, then that would have been a problem in 2007 In Nigeria when the price of oil reached $140 a barrel. But then it goes away as a problem now after 2014 when the price of oil went under $40. Right. So that's no longer the problem, right? I mean, Nigeria's exports of oil are coming down, oil production is stagnant, domestic oil consumption is up. So oil exports are going nowhere, and the price of oil is now lower than it was 10 years ago. Okay. So excess of foreign exchange that used to be called the Dutch disease is no longer a problem. I wrote a paper with my colleague Roberto Rigobon, saying that the problem may not be just how much foreign exchange your oil makes, but just the fact that it's a very volatile amount. Now that it goes up in some years down another year. So the exchange rate as a consequence is very unstable and unpredictable and it makes business in the country, very risky, because you don't know what is the exchange rate or you're going to face and that's not so much because you have a lot of oil, it's just because oil income is very volatile. So that's a separate problem. And that one typically has to be addressed by having some mechanism that stabilises government finances. So you have to run a government that has unstable income and wants to have stable spending programmes. So you want kids to be able to go to school every year. You want roads cleaned and repaired every year. You want to have the hospitals open every year. You want to police services every year but your income is going up and down. How do you do that? That's a problem of stabilising the government accounts and that's a different kind of problem of living with oil. A third problem of living with oil is something that they call rent-seeking. That is, all the money is in the government, then people who are very entrepreneurial, instead of setting up businesses may dedicate themselves to trying to grab the money that the government has. And so it distorts the incentives of society from, you know, doing things that are productive to doing things that are unproductive but profitable in just trying to seek the rents that the state has. I honestly, don't think that that's that big of a problem in Nigeria, given how small our oil revenues, vis a vis, the size of the society. So I think the big puzzle in Nigeria is why the country has not diversified more, given how little oil it has, you know, in a country like Kuwait or in a country like the United Arab Emirates, Abu Dhabi, you know, you can ask yourself a question, Well, why would they diversify, they have so much foreign exchange that they don't know what to do with it? The question in Nigeria is why have you not diversified in spite of the fact that oil is generating so little revenue these days? Tobi LawsonI'll just ask you a few off the cuff question, what is your opinion on on the so called Washington Consensus, has it failed In Africa or Latin America? Is it misunderstood? Do developing countries need to think beyond macroeconomic stability and all the other recipes proposed by the IMF? What was the way to think about this? Ricardo Hausmann Okay, so the Washington Consensus is a term that was coined by John Williamson who just passed away a week or two ago in a seminar in 1989 or 1990. I think it was 1990, a seminar that was called 'Latin American adjustment, how much has happened?' So it was really a Latin American question. Latin America was in a debt crisis, the debt crisis was associated with the fact that during the oil boom of the 1970s, it had borrowed too much money, then it was unable to pay that money and it was mired in, in a debt crisis and the question is, how do you get out of there and john Williamson said, there are these 10 things that sort of like Washington institutions agree, would be good to sort of like get out of the Latin American debt crisis. But then these 10 things became like the 10 commandments. You can take them to Eastern Europe, you can take them to sub Saharan Africa, you can take them to North Africa and the Middle East. You take them out of context, and they're supposed to work marvels no matter what. It's, it's it, in my mind, policies have to be solutions to problems. Tell me the problem, let's design a solution. It's not here are 10 solutions. You haven't told me what the problem is. So I think that policies have to be problem driven, and not solution driven and Washington Consensus is a set of solutions without a problem. So in my mind, it ended up creating an environment in which people stopped thinking about what are the policies that they need to adopt, and just as to whether they have or haven't adopted the 10 policies in the list, even if those 10 policies in the list wouldn't solve the problem that we're trying to solve? Because, you know, you haven't even asked the question, what is the problem you're trying to solve? So that's why, with my colleagues, Andres Velasco and Dani Rodrik, we develop this idea of growth diagnostics, that the first thing you have to do is to try to understand what the problem is and once you have a clear idea of what the nature of the problem is, then let's explore the solution space and most likely, you're not going to end in the Washington Consensus, because you know, it will be a coincidence that you do. So from a certain point of view, the worst thing that was delivered by the Washington Consensus, is that it encouraged people to stop thinking of what the right policies are and just assuming that they have an implemented as list of policies that may not be the right ones. Tobi LawsonYou've also been in government in Venezuela. So I'll ask you, what you think holds up the use of knowledge by policymakers? Or should I say what prevents the right diagnosis of the problems that some poor countries have? Because, what you find is that and Nigeria is also a good example of this. What you find is that a lot of these countries, even though different administrations different political actors, they come into power and repeat the same policies that have been tried in the past and failed. So, what prevents the diffusion of knowledge at a governmental level? Ricardo HausmannWell, I mean, I think that people do not act on the basis of how they see the world on the ideas that they have in their heads, and on the interpretations they make of the world. So ideas can change the world, if they change how people think about the world, how people interpret the world, how, how those ideas, help them to think how to act on the world. And I'm an optimist in the sense that I've tried to develop ideas, diffuse ideas, train people, educate people, work with governments, try to help them think through issues that they face. That's why I created the growth lab, the growth lab is a group of about 50 people, and we not only do fundamental research on the issues of economic development and growth. But, we also work with countries around the world, trying to help them think through these issues and we also you know, teach and educate them, and so on. So, I think ideas have a complicated way of diffusing. I think a lot of the problems in the world are related to the diffusion or the popularity of some bad ideas and if I didn't believe that I wouldn't be in the business of trying to produce new ideas, diffuse good ideas, and so on, or what I think are good ideas. So for example, I think that the Washington Consensus has been pretty much superseded by the idea that policies have to be solutions to problems and not solutions in search of a problem and that you don't start by assuming that you know, what the solution is, before you clarify what the nature of the problem is and I think those ideas have permeated even, you know, the World Bank, the International Monetary Fund, and so on, with difficulty, because the alternative paradigm is still popular. I mean, this whole idea of best practices, very dangerous idea, it supposes that people know how to do things, like here's the right the right way to do things, which presumes something like, you know, there is the perfect suit and you know, there's no such thing as a perfect suit, there's only a perfectly tailored suit, and everybody has a different body. So you have to tailor the suit differently and there's a lot of detail in the tailoring. So one thing is how do you defuse better ideas? And the other thing is, is it a problem of politicians not wanting to know, because the ideas they have, are an expression more of their interests than not their knowledge? It's like they like the idea because it advances their interests? Or is it just that they are wrong, or they have the wrong view of the world and you know, there's a big debate on whether its interests or whether it's ideas, the nature of the problem. I'm an optimist in the sense that I think that a lot of the things that happen in the world can be fixed by proving the ideas with which people see the world, analyse the world, interpret the world, think about the world and that's why I'm in the business of, you know, research, and teaching, you know, researching better ideas and teaching about them and by the way, Nigeria is one of the countries that sends more people to our executive education courses at the Harvard Kennedy School. There's, there's a huge community of people who have had some connection with the Harvard Kennedy School in Nigeria and you know, these are the ideas that will teach. So I'm hoping that the, you know, the reason why you have a podcast, the reason why you are trying to promote these discussions is because you also believe that the nature of the ideas with which people think the world is important for progress. That's why you do what you do. Tobi Lawson Thank you. I have a question, the relationship between democracy and development is also one that comes up regularly. I know there is a Acemoglu and Naidu paper that more or less, infer that democracy is good for growth. But lots of people, I will see people with other interests, but that's speculative, would say, Oh, well look at China. China is an authoritarian one party state and look at all the growth they have, what are the nuances on these relationships between democracy and growth or any political system? Ricardo Hausmann So I like very much the ideas about this that have been, you know, growing in a certain political economy literature, where people like Hans Rosling or Mounk or Yascha Mounk, or Dani Rodrik have been proposing, and that's that you really want to distinguish between three different rights. Okay, One is the right of the majority to make decisions about democracy. Right. So, you know, the governments are decided by a majority of people. So that's, you know, making sure that the government represents a significant swath of the population. That's, that's one idea, call that democracy. A second idea, is the idea of some kind of universal rights, that they yes, no, you might be in the minority. But that doesn't mean that the majority can kill, you can expropriate, you can harm you and torture you. Right, that there are some inalienable rights that are protected for everybody, whether you're in the majority or in the minority. And that's different. That's an idea that is often associated with liberalism. So the idea of liberal democracy is this funny balance between the majority rules, but everybody has some guarantees, right and then there is the third problem. So this second problem is called individual rights, it's very important if you're going to have something like a market economy, because if property is going to be poorly distributed as as it is everywhere, then if the majority decides to expropriate the minority, then the minority is not going to play ball and if they are the ones that have dropped the knowledge, their capacity to organise businesses and so on, they don't play ball, then there's no development. So you have to balance this individual rights with these with the idea of majority rule and on top of that, you may have other rights, a social rights that that people might want to have protected, you know, the majority might be a Muslim, and and there's a Christian minority or vice versa, do the social rights of the minority, are they protected? So there's like individual rights, social rights and majority rule and when we say democracy, we don't necessarily make these distinctions. But, what I will tell you is that the protection of individual rights is fundamental. That majority rule is also important, that these two things making them compatible is difficult and what makes it difficult to make it compatible is that somebody has to tell the majority, the elected government, the majority of society, you cannot do these things to the others and who's that thing? Well, it's suppose it's, it's an independent judiciary, something that is not under majority rule and those are the things that these populists like to destroy.  These checks and balances, that are in the system to defend the rights of the individual or the rights of minorities. So I will tell you that democracy if it's majority rule, that does not protect the rights of the individual is not going to be good for development and a lot of the development of the 19th century in Europe, happen in liberal governments, that is governments that protected individual rights, that were not democratic. So I would, instead of asking the question, you know, democracy, good or bad, I would ask the question, majority rule, individual rights, minority social rights, are they being protected? And obviously, it's great if you have all three. But let's not assume that just because you have majority rule you have all three. Tobi LawsonWhat about the issue of globalisation? I know your colleague, Dani Rodrik has written about this, he has this famous trilemma. How much should developing countries worry about things like the globalisation of capital, the level of interconnectedness of the economies with the developed countries and other parts of the world and some of the risk that may come with that, like the global financial crisis of 2008. So how should developing countries think about this, we also have the Asian Financial currency crisis of 1997 as a backdrop. Ricardo  Hausmann So as a backdrop, so the way I think about it is that, you know, Nigeria is a country of 200 million people give or take, that give or take is about 3% of the world population. If ideas were one per capita, then 97% of the ideas are outside of Nigeria and you want to use all of the ideas available to create progress in Nigeria. So you want Nigeria to connect to this global social brain. So inserting Nigeria in the flow of these ideas, these know-hows, these technologies, these ways of doing things is very important for Nigeria's development and this quote unquote, 'globalisation' this interconnection. Now people emphasize a lot, on capital flows and, or maybe goods and services. But I want to emphasise insertion of Nigeria into other flows into the flows of people Nigerians abroad and how they connect back home that they asked for, or foreigners in Nigeria? How can they bring in stuff? ideas? Know how there was not there before? How do you connect your universities abroad? How you connect your research centres with the rest of the world, etc. So how interconnected are your possibilities with, you know, all the advances of the world. So from that point of view, I will say that globalisation is a force for good. I think that, as I mentioned before, one of the key developments going forward is going to be the fact that a lot of the tasks in the world can be done from anywhere and that creates an opportunity for Nigerians to be able to perform tasks, sell their their ideas, do stuff for the rest of the world, through zoom, or, you know, Microsoft Teams, or whatever. So, you know, right now, we are producing a podcast, you're in Nigeria, I'm in the US, we didn't ask permission for anybody to do this, we're producing something jointly and you wouldn't want a world where this becomes illegal or becomes regulated or restricted. So I think that these opportunities are probably more valuable for developing countries and therefore developed countries, it's a very important stepping stone forward. So I hope the world remains sufficiently open, so that the countries in the global south are able to tap into the flows of progress that are happening elsewhere in the world. Now, that doesn't mean that you have to renounce national sovereignty too much. But it's very important to understand that there are two competing goals. One goal is to have sovereign policy. So every polity, every political community can decide more or less what it is that they want to do and that's a good thing. The other good thing is to have common policies that, you know, if we can agree on, you know, whether computers are going to run 120 volts, or 240 volts, doesn't really matter. They can work equally well, at 120, or 240. But if we have a standard, it's easier for everybody, so my stuff can work in your country and your stuff can work in my country. So having common policies is also good, and to the extent that a lot of the human interactions are happening between people who belong to different political jurisdictions, you know, people who are in different countries, then the value of common rules becomes that much more important. I like to say that sovereign state can be half a bridge over say, the river that separates it from the neighbouring country, but the other half of the bridge has to be built by the other country and on half a bridge, you don't get half the traffic, you get zero. So there is some value of having common rules. I think part of the tension that is at the core of this is that there is a good thing of having sovereign national rules that the local political community can agree on, and have in common rules, rules that are respected both by us and by people in the rest of the world that are interacting with us and that that tension is a little bit what the world is trying to figure out. But, the forces that are favouring deeper globalisation, I think are technological in nature and they're very powerful they are not, it used to be the decline in the cost of transportation. Now, it's incredible expansion of the ability to move information around and you know, you just see by the magnitude of just the number of things that are available online for you to watch whether it's Netflix or Amazon Prime, 500 different television channels, and the news of the world, etc. You would want every society to have access to COVID-19 vaccines, you wouldn't want every society to have to produce its own vaccine. So there's enormous benefits from a world where international interactions are deeper, we just need to figure out what's the political arrangements that makes that as compatible as possible with local preferences. Tobi Lawson What about inequality, which is also a very topical issue now, whether it's on TV or Davos, talking, everybody's worried about inequality issue. Is the optimal point for poor countries or developing countries to start seeing these as a problem. So what I'm saying is, do countries need to concentrate on growth first, is there a trade off, because most of the remedies to inequality at least the policy proposals involve redistribution and poor economies may not have the fiscal capacity, some attempt it, but they may not have the capacity to do the kind of redistribution that some politicians are proposing to deal with the problem. So how do you think about this? Ricardo Hausmann So I think it's very important to finish the sentence, inequality of what, because if we don't specify the what we don't know what we're talking about, and I think that a lot of the discussion presumes a what we are concerned about what inequality we're concerned about and a lot of the discussion is what you might want to call the inequality of income and the idea out there is that there's sort of like a national pie, and some people are getting very big slices of the national pie and other people are getting small slices of the national pie. And then as you say, maybe can we redistribute how people are slicing the national pie. But an alternative way of thinking about this is that there is really no national pie. There are different pies that are being baked by different organisations, by companies or firms of a different size, and so on and so in reality, what you have is an enormous inequality in the sizes of the pies that different parts of society are baking. Okay, so it's inequality in the sizes of the pie, not in the way each pie is being sliced. Imagine that each pie is a corporation, it's a company or an organisation of some kind. Well, we know some of them are informal family, micro enterprises, and some are, you know, bigger companies, and so on. So, and inside each one of them, there is a division of, of the pie in slices. But what would strike you is enormous inequality in the sizes of these pies, to call it by another name, there is enormous inequality in productivity. There are some parts of society that are operating at very low levels of productivity, you know, I drove from Abuja to Kaduna and then on to Kano, and I stopped in a bunch of rural villages, and I looked at the farms and how they were farming and how much corn they were getting per hectare, and how many hectares they had to produce, and how they were doing things. Amazingly low productivity farms, where, you know, farmers would be able working very, very hard to tender to one or two hectares, and at very low productivity and very low incomes. So one thing I really worry a lot about is what can we do to reduce the inequality in productivities and I think that the inequalities in productivities, are very large, because there's many people who are excluded from access to the things that will make them more productive to the networks of energy, or transportation, of labour markets, of knowledge, of agricultural extension services, of value chains, of storage facilities, of logistics, and so on, that would allow their work to be much more productive. So to me, a strategy of inclusion, so as to make everybody's work more productive, especially the ones that are operating at the lowest level of productivity gains, that would be good for growth, because growth has to do with how productive are people and you're able to make them more productive, output will be higher. So it's a strategy for growth. But because we're focusing on the least productive and making them more productive, you're also reducing income inequality. So our strategy for inclusion is a win-win strategy. It's a strategy that makes everybody better off and it would reduce inequality to strategy for growth. It's a strategy that would reduce inequality, a strategy of redistribution. It's sort of like compensating people for their exclusion, saying, Well, given that, you know, you have to operate in a place where there's no electricity, there's no irrigation, or no good roads, there's no storage facilities, there's no logistics, you know, so there's nobody to take your crop when it's time and it's starting to run. So you have to sell it at whatever price you can get. So we live in an environment that is very unproductive and because of that, here's a check, or here's some money. Well, that's compensating them for the fact that they cannot operate in a more productive environment, and that that's a very, very secondary improvement. These people would be much happier. If instead of compensating them for their exclusion, you would stop excluding them and focus on including them and that can be as expensive or more expensive from a fiscal space point of view than redistribution. But it implies a completely different way to think about the problem and to allocate resources. So I think that what less developed societies need is a strategy for inclusion because it's Win win and because it's better. Tobi Lawson Africa is currently at about 50% urbanisation and that's projected to reach about 75% by the middle of the century. We are quite worried about our cities, overpopulation, infrastructure, and so many other things. What do you think of new ideas and development that are coming up, like charter cities, these was first proposed by Paul Romer, a little over a decade ago, but it's gaining some traction in some circles. I know there are experiments in Honduras, and some other places, what's your opinion about fancy ideas or  radical ideas like this?Ricardo HausmannSo first of all, I think the fact that Africa is urbanising is potentially a very good thing. You're mentioning that, you know, it's dangerous, because it might require more infrastructure and so on. Well, the truth is, it's cheaper to provide infrastructure and public services in urban areas than in rural areas. So it just makes, you know, the lack of provision of infrastructure more visible maybe. But it's cheaper to provide that infrastructure in urban areas than it is in rural areas. So in principle, urbanisation can be a good thing. Unfortunately, Africa has figured out ways, and Latin America too, to make cities that are poor, and that are disastrous, and that suddenly, you might get the increases in crime and insecurity and other sorts of problems that were not there in rural life. So it's very important to get urbanisation right and I think that a critical determinant of whether a city is successful or is not successful, is one of the things that can be done in the city, and sold outside of the city, or to people who live outside of the city, every place in the country and every place in the world is dependent on being able to buy things that it doesn't make and the way to buy things that you don't make is to trade for them and for that, you have to make things that are bought by people outside of their place. So whether it's a village, whether it's a state, whether it's a city or a country, it's very, very important that you have things that you can sell to people who live outside of your place. So you can trade for the things that your place doesn't do and what we found is many cities just don't develop those things and they end up for example, one of the reasons why capital cities are so big, it's because the way they get money is by taxing the rest of the country and spending the money. But it's not that the city itself is a source of activity and wealth and production and so on. So that's why it's so important that we get cities that are competitive in a line of things that can be sold outside the city. That's the critical thing. I am not particularly enamoured by the idea that charter city is a solution for something. The idea that Paul Romer deservedly won the Nobel Prize for making us understand how difficult it is to explain growth and he has a theory of, you know, what does it take to explain global growth, that is growth at the technological frontier of the world. He doesn't really have a theory of what explains why some countries catch up and other countries don't catch up. What explains the distance that countries have relative to the technological frontier? It's a country like Singapore, with a income per capita, say of 60,000? Why are countries at $1,000 or $2,000 so? What can you do to get to $60,000? Paul Romer's contribution to economics doesn't answer that question. It asks, What determines the rate of growth of countries that are at $60,000? So he, in some sense, borrowed the idea of the problem why countries are not at $60,000 the things that prevent you from being at the technological frontier. He thinks that the reason why countries don't approach the technological frontier is because they have bad institutions. That's his explanation. That they have bad institutions and, and charter cities are a way of like buying good institutions, important, good institutions and that's his interpretation of what happened in Hong Kong. Hong Kong because of, you know, the settlement of the wars with China, it was given to Britain and it was run by Britain and it was British rules that led to the growth of Hong Kong. So he's saying why can't we make other places like Hong Kong, I will put it to you that the reason why countries don't approach the technological frontier is not necessarily institutions that you can import. It's technology itself. Technology has trouble diffusing. So the distance with technological frontiers is of technological distance and the reason why you don't catch up in that technological distance is because of the nature of technology itself. The kinds of institutions that you can import are not the only thing there was because you know, after all, the British Empire had a bunch of charter cities under British rule. That didn't make Ghana or Bangladesh or Sri Lanka rich, right. So I don't necessarily think that that technological gap can be fixed by the kind of importing of institutions by chartering your city to somebody who knows how to run things. It might be in some sense, a way of importing government technology if you want to put it in my language. So I think that the problem is really trying to understand how technology diffuses, I think the future is a lot in the hands of people that it's much easier to move brains than it is to move know how into brains. That's why I emphasise before migration diasporas promoting foreign direct investment, maybe having your conglomerates internationalise and connect your country to the rest of the world, that it is through these channels that technology flows, and it's those channels that we need to focus on. Tobi Lawson One of my final question will be going further on that note, again, last couple of years, we've seen the rise of the use of RCT in economics research, particularly development economics, built on the work of Abhijit Banerjee and Esther Duflo, and, I'm Michael Kremer, who are Nobel winners and you can see the idea gained a lot of traction where you have nonprofit organisations like Givewell adopting a lot of the findings from the research from these new school of thought so to speak. What are your impressions of this turn in development economics research, generally, especially the influence on policy? I'll give you an example. Nigeria, for example has been trying we have this national policy of lifting a 100 million people out of poverty. But when you change the proposal, what you will find is this basket of proposals that have been lifted from RCTs, you know, social interventions, cash transfers and they haven't really worked and you will find that international aid organisations and policymakers love them. So, what is your impression of this turn in development economics, have we given up on growth, is that it? Ricardo Hausmann So I think that, you know, randomised controlled trials, RCTs are a tool and, you know, they are very good to answer some questions, they are useless to answer other questions. So for example, if you want to know if it's better, to give money to farmers at the time of harvesting, or give money to farmers at the time of sowing, and in terms of you know, the impact on their well being, and so on, maybe you find that it's better to give farmers money at the time of sowing because then they can use that money to sow and if you give them the money at time of harvesting, then they already have money. So giving them more money at the time when they already have money is not the ideal time to give them money. So so maybe that's something you can answer with a randomised control trial. What kind of structure should a country have? What Social Security structure should a country have? What infrastructure plan should a country have? What exchange rate regime should a country have? What, even educational system should a country have, those things you cannot do RCT on? You know, they're just not the instrument to answer those questions. So if you only do things for which you can do an RCT, you are going to be doing some kinds of things just because, you know, as they say, you look for the keys under the lamppost, not because you lost the keys on the lamppost, it's because it's the only place where you can see something. RCTs I think, have twisted the development agenda away from policies that are probably the most impactful, but for which you cannot do RCTs and into something that my good friend Lance Pritchard likes to call kinky development policies, that they are kinky in the sense that they want to do a small kink. So for example, you can do an RCT and whether putting flip charts in a school improves learning, or whether giving tablets to kids in a school improves learning, or whether taking a picture of teachers when they attend school improves teacher attendance and consequently, student learning. So all of these things you can do an RCT on, you can take a bunch of schools, you do it in some schools or another schools, and you see if it made a difference. But those are answers to super small questions to small kinks, in if you want in the way you do things. They don't go to answer more fundamental questions as to how to organise many, many aspects of society. So in my mind, the idea, by the way, and the answer much less than the promise, for example, they can tell you that if you do it this way, it works better than if you do it that way. If you give micronutrients to children in Guatemala, that it improves their learning. Okay, it doesn't answer two questions. The first question is, how does it do it? Does it do it? Because it improves their nutrition? Does it do it because we connected the family to a set of services that had other benefits for other reasons. For example, you can do an RCT, give half a million people, we force them to smoke and the other half a million people you force them not to smoke and then we look at the difference in cancer rates to see if smoking causes cancer. But, it doesn't tell you what about smoking causes cancer. What is the substance in smoking that triggers the cancer? We learn nothing about the biology of the process, the mechanism of the process and secondly, if you say give macronutrients in Guatemala, and it works, you don't know if it would work in Nigeria or if it would work in Norway, or in Singapore because maybe in other places kids don't have those deficiencies. You can do an RCT to find that, you know, whether if you give tablets to kids in school, you want to know if they can improve learning or not and you find out that it didn't improve learning. What have you learned? Well, you've already learned that that tablet used in that particular way, with that particular teaching materials in the tablet, by teachers trained in that particular way, didn't make much difference. But it doesn't answer the question. If you were to try to improve education in the school, and one of the elements would be the tablet, how should we use the tablet? What teaching materials should the tablet include? How should the teacher use those teaching materials? What should students be expected to do with those teaching materials? and so on? So it doesn't answer any of those questions? It just tells you, you did x, do some didn't have some effect or not have that effect. And as a consequence, I think one of the bad things that the RCT revolution has done is it has tended to put donors and a lot of attention to these small questions that can be answered by RCTs away from the really important questions that may not be answerable to RCTs. Tobi Lawson Do you think that economists should be more involved or influential in the politics in developing economies, for example, it's impossible to know this, but I want to pose the hypothetical anyway. How would Venezuela have fared if you were the president instead of the economic Minister? Ricardo Hausmann So, I think for economics to do its work? Well, it should be a science that answers questions. But that politics should be decided not only on the basis of technical solutions to questions, but also in terms of social preferences of what people want done, what priorities people have, what's more important for them, what do they want? And so I think that science cannot be a substitute of the political process. I think science should participate in the political process. I don't like when people say, you know, government should do what scientists tells them to do. Science doesn't answer the questions that many political systems need to address. For example, science can tell you if there is contagion, or there is a contagion in schools or how much contagion in schools varies. It might help you understand how are people getting infected and how they get

It was enlightening as expected to talk to Harvard professor of economic development Ricardo Hausmann. He has a refreshing take on all of my questions - and I believe he is one of the most important thinkers on development ever. You can check out some of his work for Harvard’s CID Growth Lab (where he is the Director) here - you can also find many of his lectures on Youtube.You can listen and download directly on the website or simply search for the podcast on any of your preferred platforms (Apple, Google, Spotify, Stitcher, etc). I wrote a companion essay discussing the core of Ricardo’s ideas, through the lens of the evolution of the popular ideas in development in recent past decades. The essay is only available to paying subscribers - it is also available to our patrons on Patreon or here. You can support the work my team and I do by becoming a paying subscriber or through Patreon. This is a public episode. Get access to private episodes at www.ideasuntrapped.com/subscribe

I spoke to Decision Scientist Oliver Beige on some of the things experts got wrong about the Covid-19 infection pattern, and the policy response. We talked about those exponential predictions that were popular at the height of the pandemic, the things Japan got right, Sweden, and how society and policymakers should evaluate expert knowledge. This is a public episode. Get access to private episodes at www.ideasuntrapped.com/subscribe

The second part of my conversation with Andrew Nevin. We talked about the economic development patterns of India vs China's - and what Nigeria can learn. We also talked about his habits during the lockdown, Amartya Sen, and the habits of mind that shaped him growing up. This is a public episode. Get access to private episodes at www.ideasuntrapped.com/subscribe

Andrew Nevin - who is the chief economist of PwC West Africa - returns to the show for a record third time. I spoke to him about some of the big trends that will matter now and into the future. He provided excellent insights on the socioeconomic implications of population growth and decline, climate change, technology, and why we will need a more robust measurement of human well-being beyond GDP.You can support the show (and our mission to spread good ideas) through this page - you can do this by becoming a patron on Patreon or by making a donation. This is a public episode. Get access to private episodes at www.ideasuntrapped.com/subscribe

Listen now (63 min) | I had an interesting conversation with investor Andrew Alli. We spoke about how investors price risks, power sector reforms, and his views on the clamour for political “restructuring” in Nigeria. Andrew is a Development Finance veteran and in my opinion, he is still underrated as a public intellectual. This is a public episode. Get access to private episodes at www.ideasuntrapped.com/subscribe

I learned a lot having this conversation with economic historian Mark Koyama. State Capacity has become an important concept to be understood - especially with the current economic and security problems Nigeria is currently dealing with. A lot of us are also reeling from the consequences of the decisions our governments made in responding to the global pandemic. My conversation with Mark was a bit “wonkish”, so listeners unfamiliar with some of the things we discussed can read the links provided below.Epidemic disease and the state - Mark KoyamaHow to build a state - Anton HowesSome Thoughts on State Capacity - Mark Koyama“State Capacity” is Sleight of Hand - Bryan CaplanIdentity Rules, Group Rights and the Promise of Liberalism - Mark KoyamaYou can listen on Apple, Spotify, Stitcher, or Google Podcasts by simply searching for “Ideas Untrapped”. Kindly give us a rating on these platforms, as it helps others discover the podcast. This is a public episode. Get access to private episodes at www.ideasuntrapped.com/subscribe

Investigative journalist David Hundeyin found himself having to flee the country recently because his reporting has rubbed some powerful people the wrong way. In this conversation, I started by asking him how Nigeria’s promising democratic evolution ended up at this point. We also talked about former President Goodluck Jonathan’s public relations problem, his "beef" with the non-profit Feminist Coalition that came to prominence during the nationwide protest against police brutality, and other things. You can download/listen directly on the player on the website or get the episode on any of the popular platforms like Spotify, Apple, and Google Podcasts. This is a public episode. Get access to private episodes at www.ideasuntrapped.com/subscribe

It is quite common to hear people imply that any government that fixes Nigeria's electricity problem will enter the nation's pantheon of sainthood. But even the promise of immortality has not been enough for any meaningful change in the sector. I sat down with Timi Soleye - who is an industry player and insider (he is the President of CRYO Gas and Director of Power at Raven Energy) - for an extended chat on the issues facing the sector. Timi's take ended up being an extended commentary on the state of policymaking in Nigeria, and the country itself. Listen or download on most of the popular podcast vendors here or directly from the player on the website. This is a public episode. Get access to private episodes at www.ideasuntrapped.com/subscribe

I had a conversation with former deputy governor of the Central Bank of Nigeria, Professor Kingsley Moghalu, and it was worth every minute. He explained why the CBN has taken the role it has on economic policy (and how he thinks it has overstepped), the lack of state capacity in Nigeria - and why we need a philosophical basis for governance. I also asked him about his plans for the 2023 elections, what he thinks about the next 60 years of Nigeria, and his alternative vision for the country. All download and listening options (besides the website) are here. Kindly give us a rating on any of your preferred apps (or rate us directly here). This is a public episode. Get access to private episodes at www.ideasuntrapped.com/subscribe

In the first of a series of end of season episodes - host Tobi Lawson talks to Prof. Pat Utomi about the state of Nigeria, and how it all went wrong. You can listen on your preferred platform here, or from the player on the website. You can also rate us on any of the platforms or here - this helps others find the show. This is a public episode. Get access to private episodes at www.ideasuntrapped.com/subscribe

It has been a little over a year since we started the podcast. Host and curator of the show Tobi Lawson is a guest on this episode - to talk about the philosophy behind the project and his opinions on many of the issues the show has discussed. You can rate us here. If you want to support our efforts in bringing you the thoughts of brilliant thinkers through these conversations, you can be a patron here.What our guests and listeners are saying…“Thank you so much…for doing this whole project where you’re capturing people’s thoughts and you’re contributing to knowledge and content. It’s extremely important. I cannot even overemphasize how important it is.” - Ayisha Osori, Executive Director, OSIWA“Your comments and views show a deep understanding of what’s happening around the world, what’s happening in Africa and these are not easy issues…” - Andrew Nevin, Chief Economist, PwC Nigeria“I loved chatting with Tobi about my research on Nigerian markets! Tobi has read more political science research than any non-political scientist I’ve met.” - Shelby Grossman, Political Scientist“If you like him, you’ll love his podcast series called, Ideas Untrapped.” - Affiong Williams, CEO Reelfruit“This is fantastic. A great synopsis of the current state of the Nigerian economy.” - Dr Kunle Olu-Nwankwo“Interested in Nigeria’s development? Binge Ideas Untrapped for perspective and smart insights.” - Ewoma Vese“Binged on all the interviews on this platform…” - U.F.O Frank“Good stuff. Thank you and the team for what you do.” - Semper Fidelis“If y’all are looking for a deep podcast, Tobi Lawson does it right! Brilliant and incisive interviews.” - JAYPEE“Lovely insights. Excellent work with questions from the host. I'm very impressed.” - Samuel Okocha“I just finished listening. Really insightful and educative + @tobi_lawson asked very interesting questions.” - Gbenga This is a public episode. Get access to private episodes at www.ideasuntrapped.com/subscribe

Here is the second part of my episode with Chris Ogunmodede. We continued the discussion on Nigeria’s political economy. We touched on institutional memory in the legislature and why we need a stronger civil society. Chris is insightful as always.You can rate us here. If you want to support our efforts in bringing you the thoughts of brilliant thinkers through these conversations, you can be a patron here. TRANSCRIPTTL: This is Ideas Untrapped and my guest today is Chris Olaoluwa Ogunmodede. He's a foreign policy analyst, a writer, editor and political risk consultant. His work centres on political institutions and foreign policy of African countries, particularly in the West African region, and he has extensive experience working across Africa, Europe, and the United States. He's an editor at the Republic, a Pan-African global affairs publication. You're welcome, Chris. It's a pleasure to have you here. CO: It's a pleasure. Thanks so much for having me on your podcast. I'm glad to be here. TL: One detour, quickly, that I want to take listening to your answer, is the role of ideas in all of this and messaging from the top or the centre, so to speak. President Buhari has a bit of a perceptive reputation, I would say, as inflexible. Inflexible, he is set in his ways, he has his idea. I mean, we just talked about the cabinet, I remember I think it was his first and probably the only media chat that he had where he said permanent secretaries are the ones running the government. CO: Yes. I remember.TL: We don't need ministers. And exchange rate was so and so in 1983, how come it is so and so in 2016. So what is the role of ideas in how the transmission mechanism of governance really really works? So, if the man at the centre, if the leader, if the visionary, so to speak, have some of these funny, archaic ideas about things, is there really any hope for governance? So that's one. Secondly, which is one other thing you touched on in your answer, you talked about how PDP was found, the experience with succession and governance. And I'm leaning a lot on Carl LeVan here. Talking about how the post-colonial governance, especially after the civil war, has always worked in Nigeria by different veto power structures, exacting influences, pushing each other. But in that same process, I see someone like president Buhari, even right from his days in the military and even afterwards, as a bit of an outsider to that process.So he does not come with all the governing credentials, so to speak or should I say experience. So how much do these two things - ideas and experience in actual governance and the influence with the governing structure behind power, how much do these two things influence the way the APC evolved as a ruling party?CO: Yeah, I think a lot. As you pointed out, this is a president who you could charitably call incurious about a lot of things, and he relies on a very small circle of advisers, the cabal as it were. You know, that's the sort of colloquial description for his advisors. Many of them share his views on economics, on security, on practically everything that's important. This is also not a...president Buhari is not particularly gregarious, he is not particularly outgoing, he's something of a loner, he's a quite austere person. You contrast him with former president Obasanjo, for example, who couldn't be any more different even though they were both military heads of state. President Obasanjo is something of an intellectual. He's written so many books. I mean he ran for UN Secretary-General at one point. He's someone who you will find on panels all over the [place], even to this day. Like, this is a person who has a worldview, he sees himself as an African intellectual statesman and has behaved that way. Not even just today, as far back as when we left the armed forces when he handed over in '79. This is someone who has engaged himself in African affairs, in particular. He's been a peacekeeping envoy to this person, to that person. You know, whether it's Charles Taylor, whether it's in Togo, this is someone who is often dispatching himself to be at the centre of [things], especially things that have to do with Africa. He's someone who relies on a number of young [people]. One thing people don't know and just in the interest of disclosure, he's someone I know somewhat well, you know. President Obasanjo is someone who relies on a lot of scholars, academics, thinktanks. You know, he has a presidential library now. He's long had a Foundation, you know, these are things he uses to project not just his influence, but his willingness to learn so much about the world. When he was president, he was the kind of person who if you went to see him about something about a policy issue and you felt it's something that was worthy of his attention and he got the sense that you knew so much about [it], he was ready to offer you a job right there, that he would say to you things like OK, why don't you come and take this position and that.President Buhari is not like that and this is where intellectual curiosity as a leader is consequential. But like I said, President Obasanjo had all of his flaws and you know, there isn't enough time to go through all of them, but he had that ability to one: spot ideas or at least listen to ideas if he'd never heard of them before. He was even willing to be pushed on his idea. You know, when you read The Accidental Public Servant by elRufai where he talks about his time working for OBJ, you get the sense that that's the kind of [relationship]. It was a somewhat combative relationship, but it was one of begrudging respect because he felt elRufai was someone worth listening to, he understood so much about governance, about public policy, public administration and all of that. So that's the kind of person president of Obasanjo was. Whereas with President Buhari, it's only his inner circle and well, everyone, get lost. That lack of curiosity shows. That's why their policy responses in the administration on every issue is quite predictable. You can spot from a mile away what the administration would do on any issue. It's either to band this thing or to regulate that thing. Or, you know, they're a hammer that sees nails everywhere, the administration. And that's because that's the tone that's set from the top. The ministers and other members of the cabinet don't have a close relationship with him, they don't have any real influence. They certainly don't have any power, and that's by design. These were people who in some ways were foisted upon him and he just had to accept them. You know, like you pointed out, he said something about how ministers don't really the government and Perm Secs are. He only picked ministers, frankly, because he had to. He was more than happy to, you know, roll with the people he was rolling with. So the Ministers he selected are essentially part of the spoil system to him. Now broadly, that's Democratic politics as a rule, but you know, like you pointed out that there's a constellation of forces as far as governance is concerned, but with him, none of that is there. And because like I mentioned, APC as a party consist of several different moving parts with very little in common, the internal mechanisms of the party are not that strong, and it became very evident with all of the parallel congresses and fighting factions. At one point, the party chairman was fighting with the governors and they eventually got him removed (I'm referring to Oshiomole). They got him removed. There is so much reliance on the personality of President Buhari. So when he set the tone, everyone simply just falls in line with it. Now, of course, that generally tends to happen in many democratic systems. In many democratic systems, especially ones with weak political parties, that's what tends to happen. Where the President or Prime Minister, depending on the system, becomes like a sort of patrimonial figure where what he says is essentially an edict. You know, I would say APC is a weak party by virtue of the fact that they have no real means of resolving internal disputes without making them turn into something else, and it had to require the intervention of Buhari to resolve the issue with Oshiomole and the NEC and the governors and all of this stuff. So, apart from the fact that many of the governors and other elite in APC already agree with him on several policy issues, those who don't [agree] have no incentive but to fall in line. Now, you contrast with PDP where especially under Yar'adua who was basically an old-style Marxist, for all intents and purposes, you know. The fact that he was that type of person succeeding a president who I would regard as a neoliberal president, Obasanjo, tells you the kind of diversity of thoughts inside PDP. People always say oh, there's no ideology in Nigerian politics. There is nothing that differentiates [the parties], that's actually not true. There are ideological differences. Clear ones, actually. PDP has something of a sort of free markets, at least it used to anyway, a free-market orientation towards, certainly, economic matters. Had the privatisations, the deregulations of the Obasanjo years, and then the Jonathan years. Whereas with APC, they are much more of a Social Democratic/Democratic Socialist Party. You know, at least the people who formed the core of APC when they did. The Bisi Akande and all these other people. These are old-style union, you know, student's union, teacher's union types, farmer and labour groups. Those are the elements that became, at least in Southwest APC those are the elements that became the elites in the party. And you know, many of them came from the ACN and before that AC, and before that Alliance for Democracy, and then before that, whether it was SDP or Action Group cause some of these guys are that old. Somebody like Bisi Akande has been in politics since the days of Action Group under Awolowo. That's the genesis of their political worldview, so there are clear differences between the parties. What I think people are referring to is the fact that parties are weak. So like I said, internal democracy is nonexistent, party discipline is nonexistent. So it means that the party is as strong as a couple of dominant figures who can come in and exert their will. For example, in a party primary, you can come in and essentially buy the nomination under some circumstances ignoring what the rest of the party might want. Governors are known to exert so much influence on parties, especially in the states. Because there is very little that binds the parties together, in political science they refer to it as party system institutionalization. That means the parties aren't really regarded as legitimate across society. They are not wedded to the society. Yes, people vote for them, they exist and they're registered and all but, for one thing, the low turn out in the election tells you that the overwhelming majority of voters do not regard them as legitimate. So at the end of the day, because they are the only ones who participate and can exert their will because internal party dynamics are so weak, it now makes it easy to move from party to party. One minute you're in PDP. One minute you're in APC. One minute you're in Labour Party. One minute you're in APGA. So people conflict the fact that the parties are so weak that people can come and go with the fact that there is no governing ideology. There are clear differences when it comes to ideology. It's just because the parties are so weak, any dominant figure can just come and impose his will on the party, and everybody goes [along]. For example, Wike is basically the leader of [the] opposition in PDP and it's something I talked about a few weeks ago on Twitter after the Edo election. Wike has basically been PDP's leader since 2015. Because the national party is so weak and redolent, at this point, Wike is the most dominant of all the PDP governors. He governs a wealthy state, at least relative to the rest of the country. He's basically the leader of the opposition in real terms. Yes, you know, they have a PDP chairman and all these other stuff. But, Wike is the most dominant PDP figure in Nigeria and that is because he has been able to exert himself on the party.Normally [a] political party should be expressions of several different things. A uniting ideology that brings different factions because, you know, there'll always be people with different views and things like that, while you want a broader governing philosophy. For example in the US, the democratic party are regarded as the centre-left, the republicans are regarded as right. In Nigeria, those labels don't quite work as well because, well, first of all, what is left in Nigeria and what is right? And like I said, the parties are so weak that anyone can be one thing today and the next thing he's another tomorrow. It's not that there is no prevailing ideology, it's just that the parties are largely the aggregation of one dominant figure's interest or several dominant figures' interest, so it's very easy to come in and stamp your authority and get your way. So all of this is why governance, as it were, under the Buhari administration has mostly been predictable, and one-way traffic. Back when Abba Kyari was still alive, people always used to say he was secretly the president, I don't think that was necessarily what was true. What was true was that President Buhari had a set of ideas and Abba Kyari was the enforcer, and that is literally the role of the Chief of Staff. In the US, that is literally what the chief of staff does. Chief of staff is basically the President's number one protector. That's all he is concerned with. There have been lots of books written about White House chief of staff and one thing you will come to understand about that role is that the person thinks from one point of view only: the president. He doesn't think about the Vice President. He doesn't even think about the cabinet, he doesn't even think about himself or, at least, shouldn't. You think about what president wants and you defending it to a T. That's basically what Abba Kyari is. Of course, because Abba Kyari and President Buhari were ideologically soulmates, all of their prescriptions matched and President Buhari trusted him, respected him so much and he was a very hard working man, so it was very easy for people to say, oh, Abba Kyari is the one pulling the strings. Now, he was a very powerful person, no question about that. I'm not trying to dispute that at all. What I'm saying is that it wasn't nearly as sinister as people thought. Here was a situation where he had been given a lot of free reign to govern by his principal and that's what it is. So that is what governance under Buhari had been like, at least, as far as [the] federal government. President set the tone at the top and Abba Kyari then, and now ambassador Gambari effects what the president wants and that's it. There's no sense of internal meeting. There really isn't one because there's no balance of power of that kind. In certain governments, you get those kinds of situations where one person feels like oh, this is my view, that person has his view. Obasanjo used to encourage that kind of interaction, even Jonathan too to a certain extent used to, but with President Buhari, if disagreements emerge they're largely spontaneous, largely because people will always have their own agendas, their own interests, but a lot of it is largely going on with the president's total oblivion towards them.TL: I might actually have to update my priors on ideology in the Nigerian political system because my partner always tells me PDP is capitalist and I remember my consternation on the show when Akin Oyebode actually said APC is centre-left. I was like, Woah! But interesting point of view raised there. Briefly, let's talk about president Obasanjo.A lot of people still consider him the best president we've ever had...CO: I would generally agree with that. You know, all things considered.TL: One thing and the people who know him and different accounts about his time in government will tell you that he's very hands-on, he knows what's going on, there is never really [any] confusion about who's in charge, even though he's open to ideas and dissent and gives the people that he trusts a lot of latitude to be creative with policy. But there's something important that I want to raise and that is the issue of power vacuum. I mean, you just talked about Kyari. There's this perception that in the current administration there's some kind of power vacuum. And that perception is fed by how much time it usually takes the presidency to react to some issues of national crisis. I remember when the Covid-19 outbreak first reached Nigeria, people both on social media and the traditional media were, for weeks, calling for the president to come out and speak. And we can say the same for a lot of other things, including EndSARS. There are people who still think today that the signal about the reforms, because now, one of the government's defence is like oh, we were responsive. You guys said you wanted this...to dissolve SARS blah blah blah... But some people are of the view and which I agree that if the dissolution of SARS had been a presidential order or pronouncement, then, it could have calmed a lot of nerves, especially among the protesters. So let's talk about the issue of power vacuum - is it real? Is it not? And how much did president Obasanjo's legacy matter here particularly in the area of succession? Because a lot of people still see the handing over to Yar'Adua, some say maybe rather sinisterly, that it was his last act of revenge for not getting a third term. But we know that president Yar'Adua, for all his good intentions and his good heart, was not really a man of good health.CO: Yes.TL: And we had this period where transition, even handling over, constitutionally, to the vice-president became problematic because of the cabal, so to speak. There was some sort of vacuum. So how much does president Obasanjo's legacy matter here in the presidential tradition that have, sort of, been in play since the end of his administration?CO: That's actually a very useful question because I believe that it's quite under-discussed, and here's why I said that. President Obasanjo is the first civilian democratic president for the first republic, right? He comes in with this wealth of experience - he's been a military head of state. Obviously, he's a career military officer. He was a commander in the civil war and all of this stuff. He was on the Supreme Military Council as number two to Muritala Muhammad and all this stuff. So, here's a person who comes into government and civilian democratic politics practically with a very good sense of what he wants to do.And, of course, he brings his own personal traits and all of these stuff into governance and politics. He's a very towering, some might say, overbearing figure and he exerted a lot of hard power. You know, Obasanjo, frankly, with an authoritarian. If we are going to be frank. And because, like I said, he's the first one of the fourth public. So he has framed for Nigerians what a president should be like. Because don't forget before him, the last president we had was in 1983. So many Nigerians before Obasanjo don't have any recollection of what a civilian president is like. So in real terms, Obasanjo is the first civilian president for millions of Nigerians ever. Ever. TL: True.CO: Because many of them weren't born. And like you pointed out, many people regard him as the best leader, broadly, postindependence that Nigeria has had. The things he did on the economy and all of this other stuff. Along that came with, frankly, a lot of political baggage. You know, we don't talk enough about how many of the problems that befell PDP were things that he put in place, were problems he started to create. Whether it was handpicking candidates for PDP, whether it's muscling out PDP chairmen who disagree with him, whether it's instigating issues with governors that eventually lead to their impeachment. You know, a lot of this aggrandising behaviour started with Obasanjo. So a lot of what we've come to understand as far as the mythology of the Nigerian president is of him. That colours everything we’ve now come to understand about the way a president should be like. So the president must always be seen. He must always speak. He must always this. He must always that. So that is why if you remember during the Jonathan years and people always said oh, he was weak, he was indecisive and people were running roughshod over him and this and that, that's because he chose to be hands-off. There's no right or wrong way to administer government. The devil is always in the details of the decisions you make or don't make. So in that sense people always looked at Jonathan through the prisms of Obasanjo and to a large extent, people continue to look at Buhari through the prisms of Obasanjo. Forgetting, one: times are different, times have changed. Buhari and Jonathan are different people. There's never been this sense of allowing the institution to grow. You know it's not the Nigerian Presidency, it's the Nigerian President if that makes sense. In the US they talk about the modern American Presidency. It's this grandiose king-like office. In fact, there's a book by a guy called Arthur Schlesinger called the Imperial Presidency talking about how the American Presidency is essentially a king, and how the president, in real terms, is beyond the authority of Congress and the constitution and all of this stuff. You know, if you think the American President is an imperial one, I would argue the same is true about the Nigerian president. Even more so because in the Nigerian Constitution the structure of the distribution of power favours the Nigerian president even more so than the contextual equivalent in the US where what has happened is that the American President has assumed a lot of powers for himself... Oh, well, yes, "him" because there's only been male presidents. The American President has assumed a lot of powers for himself and when and they have gone to the courts, the courts have sided with the executive branch. You know, the American Presidency, at least as far as the Constitution goes, is quite a weak one. The enumerated powers of the American president are quite specific, and they're quite minimal, but political developments over the last century, in particular, have granted the American president so many powers where at this point, especially on matters of national security and foreign policy, the president can frankly do whatever the hell he wants and everything else will be after the fact. I would say in Nigeria, the enumerated powers of the President are even much more pronounced and the political powers that the President has assumed more so. So that colours how people view the Nigerian presidency and then when you look at the fact that the National Assembly has so much turnover, I think the eighth National Assembly had a turnover rate of I believe, I may not be exact here, about 66 percent. That means 66 percent of the members of the eighth National Assembly did not come back. That's a terrible development if you care about the separation of powers. The institutional memory of the National Assembly is lost, basically. Not when you have two-thirds of the class gone, and then the president stays. But two-thirds, including by the way the senate president. Let's not forget, the senate president was among those who departed. That is a loss of not just institutional memory of governance, but also the understanding of inter-government relations. And then the fact that you have to bring up all these new people up to speed on how governance works and how to be a good legislator. One of the most important lessons I learned as a young student was during an internship on Capitol Hill. I spent some time in the constituency office of a US Senator and one of the most valuable lessons I learned was how much time US Senators put into learning the procedural rules of the Senate. And how much powers they have institutionally, collectively and individually. That's how much power does one senator have, whether you're in the majority or minority? But especially when you're in the majority where you can actually get things done. How much power does his caucus or her caucus? And then, what are the powers of the Senate? Some senators spend a whole year learning this stuff because it's so important. It literally affects everything they do from the passing of the budget, the reconciliation process, parliamentary rules as far as presiding in the Senate. Back then when they still used to have what they call earmarks, which are basically senators reserving certain pet projects for their constituency. There's a million and one thing Senators have to learn, basically, when they take office. So there are a hundred US senators. Imagine 66 of them are gone and a new set... now granted all hundred seats aren't up at the same time but imagine such a scenario where 66 go and another 66 have to come back. That gives the advantage to the executive branch. That's exactly what we have in Nigeria where two-thirds of every senate, every National Assembly class is gone and the new ones have to come and start learning how government works. Meanwhile, the president has been there the whole time. If you care about authoritarianism, that's something you should want to fix. A lot of political science literature talks about the fact that legislatures need a period of 20 years post-transition - that's this period when they are coming out of authoritarian rule, whether it's a military dictatorship or something like that. But you know, legislatures need about 20 years to become really strong and capable enough to enforce the principle of separation. It gets harder to do that when two-thirds of your class is gone every time. And these are the things that I think much of the commentariat don't discuss enough. Like you know, we talk so much about restructuring, things like that, I've always made a point that personally, I think the National Assembly needs more former governors are not fewer. And this is a very controversial point because we all talk about how governors turned the senate to a retirement home, blah blah, blah. But there is actually a good sense of how former governors, having done a lot of the hard work of negotiating, understanding how especially public finance works, how to allocate certain benefits towards your constituency, how parliamentary rule work, Governors tend to know these things very well. Governors tend to also understand the informal side of legislative politics. You know, agenda-setting and all of that. How to build alliances in the Senate, how to work across party lines, Governors tend to know how to do that stuff very well because they've done it when they were Governors. Whereas with people who aren't Governors, they haven't been executives, they haven't had to deal with budgets and things like that, it's quite a learning curve. And these are some of the reasons why the Nigerian Presidency remains as outsized relative to the National Assembly, even though it's not supposed to be that way. You know, the National Assembly, one of its powers is oversight over the executive branch, over the presidency. But in real terms, especially in this current dispensation, that's why people talk about it as a rubber stamp, because in real terms the political power is an unequal one. All of the power has been situated in Aso Villa and the National Assembly simply just rubber stamps. They go with the flow of the Villa. It's not supposed to be that way. And all of these developments largely stem from the Obasanjo years where Obasanjo was meddling constantly in the National Assembly's business. If you remember, there were five different Senate Presidents when Obasanjo was president. Five.TL: Yeah. CO: I mean I remember...EnweremTL: 2 or 3 speakers.CO: Exactly, exactly. Okadigbo, Wabara...TL: Ken Nnamani.CO: Ken Nnamani, that's it. So, you know, those years were very tumultuous and those were very crucial years. Because like I said, that's the first democratic dispensation of Fourth Republic. So the groundwork that was laid back then is one that continues to still affect the Nigerian political dispensation, obviously, over time there was a bit more stability. David Mark was Senate president for eight years and all of that stuff. Some stability came over time, yes, but it didn't change the fact that...and this is how institutions work, going back to what we discussed, you know it's not a straight line. The signs of decline of institutional quality are often very apparent long time ago but you know, sometimes they move forward, they receded again, they move forward and they recede even further, you know, life doesn't move in a straight line. And that's essentially the point we have gotten to right now where, because of a number of and, these are mostly political development. They are not strictly constitutional ones. They're largely structural and political... Because of the things Obasanjo did, so much has come to be normalized. Now if you remember when the National Assembly had all those fights about who would be principal officers during that interregnum where APC won the election, but we're waiting to be sworn in? If you remember President Buhari said something about oh, he didn't want to get involved in their matter and he wanted them to sort this out themselves and many, at least, much of the commenting class found that to be strange, that's an example of what I'm referring to. Because we were so used to, in the Obasanjo years, him meddling in the National Assembly's business, the idea that a president would not want to get involved in the selection of the National Assembly's business, seems so strange. So these are some of the changes over time that if people, especially in civil society say they want to see as far as good governance, better governance, these are some of the issues we need to address. It can't always be about the presidency, the presidency, the presidency. To me, restructuring has got to be about all of these ideas. What kinds of powers, authority do you want the National Assembly to have? What kind of authority do you want state governors to have? What should the relationship between state governor's and the House of Assembly be? Do you want them to continue to be appendages of the governor? Or do you actually want them to be functional? These are the kind of iterative conversations that we don't have enough of and if you want a proper restructuring, whatever restructuring means to you as a Nigerian, these are some of the things you need to consider. TL: Those are very interesting thoughts, Chris. My final question, so to speak, on Nigeria, our beloved country, is that here we are. A lot of young people, they came out about an issue they are passionate about, they largely conducted themselves peacefully, they spoke their hearts, they expected their government to hear them and they are not asking for too much. But here we are. It has ended exactly the way Nigeria handles things. Lots of violence. Lots of denial. No one is really taking responsibility or leadership.CO: YesTL: What is the way forward? A lot of people are talking about elections. Yeah, we just have to vote these people out, is it really as simple as electing the right people? Is it restructuring? What exactly does that mean? You know a lot of the conversations we have about restructuring is about constitutional reforms, rewriting the constitution and big conferences and some of this processes that makes consensus very, very difficult to get to, you know? Are there quick gains right now that you think can be delivered to Nigerians? I mean, there's a lot to suggest that a lot of progress can be made even in the immediate. The judicial panel in Lagos is a good example. Today, I was reading the news that they made an unannounced visit to the military hospital to examine bodies, they had pathologists trying to test the system and hold it accountable within the powers that you have as a state government. Those are examples of quick gains, so why are we not doing these things? Why are we not testing the system and examine the fault lines, so to speak? Also, there's the issue of apathy. A lot of people say parties win elections in Nigeria by largely relying on their political base. You have state elections where you barely get 200 thousand total votes. So a lot of people don't vote, mostly young people. So is voter apathy part of the problem? And if they come out and vote for their preferred candidate, how are they sure that their preferred candidates are going to be on the ballot to begin with? You know, so many other issues. The issue of money in politics is also an example. So many research as pointed you need a billion naira to become a senator in Nigeria, 3 billion to become a governor and you have young people who want to go into politics and try to change the system, are they not disempowered by default with the way we have designed the system? So, so many questions, but what is the way forward in the long term, in the medium term and the short term?CO: Those are very important question because right now, at least as of this moment, the large scale demonstrations have practically ended, at least in Nigeria, you know, there's still lots of marches abroad and things like that, but in Nigeria, at least in the big cities anyway, the large scale marching to this place and that place is over. But there is a bit of uncertainty about what's next. Now, as you mentioned, there's been a lot of oh, 2023 and PVC, youth party...I did a bit of a thread last week talking exactly about this that, first of all, we have agreed that EndSARS, one of the subtexts of it is that the status quo is not working, how we're going to have to reconfigure the way we go about civic engagement, right? OK, so when we look at the last inflexion point in Nigerian politics, I would say it was the end of the military regime when Abacha died and the transition. What was the, at least in my view anyway, what was the mistake that was made? They were several but one of the key ones was that many of the activists, you know, whether they were NADECO, campaign for democracy or whatever else, everybody ran to politics. Not literally everybody, but much of the muscle behind all of those campaigns, whether it was Bola Tinubu, Bisi Akande, everybody ran to electoral politics, let me be specific. They ran into electoral politics. That's not a problem in and of itself, but in building institutions, you don't put all your eggs in one basket. Imagine a scenario where people like Gani Fawehinmi, for example, built up legal aid organizations, built up the judiciary, public defenders, their mandates and prestige was strengthened. Civil society organizations across a variety of policy issues were built up. Professional associations were built up. Religious organizations took on more of a civically responsible role as opposed to what they're doing right now, which in my view is not any of that. So the point I'm making is that imagine if there were a much larger constellation of forces, of social forces in the political space, as opposed to political parties and electoral politics alone? what would likely have happened is that the political class would have been forced to compete better.Simply because, for example, you come up with one policy idea or the National Assembly takes one bill up for consideration, there's civil society push especially if it's a really unpopular one. There is civil society pushback, you know, professional organizations like the NBA and all of that stuff. Writers groups, creative groups, trade unions and the likes, everybody came up in arms, expressing their opposition, their collective civic opposition to certain things. That would have spelled, for one thing, the ability of countervailing forces in the political system to make their own voices heard. But because all of the muscle from the democracy campaigns, everybody ran to politics. Some people didn't. People like Alao Aka, Bashorun and the likes, they didn't go into politics. But a large number of the activists from the 1990s they went to politics, including, of course, Gani himself.So that made electoral politics the, you know, crown jewel of civic participation. So when I start to see all this stuff about PVC and [2023], it just seems to me like a repetition of all of that. Like, I've seen so much oh, FemCo should be turned to a structure. FemCo should be turned to a party. Oh, FK should run for office and I'm thinking to myself, is that the only way that any of these people or these organisations have to make [a] change in Nigeria? If you are telling me that's the only way, then we're in bigger trouble than I thought. Because as far as I know, there are people who are still locked up in prisons across the country with no one to get them out. There are schools that are still crumbling. You know, there are a variety of policy issues across the board that we could address now. Those problems will not wait for 2023.TL: Sorry to interrupt you, Chris. This is such an important but underrated point you're making. I mean, it's such an important one I can't possibly amplify enough. During this whole protest and all, I pointed out to a couple of friends about the decline of civil society. I don't know how that came about, but you talking about everybody going to electoral politics now seems to be connecting the dots. Look at SARS, for example, and this menace. Someone Like Chief Gani, God rest his soul, by now would have buried SARS in an avalanche of lawsuits.CO: A long time ago. A long time ago. Are you telling me people like Gani, Alao Aka, Bashorun who took on the armed forces could not deal with a problem like SARS if given the institutional environment to work with? Please. TL: Exactly, I mean, one of the empowering precedences, even for state judicial panels today, and I've seen a couple of lawyers cite this to me on social media is Fawehinmi Vs Babangida in 2003. Someone did that. Someone took the initiative to do that. So like you, I'm also quite worried about this narrative of we all have to go into politics as if there are no other instrumentalities of the society...CO: It honestly confuses me when I hear it. Everyone has been saying, oh, Feminist Coalition should run for...and when I say this, it's an agnostic position I'm taking that, they may be good political leaders, they may not, I don't know but what I am pushing back against is the inherency of the fact that because they have demonstrated such brilliance in political organizing in one area of civil society, that it's necessarily going to translate to political office, I don't think that's necessarily true. And it's worth interrogating because when you say you want to vote for somebody, you should ask yourself why is it that you want that person as opposed to however number of other candidates. There ought to be something you're voting for. How do you know that because somebody was a good organizer in a social movement or a protest movement, they would necessarily make a good policymaker or a political leader? You ought to ask yourself those questions and when you don't, you are simply repeating the mistakes we made in 1998/99. Where, frankly, a lot of people who shouldn't have been in politics got into politics and, well, you know, here we are.TL: That's a brilliant point. Needs to be said over and over and over again. I mean, I even tell people that ordinary protest they are bringing thugs...CO: Exactly. [Laughs]TL: Imagine what they would do to win an election? You know? So, I know I sort of derailed your answer, but, I mean...CO: No, not at all. I think, no, it's very much part of the point in that we cannot simply think voting the "right people", I think it's very connected. First of all, what is the right people? You've got to ask that foundational question. Who are the right people? What ideas are you looking for? And even if you get the right people, the educated class in Nigeria likes to bang on about institution and I've explained, sort of, why I find that to be counterproductive. You know, you talk about institutions well, what kind of institutions are you going to build if you think all it takes is that you get in the right people? Well, people change. You know, I did a tweet two days ago talking about how Alpha Condé, the Guinean president. So here's this guy who spent four decades in opposition, right? He gets sentenced to death in absentia by Sékou Touré. He's actually jailed by Lansana Conté, the successor of Sékou Touré. So he's basically suffered a whole lot as an activist. Here's this guy now as president, slaughtering people just because he wants the third time. TL: We can say the same of Ouattara.CO: Exactly. Exactly. This is literally Africa story all over, across the board of people who spend years in opposition, fighting this person, that person, docking bullets, running abroad, you know, living in exile, only for them to get into power and do at the very least exact same thing. If not worse. So to me, all these ah, yes, get the right people...there is no way, if you want the right people, they've got to be backed up by the right set of institutions, the right norms and countervailing forces that ... you see, politics fundamentally is about creating rival power structures. That's why, for example, the principle of separation of powers exists, so that one arm of the government doesn't become too powerful.Even in the electoral realm, it ought to exist. That's why, for example, there are wings in a party, right? So in one party, there might be left-wing, there might be [a] moderate wing, there might be right-wing. You know, you need countervailing forces to keep each other honest. To constantly make you compete, not to get drunk on power. But when you say, oh, get in the right people, but you don't create that environment, they are not going to be the "right people". It's just not going to happen because power is a corrupting influence. If you put in the "right people", first of all, what do you know they're going to do in office? Who are they going to rely on as advisers? What do they intend to achieve in 100 days? Six months? A year, and then four years? What is it that they consider to be their priorities? What do they understand governance to be? You know these are the sets of questions that when you start to ask will give you a sense of the kind of environment you want to design for this so-called "right people" to go in there. Because when you start asking certain questions you recognize they cannot do it alone. They cannot read alone because governance is a collective effort.But when you simply leave it at oh, the right people, you know, because, ah, during EndSARS, he was an organiser or she was an organiser, yes, and that...that doesn't necessarily mean they know anything about governance. It doesn't. And I feel it's still early days, we're still mostly reeling from that horrible killings. You know, this stuff is iterative and old habits die hard, right? So I get that for the most part, people are going to fall back on what they know. But at the same time, we should be willing to challenge even the things we consider to be settled knowledge. And one of those things that I really think we have to challenge is this idea that electoral politics and running for office is the only way to make [a] change. When you get to a situation where even people, celebrities, now think the next game in town is to run for office, I'm not saying it's a good or a bad thing, but ultimately it's for you as the voter to determine if you want such people representing you. Because you liked an album they put out 10 years ago does not mean you want them representing you in the State House of Assembly or the National Assembly, or someplace like that. And I feel like too much...TL: Just look at Desmond Elliot.LaughsCO: Exactly. I mean, yesterday, Twitter Nigeria gave this guy hell. They give him hell, and deservedly so. I mean, look at how much of a fool of himself he made. And, unfortunately, he's already in there and he's going to be there until 2023. So not unless you can recall him or something, you are going to have to live with, at least his constituents anyway will have to live with the fact that this guy doesn't know what he's doing. And those are the kinds of lessons we ought to start learning now. Start to tackle people in office now. Start to think about who you want representing you now. Start to familiarise with your local representatives now. Start to sensitise your neighbours, your association members, your church or mosque members now. There are a million and one things you can do now that don't have to wait till 2023. The problems that exist today will not wait for 2023, so why should you? TL: Those are powerful, powerful insights, Chris. But finally, before I let you go, regarding Nigeria, and this is sort of a tradition on the show, what is the one idea that you would like to spread? That you'll like to see people adopt? An idea that you'll like to see rise in status, so to speak?CO: It's very simple. We've got to develop a culture of critique. I think what we need in Nigeria is foundational ideas and notions that are at the heart of everything we do, everything we believe, and everything we desire as Nigerians because they will inevitably seep into politics and that's a culture of critique. One of the good things I've taken away from this EndSARS protest is that the young people have zero respect for any appeals to authority. They don't care if you went to Harvard, you're a perm sec or you're a general, they don't even care if you are the president, as a matter of fact. You have to make sense. And for me, that's what I find so instructive about that phrase "sorosoke". It's not just a little phrase saying "speak up", they're also telling you to make sense. It's not just about speaking up, you have to make sense. What you are saying must tally with what the average person understands intuitively. So you know, I say this because for so much of our past, especially older generations like ours, and we have simply given to authority blindly. Whatever they say, shut up, shut up and you sit down. Especially for we Yoruba people, there's a saying in Yoruba "won ki n sope agblagba n paro" you don't say an elder is lying. We've got to change things like that, I'm sorry.Those kinds of beliefs are fundamentally incompatible with a knowledge-seeking society. This idea that someone's ideas are untouchable because of their status or their age, we've got to get rid of things like that, you know. And this extends across society. We've got to be able to critique, and I said this because so you've seen all these videos of these Lagos State House of Assembly members saying, oh, they're on drugs, blah blah blah. Well, one of the reasons every one of them is reacting this way is they're simply not used to being challenged. It's as simple as that. They are not used to so-called children on Twitter calling them out, saying things about them. And don't forget that what is on Twitter is no longer even within the domain of Nigeria alone. This is stuff all over the world. So it's being fed back to them, and they can't control it. That is why everyone is up in arms and saying oh, all these social media people are doing this and that. Because these people cannot deal with the fact that people they don't even regard as anything useful are pushing back at them, challenging them.They do not see people on Twitter as a constituency of voters. They see them as children. These kinds of ideas have got to go. It does not matter whether you are the president or whether you are a pauper, you should be able to have your ideas challenged. You know, I didn't go to University in Nigeria, in fact, I didn't go beyond JSS 3, so, one thing I've heard from so many people is how in Nigerian universities you can't challenge your lecturer, you can't say this and that. That's absolute nonsense. Why can't you challenge your lecturer? Why can't you critique the ideas of somebody who claims to be teaching? That's the entire essence of pedagogy, of classroom education. That you bring up ideas, of course with reason, not every single idea deserves to be debated in my view, but for the most part, most topics within a scholastic framework can be debated. So this idea that oh, if your lecturer says something, or that if you don't answer a test question the way your lecturer wants it to be answered they mark you down. These are things I've heard so many times and I have no reason to doubt. I'm sure they're true. These things sound absolutely insane to me, and it stems from this culture of suppressing the ingenuity of young people. You know, people are not allowed to challenge ideas. You say something, then, shut up! What do you know? Do you know who you're talking to? He's is the professor. He's a minister. Who cares? Who cares? Like, we have got to be able to critique ideas and a lot of our political cultures, a lot of our social interactions, a lot of our economic interactions stem from the fact that whenever there is perceived to be a power imbalance, the person on the lower totem of the power pole has got to remain there and shut up. That's not how societies progress. Ideas have got to be challenged. They've got to be critiqued and they've got to be revised sometimes. And it doesn't matter who is saying what. You know it's not always black and white to be sure. It's not always a case of right versus wrong, but that's all the more reason why ideas contested. We do not contest ideas in Nigeria collectively, we don't. Like, Daddy G.O said, the governor said, Prof. said. Who cares? You've got to be able to challenge ideas. Yeah, so if I had one thing to pick, it would be that. We need to develop a culture of critique of everybody around us, including ourselves. Even you, you should be open to critique and others should be open to critique from you. Yeah. TL: Thank you so much, Chris Ogunmodede, it's been fantastic talking to you. CO: Likewise, it's been absolutely a pleasure. Thank you so much for hosting me. This is a public episode. Get access to private episodes at www.ideasuntrapped.com/subscribe

I have long admired the thoughts of foreign policy analyst Chris Ogunmodede through his Twitter feed, and it was a pleasure having this conversation with him. Our jump-off point was the tragic fallout from the EndSars protests. Chris’ knowledge and grasp of the core issues ensured he had deep insights on all my questions. (P.S he had some fun bashing economists).You can rate us here. If you want to support our efforts in bringing you the thoughts of brilliant thinkers through these conversations, you can be a patron here.TranscriptTL: This Ideas Untrapped and my guest today is Chris Olaoluwa Ogunmodede. He is a foreign policy analyst, a writer, editor and political risk consultant. His work centers on political institutions and foreign policy of African countries, particularly the West African region, and he has extensive experience working across Africa, Europe, and the United States. He's an editor at the Republic, a Pan-African global affairs publication. You're welcome, Chris, it's a pleasure to have you here. CO: It's a pleasure, thanks so much for having me on your podcast. I'm glad to be here.TL: We cannot really avoid the events of the last couple of weeks with the EndSARS protest and some of the tragic turn that things have taken since that very momentous period in the history of the country, so I think where I would like to start interrogating the issues is about the Nigerian security force, generally, not just the police. Because we know and as things turned out with the confrontation of the army with the protesters that the issue of abuse, extrajudicial killing and basically the overuse and exercise of power is symptomatic of our security force. So I want to know, what do you think are the underlying issues that makes this such a systemic problem and that makes it so very difficult to solve? So there are two views I've encountered in talking about this. One is about colonialism, so I want to ask you - how much influence do you think the colonial establishment and governance has on our institutions? Is it still a relevant factor? Should we still keep using that framework and analysis in looking at our institutions today?CO: That's a very good question and, you know, that's a very relevant question. I would say that the legacy of Nigeria's security forces are bound up in the colonial experience in the sense that the security forces, whether it's the police [or] the armed forces were created to repress local populations, to put down resistance movements, whether they were anti-tax ones, whether they were ones pushing for women's rights, you know, native rule, things like that. That is the contextual emergence from which modern Nigerian policing and the armed forces broadly, as you pointed out this is a problem that straddles across the security services, not just the police. And that's where [the] police, the army and other security elements of Nigerian society have emerged from: the suppression of popular expression of dissent. Essentially what you had was the colonial authorities, when they departed, post independence, they were essentially replaced by a new class of elites who frankly were happy to pick up the baton from the colonial authorities because they too had a stake in continuing this repressive practices and you can still see many of these elements around Nigerian society. For example, loitering as a crime in Nigeria is something that came from the colonial experience where if you were seen to be in a neighborhood you weren't supposed to be in, you would be arrested or taken away. That's still happening in many parts of Lagos and other cities in Nigeria. If you look like you don't belong in a neighborhood, you will attract the attention of the police. It's like when you listen to some stories about SARS for example, they look at you as a young person driving a nice car, you look a certain way, in a certain neighborhood. Again, all of this is part of a legacy of oppression that has been passed down from that colonial heritage. Now, this is not to say that the current elites, "post colonial elites" don't have any agency their own, but institutional change is harder than it sounds. You know, it's hard to get rid of bad habits. Old habits die hard. And once there hasn't been a social contract between constituent and authority in the sense that as soon as Nigeria got it's independence, it became a republic [in] 1963 and then the military took over in '66 and essentially we have been living through a militarised society, practically speaking since 1966. Yes, there was the transition to the second republic and that collapsed, and you had the third republic and that collapsed. Now we have the fourth republic. But fundamentally Nigeria's context has been one, at least post-1966, has been one of that same structure of violence and abuse. Unless you have a proper social contract between the citizen and the state regarding what kind of policing do they want? What kind of law enforcement do they want? What kind of national security policies do they want? And these things have to be reflected, not just in the Constitution, but in the way individuals relate with themselves in their neighborhoods, with the way the political class relates with voters. As long as that doesn't exist, that colonial legacy of policing will continue to manifest itself regardless of the fact that we are continuing, of course, to go farther and farther of colonial experience, but those underpinnings of the colonial state haven't been removed and the only way to remove them is by underwriting a social contract between constituent and authority.TL: It's interesting you talked about social contract because it's something I've also been thinking about in relation to a lot of these issues. I know you hinted at that, but is that really part of the problem that we are seeing here in terms of the relation between the citizens and the security forces? For example, the policeman's job leans more towards the protection of the regime or the people in power, as opposed to the protection and security of the public. And this relationship exist despite what the Constitution says, despite what rights we think we have and things like that, such that the police are basically an instrument of power or the expression thereof. So how does social contract become part of the social cognition of a population?CO: That's a very excellent question and frankly it's not one that there are obvious answers for, but I will certainly try to give my own take. First of all, when you look at the way a Constitution is written, there are many ways to do this - you could have a constitutional conference, you could have a constitutional convention, you could have a constituent assembly, so many countries have various iterations of the process by which they arrive at what they would regard as a Constitution that governs the social, legal and political interaction between the citizen and state. In Nigeria's case, to the extent that we have ever done that, it hasn't been very well considerate of all of the factors of society. In the sense that, Nigeria's Constitution whether it's 1979, whether it's 1999 Constitution, first of all, has often been written in secret. Not secret in the sense of being shot somewhere, but the consultation between these various elements of society has not been there. You know, you think of the fact that the '99 Constitution itself was, in large part, based on the conclusions of the Abacha constitutional conference understudied in '94 and they finished it in '95 where Abacha essentially handpicked a bunch of people who he wanted to draw a Constitution that was favourable to the armed forces. So this is the kind of thing I'm referring to. If that is the way you arrive at a Constitution, then it stands to reason that the old order, the order that protects the status quo, is what you're going to get. Now, on the flip side, you look at Chile. They recently had a vote to overturn the Pinochet Constitution - Augusto Pinochet was the military dictator in Chile. This was a process that the Chilean left in particular who opposed Pinochet, it's something they've been fighting on for decades. There have lots of debate as to whether they were going to having consultative assembly and things of that nature, a constitutional conference. In any case, because the recognition was that that Constitution was not written with the will and consent of the Chilean people, as they wanted a constitution to be written. You cannot have such a Constitution continue to govern a democracy. So Chile transitioned to a democracy in 19...there was a plebiscite in '88 and the president took office in 1990, then Pinochet stepped aside. But the Pinochet Constitution remained there. So there was the recognition for that democratic transition to come full circle, you have to get rid of that Constitution because that Constitution protects so much of the political order Pinochet has created that even though Chile has been a democracy for 30 years now, it's still very much an authoritarian construct. So bringing it back to Nigeria, that's precisely what I'm getting at, that until you have an understanding of a Constitution as Nigerians collectively want it, if it's a constitution that was written or reflects a previous era where there wasn't a broad-based consultation of people, the kind of social contract that you want to write to reflect in that Constitution is not going to be there. So if you, for example, want police reform and what that would look like in the Nigerian Constitution where some of the things you favour, including state police, boards of arbitration, an independent investigative panel to look at SARS and things like that, then if you want those things to reflect in the Nigerian Constitution, you have got to consult with all the elements of society to see what their views are about that. Has happens at the moment, the Nigerian Constitution creates a federalized police. So those reforms that you might want, at least if you favour that kind of reform where you have a more decentralized police force, you're simply not going to get it. And you are not going to get at the kind of social contract between citizen and state where the police force is accountable to your governor, in your state, as opposed to your president in Abuja. I mean, imagine if you live in Cross River and you are the victim of SARS brutality. OK, yes, now there's the state panels and all of that. But until those state panel, what was your way of getting accountability? You had to go all the way to the Nigerian police force. Of course, this was when FSARS was still the structure, later on they brought them to the police command, but in reality, because the Nigerian police force is a federalized structure, you have to go all the way to Abuja to get any sort of restitution for yourself. So if you want a social contract reflecting local accountability in policing, you have got to consult with other elements of society who share those views with you and this is where a responsible, robust civil society could come in. In a society like Chile, the ability to get rid of that Constitution, the Pinochet Constitution, was because several elements of civil society were able to rally themselves together and to create enough of the critical mass to put pressure on the political system to make that a salient issue. Thus far in Nigeria, we've been unable to do that. There are lots of organizations out there doing lots of great work on police reform, you know, CLEEN foundation and likes, but there have got to be much more voices in civil society trying to create that kind of momentum if they indeed favour a state/localized approach towards policing. They've got to be able to create that critical mass enough to get the National Assembly to take a look at that issue and make the necessary constitutional amendments that would make it happen. So it's all about what the society itself wants to do to make it's elites conform to the desires of it. Elites are naturally going to protect the status quo, it's up to you as civil society to organize yourselves to get that kind of social contract that you want.TL: Another theory I would like to get your push back - if you have any - on is that our institutions basically reflect our level of development and that these things usually improve the more developed, the more rich a society becomes. How credible is that view? Because if you look at it from a state capacity angle, it's nice to have all these things, but we can also argue that there is some form of, I mean discounting motives, now, there is some level of incompetence in the way we do reform in Nigeria. You get a sense, a very deep sense that some of the necessary skills whether people or technical skills that are actually needed to be marshalled to solve some of these problems are critically lacking, especially in our bureaucracies. So do the problems that we have now just simply reflect our level of development, the level of education and wealth and human capital in an economy, generally? CO: Right off the bat I will say that I'm much less a fan off the new institutional economics school of thought. Back when I was in undergrad I really used like, well, I still very much appreciate the arguments of Douglas North, Wallace and people like that, but overtime it's become very clear to me that one, as I mentioned earlier, institutional change is harder than it sounds. Two, institutions in and of themselves are not a panacea for anything in the sense that institutions are created and upheld by people. Something I've been talking about a lot over the last couple years of the Trump administration is the fact that, so many people, I remember having so many arguments with so many of my friends, colleagues, old classmates about if Trump were to win, what's gonna happen blah blah blah...and so many people will say oh, America's institutions are so great, they're so this, so that. Now, I tend to look at institutional quality a little different. They don't collapse overnight. There is usually a point where there's an indication something isn't quite working as it ought to, or maybe it used to. There's a moment of a stress test. We've seen Trump got impeached, he didn't get convicted, but there's been so many things he has done that have run afoul of, frankly, the law or norms or traditions, and it seems like there's been no one able to stop him. And, usually, my response to people who make these pronouncements is that well, institutions are not automatic, they rely on people to want to defend them. To want to uphold them. So in Nigeria's case, the institutions Nigeria has reflect, one: the time they were created. They reflect the purpose they were created for, and they reflect the fact that institutional change is going to have to come when the incentive structure change.When people hear institution they actually think of organizations. The way Douglas North talked about...and Douglas North was an institutional economists. When he talked about institutions he was referring to the rules of the game, you know, whether they be formal rule or informal rule, norms and things like that. So what most People understand to be institutions are actually organizations. So, like, people would say oh, institutions like the CBN, the Nigerian army... those are organizations. The institutions are the rules that bring them in existence in the first place. So I would say [the] separation of powers, for example, is an institutional norm, and then the reflection of those norms are the fact that we have [the] Villa, we have the National Assembly, we have the supreme court. In that sense, when you look at Nigeria's institutions, they can only perform what they were created to do. When you look at Nigeria security forces, to go back to our previous conversation, because they were created to repress and because the institutional arrangements around security, law enforcement, policing, civil defence and things like that haven't been underwritten by a broad-based social contract like we refer to, they will only do what they were created to do, which is kill a lot of people. Until a social contract is reflected in the institutional change process, the institutions will do what they were created to do. They're not static in the sense that because they were created to do one thing at a certain time, they will always do that. However, it does recognize that, if there are no updates made to the system around them...the system governing those institutions, they will simply reflect the times they were created. So in that sense, institution can be static. And like I said, because [in the] Nigerian society, by and large, the institutions that make up government, for example, are ones that are largely unaccountable to a broad public, are ones that regard distance between citizens and the government, that's simply what they will always do. So in that sense, Nigeria's economic institution... we've talked about political and security, let's talk about Nigeria's economic institutions. You can't ignore the fact that the government is the largest employer, for example, of labour in Nigeria. And the fact that registering a company, for example, is incredibly bureaucratic. That is because, by and large, a society where the average Nigerian did not have to depend on either the government or some other pillar of society like the church is one where people are going to be rebellious.If people have what Amartya Sen called capability to do the things they want, how they want, when they want, then dissent becomes easier. And in Nigeria, the institutions Nigeria has do not tolerate dissent. So if the government can control your economic well-being, can control the way you try to pursue your livelihood, it believes you are more likely to be responsive. So that's why you want to go register a company, they have to make it difficult for you because the people in the bureaucracy, you know, the civil servants, or whomever feel like it is their role and responsibility as economic agents really and truly to be able to control what you do. They feel it's their role, they feel it's their entitlement and you've got to pay due deference to that. Otherwise, you won't be able to pursue your own livelihood. That's the reason why, for example, the ease of [doing] business is very difficult because once everything is hunky dory, you can setup your own thing, you can pursue whatever economic activities you want, you don't need to always defer to the government, and because [the] Nigerian government is so paternalistic in its outlook, it has no other alternative but to essentially make your life a living hell. So in that sense, Nigeria's institutions can only reflect the time and purpose for which they were created. TL: That's an interesting thought. It's also interesting that you referenced Douglas North because I've been wanting to talk to you about Why Nations Fail by Daron Acemoglu and John Robinson. So how do their framework which is that institutions are either inclusive, that is, they value freedom and allow for innovation, or extractive where they're corrupt and sometimes they frown on dissent like you are also describing - how do their framework differ from what you've been describing so far - which is that institutions functions according to the purpose for which they were designed? I know you hate that book so much, where did it fail and what's missing?CO: So I think one of my major gripes with the book is the lack of specificity as to what inclusive and extractive means. You know, 'cause they used those two terms very loosely. For example, when you say "oh, inclusive institutions!" It's impossible for anyone to disagree with that because there's absolutely nothing incontrovertible about that. But then, when you get down to the nitty gritty of what inclusive and extracted means... for example, they portrayed China as one of the more extractive societies. OK, now fine, that's a perfectly legitimate argument to me. But it seems like China has been setup to essentially be a contrast to the US in terms of what successful institutions look like. You know,  America's Constitution, separation of powers... It makes a lot of casual arguments about how American institutions emerged.They talk about things like land rights and so many English market traditions and things like that. But for one thing, it ignores the role of slavery and things of that nature. So at one point they talk about how growth under extractive political institutions, as in China, will not bring sustained growth and is likely to run out of steam. It ignores that economic growth and development is a process and they don't say in specificity when that's going to happen. Because, you know, when you look at the US, America's economic growth was quite helter-skelter. America didn't become a developed as we would understand... and, you know, this goes into so many different ways of understanding what developed and all of that [means]. That's a separate conversation.But to understand America's economic growth as a developed economy, that didn't happen until roughly 1900 to be quite frank. You know, the late 19th century is when America started to really emerge as a developed economy, are we going to say then that everything that happened up until that point meant that America was an extractive economy? I mean, you can make that argument, but you would also be ignoring a number of factors that led up to that point. For example, the civil war, the nullification crisis, there are so many things that get in the way of making these kinds of causal arguments...you know, the Louisiana purchase, and this is a problem with economists generally. They tend to use a lot of bad history in making rather causal... this is something professional historians tend to say a lot that economists because they have where they're going to, they will go there A to B and they won't look anywhere else.That's a lot of what Acemoglu and Robinson have done. They have ignored a lot of arguments that contradicts their own points. Like I've made with the comparison about the US and China where they say China will run out of steam. OK, but when? And it ignores, for one thing, the role of politics. A lot of what has happened to China really has been because Xi Jinping took over and he has pursued a different orientation of political economic management. You know, before him, you had Hu Jintao, Jiang Zemin who more or less where guys who ruled by committee. And I should say that I'm not a China specialist by any means, all I know is what I read from people who are China specialists. But these are sort of broad, commonly understood trends. But Xi Jinping has moved towards a more Maoist approach towards governing, foreign policy, economic policymaking. So who's to say that had that same trajectory continued from Jintao downward? Who's to say where China would be today? Because by all accounts China has stepped back economically from what it was, you know, a couple of years ago. They've hit a little bit of a wall in the economy and growth has slowed. So in that sense, Acemoglu and Robinson's sort of path dependent arguments is contradicted by the fact that there are things that can happen which can alter the entire course of history. You can't always ignore those very important elements of history, which can change so much. Nothing is ever cast in stone, and when you say inclusive and extractive institution, it makes it seem as though those things are ends as opposed to means to an end. What are inclusive institutions? What are they supposed to do for you? What are extractive institutions doing to the society? Those things are a means to a path, they're not necessarily ends in and of themselves. And so much of what Acemoglu and Robinson discussed in Why Nations Fail just seems to be cribbed from, you know, Mancur Olsen, Charles Tilly, and so many of these guys, but a lot of it is bad impressions of what they have written because it's so simplistic, it makes so many sweeping generalizations and categorization that it just seems as though they've read so many different parts of these authors I've mentioned, put together a sort of literature review, picked in some random theories that they had and created a justification for it. So in that sense, it's not a very helpful way for thinking about why nations fail. I just feel much of what they believe seem to be predetermined and they looked for justifications for them. TL: We'll come back to Chile in a second. But as long as we're bashing economists...LaughsTL: Two economists, a couple of years ago, Ashraf and Galor - Oded Galor, I forgot the first name of the other guy - also wrote a paper talking about the path to development and the long-run determinants of development, generally. And they talk about ethnic heterogeneity and homogeneity as the determinant of development. So their model and, of course, their conclusion say that if a society is too heterogenous then that's bad, if it's too homogenous that's also bad and there's a sort of goldilocks zone in between. And that goldilocks zone is always Western Europe, for some reason. LaughsCO: Right.TL: So, what do you think? I know that that particular paper has come under some severe criticism on methodological grounds, on ethical grounds, and so many others. But you have to ask yourself, and I'm trying to defer with common sense here, can we honestly say that part of the complexity that we are experiencing with governance in Nigeria has absolutely nothing to do with the fact that we are 250 ethnicities who speak twice as many languages?CO: I recognize, like you mentioned, that that paper has come under severe criticism. The most famous one that I do remember was this "is poverty in our genes" or something like that that was written by this Harvard anthropologist. That's probably the most famous critique of it I've read but there have been several others. In any case, the problem with looking at heterogeneity as a source of anxiety in plural societies is that it's quite simplistic in its understanding of cohesion. Essentially, when you control for certain norms around certain institutional variables, you will find that ethnic diversity and heterogeneity is mostly...the effect of it is mostly negligible. One of the good things about the social trust literature in the last 20 years I would say is that it's become quite robust, you know, people have started to use better variables to measure social trust as well as heterogeneity. And one thing a lot of scholars have found, especially sociologists have found, is that in many instances as opposed to ethnic diversity and heterogeneity, you are looking at the quality of certain institutions. For example, you look at Nigerian elections, how everyone always say that Nigerians are divided by religion, by tribe and to a certain extent that's true. It's one thing to say that, it's quite another thing to make a leap from that assumption to the fact that one of the reasons why we struggle to get "good governance" - and I have a problem with that term of good governance but that story for another day. Let's just go with it for now - it's one thing to go from Nigerians are divided by ethnicity and religion and all that to one of the reasons we can't have good governance is because we are too diverse, we're too this and that.Rather than that, another way to look at this is why has good governance fail to come to Nigerians despite the fact that the average Nigerian provides his own light or her own light, security and all of this stuff? So rather than this being a problem of ethnic diversity, what it is is a collection of political elites across the entire spectrum of the Nigerian society have connived to become essentially roving bandits denying everybody the spoils of democratic governance. So once you can get to a place where certain indicators of good governance can be improved across the board, ethnic diversity no longer becomes a strong variable in the equation of ethnicity and governance. If you can get to a point where credible elections can be held where there isn't as much ballot snatching, vote rigging and things of that nature, then it becomes very difficult to say that, for example, the police force, which a lot of people use for rigging elections, is, you know, a contributor to ethnic or religious or tribal divisions in Nigeria. Essentially, the point I'm trying to make is that once you can control for certain institutional variables in society and how those institutions respond to the collective of the people, it doesn't mean that heterogeneity stops becoming a source of social angst or things like that. It just means that the state capacity, once you can raise that beyond a certain minimum, it no longer becomes a case of ethnicity becoming a hindrance to getting good governance. You know, that argument is no longer able to fly. What you can then see is that you have raised the bar for governance. Now, how you do that very much depends on so many other things, but it no longer becomes that the reason we cannot get good governance is because, you know, Nigeria is ethnically divided and people are only going to cater for themselves and their own ethnic groups and things like that. Once you can raise the lowest common denominator across the board, the strength of the ethnic angle no longer becomes very potent if that makes sense. TL: Talking about state capacity now, we return to Charles Tilly and he developed this war makes states hypothesis which so many other scholars have expounded on overtime. I just want get your response to how much... since we're talking about long-run determinants of institutions here, and one of the measures that scholars have used along the lines of Tilly over the years is that civil war was a lot more common in Africa as opposed to interstate wars and that may have affected our development or our ability to have state capacity because interstate wars give you the ability to develop manufacturing whether in weapons, coordination, collecting taxes and all these other things that most of our bureaucracies now struggle with. So how valid do you think that is? CO: Yeah, I mean, to a certain degree, your state capacity is hurt when you fight civil conflicts because state formation first of all, as well as capacity is a collective effort requiring the participation and legitimation of all, at least, a broad-based snapshot of society. So, you know, the various ethnic groups, various social classes, people at different education level. So when you fight civil conflicts, you are more likely to cause lasting damage towards your own internal capacity as a state. You know, there's a reason why countries like Liberia, Rwanda, and others like them in Africa that have fought civil conflicts, have mostly continued to struggle with economic development. Because to begin with, they never had much state capacity and then when conflict breaks out, you have a situation where the state that's fragile to begin with starts to attack itself. And because many African countries have lots of large landmass and things like that it becomes very difficult to fight a protracted civil conflict. It takes time, it takes money, resources, people...so that just means an attritional battle that simply reduces the totality of your ability to rebuild, because even when the conflict is over, there is a peace agreement or what not, you are going to have to rebuild your society, not just in terms of physical infrastructure and things like that, but political settlements, peace agreement, reconciliation and things of that nature. Because when you think of state formation and state transformation, these are the elements that come into play, not just economic - you know, building an economy and your physical infrastructure, there's the social forces you have to contend with. One of the reasons why Europe was able to rebuild after the war was the Marshall Plan, and this was of course a collective effort among the European countries to rebuild their economies using American assistance. Of course, they were lots of American companies who went to invest in Europe and made strategic investments in key sectors of European economies and things like that. Those kinds of agreements are easier to arrive at when it's sort of interstate because there are many more participants who are brought to the negotiating table and these intervening institutions that I've mentioned have much more of the institutional memory of creating that kind of atmosphere that can lead to this type of situation where you have a Marshall Plan. Whereas in a civil conflict, how do you do that? I mean, yes, you can have international organizations like the World Bank and commit to reconstruction and things like that, but that is a much more political process, because for one thing you have a situation where warring parties in the country don't even agree, or at least are trying to get to a place where there can be some sort of agreement amongst each other as to what do we do next. Whereas when it's interstate, they are much more interdependent on one another. Economic interdependence, for example, is understood in international relations to be something that prevents the outbreak of war. Now, that's a contested idea, but it's one that continues to have some resonance in international relations. So when there is much more riding on states and other units of interaction in the international system to avoid that kind of situation where states go to war with each other and should they go to war with each other, in order to prevent the 2nd and 3rd order consequences of that outbreak of conflict, to manifest itself going further, there is much more of an avenue to, first of all, get them to stop fighting to end the conflict and then rebuild.Part of the rebuilding of Europe was, well, one, self interested in that the United States saw an opportunity to remake Europe in its image and likeness but also to prevent the outbreak of further conflict. You know, to integrate European economies. That's much more it easier to do on an interstate level than it is to do intrastate. So in that sense, rebuilding state capacity gets harder, especially if you never had much of it to begin with, and when you look at Africa as a continent, there are many more states with weak state capacity than there are those that have strong state capacity. So in that sense there is some merit to the notion that war can make the state. There is some merit to the idea that states can use the defence sector as a means of scaling up other industries, you know whether  it is manufacturing or otherwise, or information technology. But to get there, you needed to have had state capacity to be able to do so in the first place and for many African countries, they don't. So at best, all they would be able to do would be to get to a low intensity level of defence production and they wouldn't be able to create the kinds of high yield defense and manufacturing product that they might be able to sell on the international market and things like that. Because, you know, those are not capabilities they have. But they'd be able to create capabilities that would be able to be disrupted. So in the end they win nothing.TL: I'll also like to return to your point earlier about actors as some kind of exogeneous shocks to long-run institutional patterns or memory. 2015 was hopeful for a lot of people in Nigeria. It was a transition to an opposition party. The elections were largely peaceful. People actually voted out a government which they have agreed was corrupt and has lost a lot of legitimacy. Now here's my puzzle, even though I had my disagreements at the time, how did the APC-led government lose its way so freaking fast? Like, what happened? Somehow it seems like these guys are not prepared to govern and we can see some of the symptoms of that incapability even now. You know, you see rival government agencies... well, not rival government agencies, different government agencies coming to social media to argue about ridiculous things. You have agencies acting as laws unto themselves, there seems to be no coordination, communication, whether from the Ministry of Information or the Central Bank, is always messed up. You know, and some people will look back and say, Oh yeah, we shouldn't have expect anything different because maybe these guys were just a ragtag band of the disgruntled. But it's still puzzling. How did a coalition that rode the wave of popularity and, I'll say, illegitimacy, lose it's way that fast?CO: Like you correctly pointed out, this government came in...at least, President Buhari came in with so much goodwill. You know, I've always said that Buhari came in with probably the largest amount of goodwill of any Nigerian president probably since Shehu Shagari. And that was because, you know, Shagari came in as the first president of the second public and there was so much anticipation and goodwill. Much the same was true of Buhari. Of course, it's a different context, but as you said, he's the first opposition president to take office. He won a fairly convincing election. Yes, it was very bitter, people had their disagreements and it was well contested. But as you noted, it was peaceful. The Buhari campaign, and it's very important to talk about it without being too colored by the experiences of what's happened after. Looking at it purely from the lenses of 2014/15, it was a truly remarkable campaign, you know. Back in the day I was a volunteer for the Obama campaign and I remember just how that experience was incredibly...was probably one of the best political campaigns that many Americans had ever experienced. The Buhari campaign was kind of like that for many Nigerians. It was by the standards of Nigerian presidential campaigns, it was a remarkable exercise not just of messaging, but also of marketing, of connection with the Nigerian public in ways that previous presidential candidates or campaigns hadn't done. And then, of course, just bring to it back to the Obama thing, I remember hearing that they'd hired some Obama campaign vets as consultants. So, everything made sense in the way that the messaging of Buhari as this sort of transformational figure who would changed so much about Nigeria based on his antecedents as a anticorruption crusader and all of this stuff. It was a really remarkable campaign. It was kind of decentralized. You know. You had the Southwest APC caucus who were doing their own thing. Who were largely in charge of the sort of the policy messaging and the branding and all of that stuff. And then you had the Northwest caucus of APC, who mostly did a lot of the groundwork and the get out the vote operations, and... you know, it was a truly organic campaign in ways that few Nigerian campaigns had ever been.And then they won big and the APC also won big in the National Assembly elections and the governors' races. So frankly, the APC didn't anticipate winning by as much as they did and they were clearly unprepared to govern. You know, because when they get this big win, all of a sudden there's all this infighting among themselves about, oh, who gets to become principal officers in the senate and all of this stuff. We all remember what happened with Saraki, Dogara and all these other guys. This was a party that was lacking in discipline, frankly.The desire to defeat Jonathan sort of papered over all of those cracks in their coalition. First of all, don't forget that APC was formed in 2013 or something like that. Yes, they've been in discussions for quite some time about a merger, but I always say that ABC resembled and continues to resemble a parliamentary coalition, rather than a Presidential System Party. Like when you look at Isreal, for example, where in a cabinet you might have... Let's say if it's a right wing cabinet, you might have the Likud, you might have Shas, Yisreal Beiteinu...these are all right wing parties. They have very little in common other than the fact that they don't like The Left and their government fall apart very quickly, one person resigns...That's what APC has often felt like because there was very little that they had in common beyond "we want to get rid of this guy called Goodluck Jonathan" and as soon as they do that, it's like, well, OK, now what? And that's when all the stuff starts with the principal officers and all of the cat and mouse games that they're playing, and then the fact that the President takes six months to form a cabinet, especially given the scale of the challenge, everything he had promised, everything he talked about. That just told the entire world that this wasn't a party that was ready to govern. I mean, the country was teetering on the edge of a...TL: Of an economic collapse.CO: Right, right. I mean, times were really terrible when president Buhari took office. Like, it's hard to overstate just how awful Nigeria's economic conditions looked at the time and he takes six months to put together a government. And then when they do eventually put together a government, it's one of the most underwhelming set of picks you could ever ask for. You know, in terms of the weight of the expectation and all... TL: I remember my mode upon seeing that cabinet list..that day, man, it was just... seriously, we waited six months for this?CO: Right. TL: Like, seriously?CO: That was literally how so many people thought that "this is what we waited six months for? You've got to be kidding". So in political science they talk about political capital. That's when the leader, typically a new one, comes in. You know, you have all the goodwill, so many people are behind you, there's the euphoria of your inauguration and all of these stuff. There's why they talk about the first 100 days in the US, [that's] when president, frankly, has so much room to do a lot of things and what you do may even go on to shape the rest of your presidency. I always say that President Buhari, frankly, could have come in and done anything he wanted in, let's say, June of 2015, and the country would have overlooked it. They would have looked the other way cause such was the [goodwill]. The goodwill and expectation and hope was so high, so the fact that they took six months and when they put together, it was that cabinet. They've lost six months of policy initiatives, they've lost six months of political capital, they've lost six months of contact with foreign governments because that's also a part by virtue of the fact that there's no minister of foreign affairs or ministers of any kind. You know, governments, investors donors, they weren't sure what to do. Like, who do we talk to? Who do we go to? Do we wait? So there was so much that was lost and by the time the government get into shape and putting together the motions to start creating some policymaking motion, a lot of time had been lost. And then don't forget that the president was ill a lot of 2016. He was away from the country, so effectively the president lost half of his term either due to ill health or the delays of picking a government and all of that. So there was so much the president lost that he, frankly, has never gotten back. And that is why the recovery such as it was, was quite underwhelming because there was the potential for a much stronger, and I'm not an economist, but you know, that's the way economic cycles work. Depending on what you do, there was the potential for a much stronger recovery, but then you had all this stuff with the currency, they were dithering back and forth between several ministries and, you know, there was such an incoherence in terms of government planning that a lot of Nigerians who were very sympathetic or supportive outright started to have second thoughts about "do these people know what they're doing?" and blah blah blah...before you know it, it's 2017. In 2018, they're starting to think about running again. So, there is the fact that this party was simply not prepared to govern. They just weren't, you know. And this is despite the fact that they were and are so many experienced people in the party who've been in politics for a long time. Because, after all, their APC was formed as a merger of ACN, CPC, the new PDP as they call themselves and some people from APGA and, you know, these aren't newbies to politics. These are people who've been around for a long [time]. So you would think they'd be able to marshall some sort of urgency, but again, that speaks to the lack of party discipline inside APC, you know. For all of the faults of PDP...because, one, it's a much more established party and because of its origins it's been the elite guard of previous iterations of the party, whether it was people from NPN or former military officers, this the party that had a much more...they were much more ready to govern. Parties like PDP and the likes are what political science literature will call authoritarian successor parties. That's parties formed within a political transition from authoritarian rule to democracy. So PDP was formed in '98 based on a number of elites who were opposed to Abacha, Solomon Lar and all these other people, put together the G34 and that's how they form it. These are people who've been in government for a long time. They've been in politics for a long time and they, frankly, were organized. So as soon as Abacha dies, Abdulsalam scraps the Abacha transition and creates a new one, they gather themselves together, pick candidates all over the place, win, they get into office and they're ready to govern because so many of these have brought administrative and bureaucratic skills whether as former military officers or former governors or party heads, and things like that. And there was some sense of party discipline. There wasn't much party internal democracy, but there was at least some party discipline. Whereas in APC, there wasn't a whole lot of party discipline or party internal democracy. That's why over the last five years, so many factions have been fighting each other.Remember the last round of primary elections? How "aww, my God" in fact, in a number of states, the weren't able to field candidates in the general election, such was the chaos where there were parallel congresses, parallel primaries, this thing and the other thing, they didn't file candidates in time, so they couldn't put up a... That's the kind of thing you've got under APC because this was not a well ordered party. This was a party where they had a strong figure in President Buhari, and that's about it. Everything else, there was no sense of...unity isn't even quite the word, but there wasn't a sense of party organization where, yes, all parties have there internal disputes all the time, but, you know, there wasn't any sense of: this is the goal. This is what the party believes in, this is the mechanism to resolve dispute.The whole time Oyegun was fighting this camp, that camp was fighting that camp, and even in the states... I remember a time when there were nearly three wings inside APC in Lagos State, I mean, they've got so ridiculous during Ambode's time. So APC has a party never had time to develop organically and it showed. And it spilled into governance. I always say that you can't separate politics from governance. You know, one necessarily begets the other. You get to form a government because you need to win election. How do you win election? Mostly by forming political parties. So you can never separate the two and perhaps it's not even necessary to separate the two because after all, party politics is an expression of democratic politics just as much as governing is because after all you a mandate somehow... under the banner of a party and all of that, but it didn't seem like and still doesn't as far as I'm concerned that APC understood any of this. So going forward and I stand to be corrected if I'm wrong on this, but it would be interesting to see what happens going forward...so this year we've had with two elections in Ondo and Edo. They won in Ondo and lost in Edo. I think the Edo elections are a harbinger of what's to come, frankly speaking, because there will come a time where there are so many people who are going to want to succeed President Buhari. There are so many governors, there are senators and those are people only within the party. There are some people who are in PDP who are still going to defect and all of this other stuff, I struggle to see how the center will hold. If for no other reason than the fact that the uniting figure that kept everyone in line is going to be on his way out, presumably anyway. So when there is no more Buhari, what is going to hold the party together? I really don't know. I really don't know. This is a public episode. Get access to private episodes at www.ideasuntrapped.com/subscribe

I had a conversation with Efosa Ojomo of the Clay Christensen Institute. He is the co-author of the book The Prosperity Paradox - along with Karen Dillon and the late Harvard management guru Clayton Christensen. The central argument of the book is that economic development happens when businesses innovate by creating a previously non-existent market. The book has been largely shunned by development scholars and this is where I started my conversation with Efosa. I also go through some other criticisms of the book, and Efosa had interesting answers. The book relies on case studies and might be considered not empirically rigorous by development scholars. Regardless of critics, the argument is powerful and hard to ignore. I read it as changing the overall incentives of all stakeholders in the process of economic development - when bureaucrats, the private sector can all benefit from making the pie bigger, things can move very quickly.TranscriptTL: Hi, and this is Ideas Untrapped. My guest today is Efosa Ojomo. Efosa is a senior research fellow at the Clay Christensen Institute. He has written a book called The Prosperity Paradox. It's a bestseller, and personally, one of the most refreshing books that I have read on the subject in the last couple of years. You're welcome, Efosa.EO: Thank you very much, Tobi. It's a pleasure to be here with you. I can't wait to dive in. Thank you.TL: Okay, so I'll start with the book and the central thesis, which I know as also appeared in your other publications, be it essays and articles. You talked about market-creating innovations as the key to prosperity, to getting the process of development started, to fighting poverty. What is your convincing evidence, so to speak, for this particular paradigm you're advocating? And why is the "Development Establishment", you know, aid agencies and scholars working in that area, why are they missing that point of view?EO: Wow, so that is a great question to start. Unfortunately, it's not a question I can answer with one answer, so let me unpack the question. Because you asked what's the evidence for market-creating innovation? Why do development practitioners approach development and antipoverty programs a certain way? And why haven't they bought into this idea - the notion of market-creating innovation? So let me start with diagnosing the problem. When you want to address any issue you have to make sure you spend a lot of time diagnosing it. Let's go back to the aid industry and when it really began.1949, Harry Truman gave a speech where he actually, unintentionally, I believe, catalyzed the beginning of the modern-day development industry. And in his speech (it was his inaugural address, you know, president of the US at the time), he defined the problem of development as rich versus poor. Developed versus undeveloped. First world versus third world. He didn't use all that language, but that's essentially how he defined it. As, you know, we are developed and we have all these resources, these poor countries are not developed, they don't have these resources, let us transfer resources to them and help them develop.That is the main way the development industry works today. It's this idea that you are not developed, we are developed, we're going to transfer resources to you. So that's number one, right, [on] why the industry operates the way it does. Number two is that the development industry is an industry that attracts certain types of people. And so if you look at big players in the development industry, what you're going to see are people who have gone to school to get typically a PhD or Masters degree in the area of development. And so they study development as a whole as an entire entity and the research they do is often very focused on how one element impact entity.So you might write a PhD thesis on how education of girls in this part of Ghana impacts their ability to go to school. Now, that's an interesting paper and you may find out, oh, if we educate girls, more of them will have fewer kids and they'll get advanced degrees, but that will not lead to the development of Ghana as a country. It answers, oftentimes, what I think is an inconsequential question. And so the development industry has a lot of players trying to do good work, unfortunately, they're answering the wrong or I would say inconsequential questions.The third thing I would say with regard to development and why it's practice the way it is [is], in a weird way, we know what the answer is. The answer to development looks like, right, in our minds, whether it's right or wrong, it looks like America. It looks like Japan. It looks like France and England. In other words, you go to these countries that are wealthy, and generally speaking, things work. The roads are good, the electricity does not go out, the law enforcement, for the most part, works. And so you say, "you know what? The problem in our countries that are not yet developed is all these things don't work. So let us make them work." Let us fix the roads. Let us fix the laws. Let us fix the schools.What these three things I just discussed are missing is the fundamental mechanism that helps these things work. Right, the fundamental mechanism that actually provides the resources or creates the value that really enables these things to work. And that fundamental mechanism is market-creating innovations. Which is connected to the initial question you asked: "what's the evidence that this actually worked?" Again, to answer that, we have to go back in time. We have to say, "if we have this hypothesis that market-creating innovations work, how can we show that? We had to go back to a time when these wealthy countries, the United States, countries in Europe, Japan and so on were not wealthy. We had to go back to when they had demographics that are similar to many poor countries today. And we said, what happened? Did these countries simply build the great infrastructure all of a sudden? The government, were they never corrupt and they just woke up one day and began to institute good laws and practices? Or was it a more dynamic nonlinear process of entrepreneurs across the country creating new markets, employing people, generating tax revenues, enabling the government to overtime improve its institutions? What we found was the latter. It was a more dynamic and nonlinear process.And so that kind of finding is really hard to document at scale and what I mean is, you know, when you pass a law, it's in the record books, we know exactly when this law was passed and so we can look at society before the law and we can look at how society evolves after the law. The problem with innovation is it's really hard to say, okay, this is the date - on November 5th, 2006, this is the date this innovation came and created all this impact. It's a process. And so instead of looking at oh, these were the laws that were passed, this is how society evolved, that's how the institution changed the society. What's more important to do is say "what led to the passage of those laws? Who fought for the passage of those laws? Where did they get the resources to fight for the passage of those laws? Where did the government get the resources to enforce the laws?"And so these questions are a lot more difficult to answer, but when you begin to unpack them, it's hard to divorce development from innovation and more specifically market-creating innovation. My hope is that development practitioners begin to ask the tougher questions and begin to engage in what a wise man, once called "intellectual honesty." And really assess - are our programs working? Are they working the way we want them to work? We've been doing development like this for over the past 20 years, over the past 30 years. How has that resulted in prosperity? COVID-19 has come around and all of a sudden development is pushed back 25 years. Uh, was it really pushed back 25 years or were we celebrating a false sense of progress? Because development is not pushed back 25 years in Japan, it's not pushed back 25 years in France, I can tell you that. And so we have to get to the point where we are asking the difficult questions on how to truly do sustainable development.TL: I want to go to your latest article in Project Syndicate where you challenged African entrepreneurs and business people to rethink the way they do business, and invests more in market-creating innovations. My question is why are they not thinking about this already, what are the barriers if the returns are there given some of the examples and evidence you've cited?EO: Well, first of all, market-creating innovations are innovations that transform complicated and expensive products into products that are simple and affordable. Now, these innovations make these products more accessible to many, many more people in society. And so an example would be the proliferation of mobile phones all across Africa, for instance. Or a company in Ghana called mPharma that is making medication drugs more affordable, more accessible to people. Micro Insurer is another example, making insurance more affordable to people who historically would not be able to afford existing insurance products. So examples abound. Now the question you ask about why if these things are so interesting and exciting, why are they not being pursued?A couple of reasons, the first is there is a sense that innovation is something that happens after a society develops and becomes prosperous [because] it's only people with, you know, disposable income, with extra income that can actually afford many products on the market. So that belief is widespread. And unfortunately, it's really hard to go against a belief. One of the things we're trying to do is say no, no, no, innovation is not something that happens after a society develops, innovation is the process by which society develops. So that's one. The second thing is this concept of non-consumption.Now, non-consumption is a phenomenon that happens in every society, but it's more prevalent in emerging economies or poorer countries. It describes how many people in the society would benefit from gaining access to a product or service, but because of the cost of the product, because of the skill necessary to use the product or the time needed to actually purchase and consume the product, or the simple fact that the product is just not available, many people cannot access these products. It doesn't mean they wouldn't benefit, but there are obstacles or barriers.Now, the non-consumption economy as we like to call it contains all these individuals. The problem is when you do market research on opportunities, a lot of times the insights we get from our market research point to what we call the consumption economy. It points to people who already consuming. And so when you look at the market research for televisions in Nigeria or refrigerators in Ghana, what you are measuring is not all the people who would benefit if they had access to these products or services. What the market research data is measuring is all the people who can afford the services. And so? You say oh, refrigerators in Nigeria, only 2 million people have them, as an example - I actually don't know the number off the top of my head. Only 2 million people, that's a very small market. That doesn't warrant our investment especially when you compare it to a hundred million in the US, there's no market in Nigeria.What market research does not take into account is what about nonconsumption? What about all the people who would benefit from gaining access to these refrigerators? [But] because we don't measure and value nonconsumption, it's hard to even see it as an opportunity. And the last reason I would give, you know, I'd be remiss if I didn't say [is] it's really difficult to go after nonconsumption. It's difficult for the first two reasons I described and it's difficult because you are literally creating a market that does not exist.And so in the research that we've done on just studying market-creating innovators, whether the ones in the US, in Europe, in Africa, in Asia it doesn't matter. Before these innovators create the market, there is widespread disbelief, especially from those who are experts these economies. They tell them there's no way that this market exists. These people are too poor. They're not educated enough, they can't afford these products. And so, to go against the grain when there's no market, the people are poor, the environment is difficult to work in, those are obstacles that are really difficult for entrepreneurs and investors. And so part of our work, what we're trying to do is, say, look, many of these demographics we see, many of these characteristics of these economies are very normal. They're not easy, they're simply incredibly normal. You're not doing what has not been done before. And if we can normalize these difficulties and say if you take a more predictable approach to innovation and investment, we can't guarantee success but we can help mitigate failure. We think you can actually do better in these emerging economies.TL: Do you think that there are conflicts of interest in most of the boardrooms of African businesses? I mean, in that piece you challenged Milton Friedman's opinion of the responsibility of a business in society, which he says is solely to the shareholders or the stakeholders. So, do you think that there's a conflict of interest in most boardrooms, where some of the things that entrepreneurs and some business leaders are interested in, in this case, market-creating innovations, are not things that investors really think can give them returns on their capital?EO: Yeah, so I think there's a lot to unpack in that...because of the abundance of data all over the place, unfortunately, we now live in a world of short-termism. There's more short-term thinking going around. What do I mean? Well, you know, if I'm watching the news and I hear about this company, this investor that made a lot of money on some investments, was able to cash out in a few years, that affects the way I think, it affects the way I measure my own performance. And so this abundance of data has created short-term thinking.In addition, what you also have is a lot of the literature on finance, what constitutes a good investment comes from countries that are already prosperous. They come from countries where I would say they are no longer, generally speaking, in the market creation phase. And so they are more in the efficiency phase. So they have roads, they have institutions, they have organization building companies and the question is often, oh, how do we make this more efficient? How do we make better products? When you use those same metrics to analyze projects and organisations in Africa or other emerging regions, you have a mismatch because the continent is still in a market-creating phase. And so to use private equity metrics that I would use in New York to measure projects in Lagos or Abuja or Accra or Nairobi makes absolutely no sense. Literally no sense. It's akin to using the same metrics to analyze the development of a 3-year-old and a 30-year-old. It makes no sense. And so instead of a conflict of interest, I think I would say it's a mismatch of metrics.If, as the CEO of an African company or the board chair of an African company, I had the goal to grow my market size and capture 60 percent of the customers in Africa. Say, I make baby food or something 'cause you know Africa is a growing continent. Well, I'm not going to measure my performance the same way Gerber babies measures its performance in other countries. I'm going to say look, what did baby food companies go through when the US was a poor country? What did they invest in? How long did it take? How did they manage the relationship with government? How did they manage relationship with the community stakeholders? How did they develop their staff? And I'm going to use those metrics. 'Cause if I use the metrics that these companies today are using, I cannot develop. It's not like it'll take time. No no no, like, we will never develop.Now, you know, there will be some wins here and there, there will be some lucky breaks here and there and that's what we see from time to time. But to truly develop in the circumstance we find ourselves, we need to step away from using metrics that are propagated all over the place and develop a core set of metrics that are contextualized to our own circumstance.TL: Do you think that this framework that you describe - [that is] businesses really innovating their business models to target nonconsumption and grow the pie, so to speak. Do you think it's the absolute fundamental thing that has to happen, 'cause the way I read your book and some of your works is like a chicken and egg problem, right? Like, what has to happen first, you know? Some in the development literature would say that you need institutions, you need good institutions first before you can do some of these things that you say. What is your response to that?EO: I mean, I empathize with those who say we need good institutions, but that is not really a value-add statement. The reason I say that is, okay, we need good institutions, what do we do next? We look at the Nigerian government, at least the federal government...in addition to the lack of managerial and technical capabilities, the government has roughly $200 or so to spend per year per Nigerian. Of that, maybe fifty to $75 goes out the door to service its debt. So roughly $125 to a $150. In addition, when you look at where it's starting, I mean, nobody would look at Nigeria and say we practice good governance, so it's starting from the back of the pack, and so it needs even more resources to get to good governance. When you compare where Nigeria is and what it has, the resources to, again, you know, whether it's Norway, Denmark, America. Norway spends twenty to $30,000 per person per year. And so the idea that, oh, Nigeria needs good institutions, that's like saying a homeless person needs more money. If they had more money, they wouldn't be homeless. That's not a value-add statement.The question is, how do we get to good institutions? How did the US get to good institutions when it was poor? And so if somebody comes up and says - you know what Efosa, Nigeria spends $150 per year per person, here's how they can actually get good institutions and it's a realistic model. Then we can start the conversation. But when, you know, these experts throw out blanket statements oh, we need good institutions... I'm like, okay, what am I gonna do with that? What is the police officer who is demanding brides, making $50 a month going to do with you need to have better institutions? What is that politician who has made a bunch of deals before he or she becomes a senator or a governor and they get into office and they have to square all those they made deals with? They have to figure out how to amass as much wealth as they can because there are little to no economic opportunities in the country, what are they going to do with the "you need good institutions?" There are no incentives. Right? To live out that statement. So we do need to move a lot further from the "we need good institutions" argument because it has not done anybody any good.You know, there's a paper we referenced in the book - how not to fix problems that matter? And ultimately what happens is a majority of institutional reform programs funded by big development players do not work. You know, you come to my country, you tell me, oh, I should behave this way, I should do this, I should make sure this is easier for people and many of the public sector participants on the ground just listen, they take the development dollars, they reformed the institutions in a way that makes the donors happy and they keep doing what they're doing. Because it doesn't cut deep. It doesn't fundamentally change how people think about society. The incentive systems, they don't change. So, do we need good institutions? Absolutely. How do we get there? That's a tougher question.TL: Staying with that thought. Now, isn't there a case for, well, maybe it depends on what we mean when we talk about institutions right? And I know that scholars and even people who work in development are guilty of trying to imagine already formed institutions in developed nations and trying to graft a lot of their features in countries that do not have them. But for businesses to take risks, you know, don't you think that institutions like basic property rights protection, contract enforcement and things that create the environment for you to be able to take risk, however minimally, don't you think those should come before market-creating innovations or targeting non-consumption in the way you describe it?EO: It's a good one. I think the better question to ask has to be more specific. Now, I'm not saying investors should just go and put their money in any country. And there no, at least, limited guarantees, that's not what I mean. I mean, after all, businesses are operating in Nigeria as we speak. I mean you are speaking to me through an Internet service connection. So the idea that somehow institutions don't work and we need better institutions, I mean, it's not too mature. We have to mature that idea. So we have to be specific. We have to say, if you are going to invest in this space, in this country, in this region, you have to ensure the specific fundamental requirements that as best as you can, no investment is ever secure or ever guaranteed... But you have to ensure there are fundamental, sort of legitimate, base-level institutions exist.And I think if we went in with those sorts of questions, not ways Nigeria on the ease of doing business index, how is Nigeria's corruption perception ranking? That's too broad, generic, and that's not helpful to anybody. If the folks who are providing us with this Internet connection went into Nigeria with that thinking they would not have gone in. And so, somehow, that question forces an answer that is not helpful. The question has to be, look, I'm a transportation investor, I wanna go and make transportation more affordable for people in Malawi. Alright, let me look at who the transportation players are. Let me understand that sector. Let me understand who the government players are. Let me understand what the regulations are, how have they changed it over the last five years. How might they change it over the next year?You have to do your homework. And, no offence, many investors are not willing to do the homework. And so of course, you're gonna not find Nigeria attractive when you go in with the oh, don't we need the baseline this and that? No, no, no, no, that's a lazy way to think about investing and more specifically, development. We go in more targeted. And if we do that, again, no guarantees we will be successful but that's a much better problem-solving exercise than oh, yeah, let Nigeria move up some rankings. Let's improve. What does a good institution look like? I mean, like you know, in the broad sense, what does that really even look like?I mean, I think I would be more targeted than looking at Nigeria or, really, any country from a high level, like, how are the institutions? Don't we need this base level?TL: That's a good point, but here is another way to look at this from my perspective. Some of the examples you cite like Mo Ibrahim, Celtel; Tolaram in Nigeria, don't you think that there's a bit of a survivorship bias in some of those examples? Like, for example, if we look at the case of Tolaram, yes, it has done really well. Well, "well" is relative here, so, but it has survived.EO: It has.TL: Yes, and it's become a household name and it may well be a replicable model for investing and doing business in this environment. But you can also argue that over those decades, a lot of businesses have also tried and failed.EO: Yes.TL: And aren't you picking winners? And in that sense, not really robust with your sample set in that sense. Because a lot of entrepreneurs who are trying to do things differently would tell you how hard it is. Some of them are losing money, some of them are losing their skin, some are highly demotivated and these are people that really, really want to do bold and innovative things. But the general, again, institutional environment, and in this case, specific policies that worked against them are serious barriers. So aren't you effectively simply picking winners and just ignoring the other side?EO: It's a good question. I think I would answer, yes, if there was something anomalous about Tolaram in the context it finds itself. And so if I did not see similarities between Tolaram and Isaac Singer, who we wrote about, or Henry Ford who we wrote about, if I did not see similarities in how they had to engage with government, how they had to raise capital, how they had to almost lose their skin (in your language), then I would say, oh, yeah, we're just picking winners. But there's nothing anomalous about what they've done. In fact, I expect winners to look like Tolaram, Mo Ibrahim and several other companies that we talk about.If they don't look like them, then the chances that they will win, at least market-creating, are very very slim. The other way I would respond to that is, I have never once and I will never say this is the easy path. This is incredibly difficult. It's so difficult that I am convinced this is the critical missing piece. It's paradoxical, but that is why we are not developing. Because there is this incredibly difficult thing we have to do, but we believe the only way we can do it is if the environment allows us do it and so we have to fix the environment. Now we believe that so strongly that we are willing to invest billions of dollars to try and fix the environment, with no connection to this mechanism that's gonna make the environment thrive. That's how strongly we believe in educating the public, in institutional reform, in fixing infrastructure whether or not it makes sense.We're trying to do all that and we're paying little attention to empowering entrepreneurs. And so if I, for instance, were Mo Ibrahim, after I sell my Celtel and I become a billionaire, I would say okay, what's the next industry I want to democratize? And I go, and I do the hard work of building that I will not do governance. Nobody is winning the prizes. It's incredibly difficult to do any meaningful reform because the equation, we have the backwards. Development is difficult. There are no easy answers here. What we have to do is ask, what gives us the best chance? Does wishful thinking in light of poorly paid civil servants who have little to no incentive to improve the system give us the best shot at success? Or does figuring out a way to empower and create new markets where some of the revenues from those markets can be pumped into the institution and overtime maybe it gets better. Does that give us a better shot? I think I'm gonna put myself in that camp.The last thing I would say on this is, there's a professor out of [the] University of Michigan. Yuen Yuen Ang who just published a book called China's Gilded Age - The paradox of economic boom and vast corruption.TL: I know her.EO: Yes, and so she talks a little bit more about the public sector side of things. I mean, no two countries are alike or identical, but she does a really good job of explaining how even in light of China's vast corruption, there was an economic development push that prioritized investors, markets and as a result, China, for all its problems, has been able to lift a billion people out of poverty, grow 10 percent over the last four decades, and improve. So, there no easy answers here, it's just we have to pick the camp we think makes the most sense, and I don't think the camp where a monopoly entity with little to no incentive to change, trying to incentivize them to change by giving them more resources and empowering them when the incentive system in society hasn't changed, like, somehow, that makes no sense to me.TL: I like the Ang Yuen Yuen example. It's a great example and I've read both her books, I think what she's doing is fantastic. So here is my question on that. You gave the example of Mo Ibrahim. Now, don't you think that people like Mo Ibrahim - and of course this is not really about him - or people like him who focus on the issue of governance... now we may critique or find some fault in how we've been going about this. But don't you think they focus on the issue of governance because it is through governance, again, I reiterate, that you can get a hundred Mo Ibrahims?Because, Tolaram may have adapted well, it may have really found a way to survive through thick and thin in Nigeria, however difficult others may say it is, by doing its homework and making targeted informed investments like you said. But, in the end, Tolaram doing well may not necessarily raise the GDP per capita of Nigeria.EO: Yeah.TL: Which in terms of poverty and prosperity that is what really matters at the end of the day, income for people. So don't think governance may not be the only way, but it's an easier, faster way for the kind of entrepreneurship that you are advocating to scale, really, really fast, you know. I mean, in America, yeah, Ford had an innovative business model that changed its generation and maybe the way business was done in America after. But also, there was an environment that did not entrench Ford, but that allowed others, Dodge, GM and most of these other companies to emerge and improve on those things and create tons of jobs.So don't you think that governance is vital in a way that it allows businesses that really want to innovate to scale their business model really fast and for other businesses to look at their success and be encouraged to enter that space and do even better things?EO: Absolutely governance is important. We say it in the book. Entrepreneurs ignite the fire, the government fans the flame. You can not have a developed prosperous society without ultimately getting governance involved, it's a matter of sequencing and incentives. Now, I would agree governance is important insofar as we're talking about the same thing. Again, I don't want us to limit our conversation to oh, good institutions are important, you know, that's a non-value-add statement. Governance is important if what we mean by that is working with economic development stakeholders to make sure the incentive systems in society benefit those who work in government. I, right now, can give you not one reason why a poorly paid civil servant who exists in a system that is steeped in corruption to go to work every day, do a great job, do as much as he or she can for the society that already thinks he or she is stealing money, not have enough money for rent, for health care needs, education need and go home because Mo Ibrahim Index says you need to have good institutions. No, No, No. That makes, again, no sense. I would not do that. You would not do that, I don't think.Now if what we mean by governance is vital is, look, let us sit down here and let's do it the way the Chinese did. Let us align your incentives with how much investment dollars are coming into your state. Let us make sure that, you know, yeah, you get paid $100 a month, but if you are able to attract this much investment, if you are able to make sure these entrepreneurs thrive, then you get a 50 percent bonus. You get a 100 percent bonus. You develop the incentives to help the government do the job that we're asking them to do. Because it is a thankless job. It is a terrible job. It is a job where everybody thinks you're stealing money, whether or not you are. And we know this. So the idea that we should just keep measuring, saying, "what's wrong with these guys? Why we need to fix it" without sitting down and saying, how can we realistically fix this so we limit the incentive for government officials to steal? We're going to be spinning our wheels for years to come, right? That is what I think we can do from a governance standpoint. Align incentives, make sure, me as a public servant, I benefit if my society benefits.If my society benefits, and I don't benefit, well, forget about it. It's not going to happen.TL: I agree with you, we need to move away from some of these useless indices, to be honest. So do you think that changing incentives the way you analyzed, do you think that there are some, I don't want to say natural disadvantages or barriers that are specific to certain societies. For example Nigeria, there is oil and the so-called resource curse.EO: Yeah.TL: How do you think that can work with incentive problem? You know, because you have bureaucrats and public servants who have no incentive in the success of the private sector. They can simply sell oil licenses and drilling rights and keep collecting taxes from that same sector and borrow to plug the other fiscal holes and live like that for decades.EO: Yeah. So, that's a tough question, right? And, again, I want to be as practical ask as possible. If you had a trust fund baby, you had a really wealthy person who didn't manage their money well, allowed their kids to do whatever they wanted, the question you're asking is, how can we incentivize this trust fund baby to actually care about self-improvement and development? I mean, that's difficult, right? What I would do is try and find the officials who will be open to a different way of creating value and wealth. I can guarantee you not all 36 governors in Nigeria are extremely corrupt, or at least corrupt at the same level. Not all of them will be uninterested or disinterested in an idea to create a new industry in their region.TL: Certainly not.EO: So it's not to say this is an easy road or, you know, you're just going to find people willy nilly. But you go to the first governor... I'm simplifying because we're on the podcast, right? I know people in government right now, and I can give names of people I trust. People who are trying their best to do well by the community. So the idea that oh, everybody 'cause I think that is what we imply when we say the government has access to oil and you're right, they do. But there are still going to be people in government who we take interesting ideas to and in communicating those ideas, we help them see if this works out, you would have generated this much income for this state. You would have created this much value if you allow this to work out. These many constituents would get jobs. You can talk about this in your next campaign.Now, if you take that message to every governor in Nigeria, maybe they will all say get out of here, I am not buying it. If that happens, then go to Ghana. Go to Cameroon. Go to Rwanda. Go somewhere until you find a country where it will work. Again, I'm not advocating this because I think it's easy. In fact, I'm advocating it precisely because I think it's difficult. But, unfortunately, I do not see another way we can develop. I just do not. And once I do, I will start promoting that because before we started the podcast, you and I discussed the idea of intellectual honesty and I suppose I just do not see how we get out of the rut we're in if we don't start to think differently.TL: One final area I'll like us to explore is culture. I mean, one of the books you cited in the book, which I like very much, is Deirdre McCloskey's Bourgeois Dignity, and she talked about how the social embrace, so to speak, of the culture of Commerce, sort of laid the groundwork for some of the things that happened in the West, you know?EO: Yeah.TL: So what role do you see for culture here? I mean, it's easy to talk about hard metrics and talk about governance and you know, but we know that culture is the software of society. So what role do you see for culture in this?EO: You are absolutely right, culture is key. Culture is the software. But culture runs on hardware. And culture is connected to hard metrics. And so if I use your analogy of software and hardware, there is no software I know that runs on software like every piece of software runs on hardware and depending on the makeup of the hardware, if you have a really fast processor hardware, then your software will run faster if it has the capabilities to. And so culture might seem like software that's malleable, and it is valuable, but it is not malleable without hard metrics.What do I mean? Well, let's think about why we may not value commerce as much as we should or why we value corruption as much as we do. Well, look at the hard metrics. If you're fortunate to get into a position of power in many of our countries, there are hard metrics in your life that increase - your access to the elites in society, certainly your bank account, your homes, your car, your children access to better education. Those are hard metrics. So the idea that somehow our culture values that practice makes complete sense. The idea that we value entrepreneurship and innovation in the US is connected to hard metrics as well, right? Look at the richest people here. It's all these innovators.So for me, the two are sort of one and the same. What we know is that you can't change the software if it has no bearing on the hardware, if you don't change the hardware. In other words, if we don't figure out how to increase or improve those hard metrics, it's gonna be very difficult for us to change the software, sustainably. We might for a little while, right, we might for a political term or two. But what we're talking about here is long term development, decades-long. And if we don't figure out how to help people in society make progress in a way that they lead better lives, their kids lead better lives, they have access to better healthcare and so on... Unfortunately, the software is not going to change, the culture is not gonna change. And so I do think we can connect the two better.TL: One final questions before I let you go, which is also a tradition on the podcast is, what is the one big idea right now that... it may be something you're working on or something you'll like to see. So what's that one big idea that you're thinking about right now that you will like to see spread and see the world adopt and see people believe more?EO: Yeah, so I think for me, in the context of my work, it is this - innovation and entrepreneurship are not things that happen after a society fixes itself. They are actually the process by which society fixes itself. If more people can believe that then we can begin to talk about the “how”. We can begin to say okay, Efosa I get that, but this is my circumstance, this is my context. How can that hold true in my circumstance? There are things like political innovation. When I talk about incentivising the government, that is an innovation. When I talk about entrepreneurs figuring out how to manage the governance issue, that's part of their innovation. So, I think, for me, it would be innovation is something that happens not after society fixes itself, but it's the process by which society fixes itself.TL: We'll do our best to help that idea spread.EO: Thank you.TL: Thank you so much. My guest today has been the author and prosperity researcher, Efosa Ejomo. Thank you very much for being with us, Efosa.EO: Absolutely, it's my pleasure. Thank you. This is a public episode. Get access to private episodes at www.ideasuntrapped.com/subscribe

I spoke to urban planning scholar Taibat Lawanson about most things Lagos city. We discussed housing, overpopulation, infrastructure, and the many problems that have made Lagos hard to live. She described Lagos as a ''complex city'' - and she is a sceptic of developments like Eko Atlantic city. TL: This is Ideas Untrapped, my guest today is Dr Taibat Lawanson who is a professor of urban planning at [the] University of Lagos. You're welcome.TL: Thank you. TL: The first question I'll like to ask you is, Lagos is generally perceived and described as a dysfunctional city. Do you agree with that assessment? TL: I wouldn't say Lagos is a dysfunctional city. I would just say that Lagos is a complex city. 'Dysfunctional', you know, points to a lot of negative undertones, but I will say Lagos is a complex city in which everyone, the population (20 million+) are all trying or jostling for space in the quest for livelihoods, and a better life. So, for me, “complex” will be a more suitable word. TL: So if there is some kind of attempt at responsible urban planning in Lagos, how do you think some of the problems that the city faces can be mitigated?TL: There is urban planning in Lagos. As it is with other space of governance, the major challenges that the governance framework is unable to cater for the extensive population, so the infrastructure in the city is such that can accommodate comfortably 8 to 10 million people and we have a population that is definitely double that. So the challenge is that the urban planning framework and the governance framework is stretched beyond its capacity because of the population. And the issue now is that population keeps growing and the capacity of government to manage that population or provide a good life for the residents, you know, the challenge continues to grow.TL: Okay. So, would you say that there is need for some form of population control measures in Lagos in terms of control of migration or should Lagos be incorporated into some form of national plan in terms of developing order cities and urban centres that can attract the excess population inflow in Lagos?TL: Well, I've always advocated for [a] special status for Lagos. Lagos used to be the capital of the country and by the time the capital was moved to Abuja, a lot of the growth indicators or the development indicators did not move. Lagos is a centre of excellence, by its name. It's also a centre of economic vibrancy, you know, the economic capital of the country as it were and that hasn't changed. Beyond even the country, it extends as far as the West African coast. So while migration is something that has been happening all along and there's really no way you can control it, why do we have the migration...the high influx of people into Lagos? Some of them have to do with issues in other parts of the country, like the insecurity in the North, you know? So people are moving in because of safety and all of that. And Lagos is in a Federation and in a Federation you have certain rights as a Nigerian citizen so I don't know how population control can be achieved in a Federation. What I think is that Lagos should be given a special status because of the challenges she faces as a sponge for the entire country and the West African sub-region. - Taibat LawansonWhat I think is that Lagos should be given a special status because of the challenges she faces as a sponge for the entire country and the West African sub-region. That's one. The second one is that we really need to look at the urbanization issue from a national development context. It's not enough for the government to identify all local government headquarters as urban areas, specific intentional programs and interventions must be made for urban development across the country. We need to have some measure of redistribution of resources, redistribution of skills and we really need to take upon governance very very seriously. People are coming to Lagos in search of livelihoods, you know, and then the question is why are they leaving where they are? They're leaving where they are because the livelihoods there are not secure or they are not sufficient. Alright? So the issue of, you know, migration or population control goes down to the issue of national development and decentralization of resources and opportunities for the people. TL: One thing that also interests me is the issue of housing in Lagos. Housing appears to be quite expensive and the available housing cannot really meet the demand. Now, would you say that it's an issue of supply in terms of the development of housing is not fast enough to meet the demand or there are other bottlenecks in terms of land titling and property rights issues?TL: Housing is a multifaceted issue. We have issues of affordability, availability, acceptability, quality, you know. The fundamental thing in the context of Lagos is what type of housing are we building? We have a national housing deficit of about 17 million and from the data, we learned that about, maybe, 30 or 40% of that 17 million is in Lagos. So Lagosians have, you know, a serious housing deficit. But then again, when you go to the highbrow areas of Ikoyi, Victoria Island, Lekki, you see a lot of vacant housing. So the problem has to do with what bracket of the housing market is facing this deficit? And that comes the issue of affordability, what kind of housing are we building and who can afford it? That's one. With regards to availability, the types of housing that people who are starting up their lives or people who are earning meagre incomes can afford, who is building it? Was the approach towards it? Most of that type of housing is being done by landlords and it's done on an incremental basis. And it's done in such a manner that they, you know, are building these houses to use to secure their future. A manner of a pension plan, you Know... in a manner of speaking. So for them, they have to get something reasonable out of it, particularly since they have built, out of usually their pension or their savings or they take a loan from the bank or the cooperative society.One of the reasons why the cost of construction is high is because even within the estate people are self provisioning these neighborhood facilities - water, electricity, the roads, the drainage and all of that. And it gets to be added to the cost of the housing units. - Taibat LawansonSo the cost of construction is quite high, and how do we mitigate that? One of the reasons why the cost of construction is high is because even within the estate people are self-provisioning these neighbourhood facilities - water, electricity, the roads, the drainage and all of that. And it gets to be added to the cost of the housing units. So we really need to, kind of, look again at what is making housing expensive. Another issue is using materials that are sourced from abroad. So all those need to be decoupled. That is why housing is expensive. And when we look at the deficit again, we then say 'what about the quality of housing?' The man who lives in the slum, lives in a house, we can then say that - is it decent housing? Is it habitable housing? Is it fit for purpose?In the context of things, when you're looking at housing, oftentimes good houses in bad environments are not counted, so we need to look at issues of urban upgrading. We need to look at issues of solving the drainage problem. And what really causes all these things is that people go into communities to build before services are provided and those services are meant to be provided by the government using planning standards or being guided by the operating development plans. But the city is growing much faster than the government's capacity, like I said earlier, to provide these services. But people are coming in and people have homeownership aspiration, so they continue to build and they continue to grow. And then the fundamental question of who are we building for? Remember, I said earlier that most of the housing that is going on now is being done by landlords. The ones that are being done by developers are out of the reach of most people for the reasons I stated earlier. So the housing question needs to be fundamentally looked at. What are the imperatives for mass housing? And how can we get it done right at the cost that people can afford? The mortgage market, which should be the natural recourse to supplying funding for mass housing, the mortgage market is quite stifled. And that needs to be rejigged, you know, we need to look at it and the only way we can make housing affordable and accessible to more people is to expand the opportunities to get housing finance. And that is through the mortgage system working hand in hand with the developers. The environment is changing. The new FHA chairman seems to be working towards that aspiration, but it's early days yet. But the fundamental thing is that we need to move from this one man building 3 flats and all of that to actually producing mass housing in an affordable manner. TL: I know you've been...even though I haven't really seen any of your arguments in detail, but I know you are somewhat of a critic of projects like Eko Atlantic. What do you think such initiatives are missing in terms of delivering mass housing on a scale that matters? TL: Okay, yes I am a critic of those grandiose projects and I call them aspirational projects. They are not at a response to the housing problem they are a response to the governance, security problem and our aspiration to fall into this world-class city, whatever that means. Eko Atlantic City is built or is designed with the diaspora and high net worth Nigerians, and we know that there are only so many of those people. So committing such amount of funds to, you know, meeting that needs or an assumed need of so *many* [few] people, I think, is fundamentally flawed. Alright. If there are 20 million people in this city and over 60% of them live below the poverty line, then providing housing should be looking at the fundamentals - how is the man on the street going to get a place to sleep at night? And committing the amount of resources and government support to these aspirational luxury-type, resort-type, housing estates, I think, is a problem.And one of the consequences of this is that we're going to continue to live in a segregated city. Where the rich are behind their gated communities and they cannot come out because the angry poor are out at the gate, you understand? So we really need to open up the space...we need to open up the space and make sure that opportunities are available for all citizens of the city, whether rich or poor, at their own level. So it's not a problem for those who want to live in Eko Atlantic or who believe Eko Atlantic is an ideal, it's not a problem at all. But hand in hand with the development of Eko Atlantic we should see 1000 mass housing 2 bedroom, 3 bedroom for government workers, for policemen, for people who are earning within 100 to 200,000 naira month you understand?TL: Yeah.TL:  So it's alright to do the luxury housing, but it is also important to simultaneously provide for the majority of the people who live in precarious housing.TL: As you know, we are still dealing with the fallout from the pandemic and Lagos, like most other cities that are economic centres, was hit very hard. So, what are the patterns you observed from your research in terms of adaptability and how Lagosians generally dealt with that crisis?TL: Okay, um, I think Lagos was prepared. They started well and I guess that was because of the experience we had with Ebola in 2014. So we had the framework for dealing with such an issue...we have the basic framework and then, you know, the commissioner for health was intentional and the governor gave him every support. So we started off well, there was information dissemination, there was contact tracing and all of that. It started off well, and fortunately for us, somewhat, it started from international travellers, people who are generally at middle-income levels, so it was easier to trace them. And then, at the beginning, there was a lot of distrust and there are lots of people who still deny the pandemic. It started to get a bit out of hand after the lockdown was announced. And why was that the case? The fact that many people live on daily wages and so they have to go out to feed. If they don't go out, then their families will starve. And when the palliatives started to be distributed, they were not targeting the people who are most at need. And that was because there was not sufficient data to capture them. The government did not know where those people are. They responded with the palliative distribution based on the data at their own disposal, and also because the way government operates, they do not actually recognize many of those who live in informal communities, and those are the people who were particularly impacted by the economic and social consequences of the lockdown. If a city is going to have a 24 hour economy, then there must be infrastructure to support that economy. - Taibat LawansonThe disease itself did not affect so many people. We're fortunate maybe because of the weather? Maybe because of the system that was put in place, maybe because of the natural resilience, but we've been quite fortunate with the spread of the disease, but the social and the economic consequences have been more dire, alright? And with regard to food security, with regards to rising prices of food, with regards to job losses and things like that. And that is primarily because the government simply doesn't have data for people in those places, in many of those places. And which brings me to the need for more partnerships between government and civil society actors. During the lockdown, we realize that civil society, NGOs and faith-based organisations were more effective in supporting people who were at the lowest rung of the ladder. Because they know them, they've been working with them, they've been supporting them before the pandemic. So it's important that government, you know, does what it ought to do, but it's also important that government partners with those who are working in between the cracks and that's where the civil society actors curate data. Because to the best of my knowledge Lagos State operated using the data at their disposal. The only challenge was that the data was somewhat flawed and not fit for this particular purpose and that was why they were lags in the distribution of the palliatives. But Lagosians are resilient people, have bounced back and are trying to make you know the best of the situation as the economy starts to reopen. TL: One other problem that Lagos faces, which is quite a significant challenge, is traffic congestion. And you already talked about how the infrastructure is stretched and there might be governance and fiscal challenges to delivering the infrastructure that will cater to the ever-growing population of Lagos. So I want to ask you, do you think policies that have been tried in other admittedly more developed cities like congestion pricing, do you think they work in Lagos or there will be challenges with their implementation? TL: Okay, so take congestion charges, for example, it's been implemented in the UK, in London. You can't go into central London with your car, you get to pay higher. But what happens is that there are alternatives. You don't go into central London with your car, but there is a train that comes past your bus stop every 7 minutes. There's a bus that comes every 12 minutes. You can choose to go by bicycle, you know, so there are other opportunities. There are other alternatives to taking your car. The issue we have in Lagos now is that the public transportation takes fewer people than it ought to. So issues of congestion charges may be reasonable in high traffic areas like Lagos Island and all of that, but are only feasible after alternatives have been opened up. So what are these alternatives? We have the light rail that is coming into the city centre. If that is implemented, if that starts to run, yes, the issue of congestion charges may come in. We have the largely untapped waterways. The waters of Lagos are empty. It should be full of boats and ferries moving people from one area to the other. There is nowhere in Lagos that you cannot get to by water within 30 to 40 minutes. And that's something that we're not doing enough of, so that also needs to open up. There need to be these alternatives before you can, you know, even make these stringent things. And now with the pandemic, people are afraid to go out in groups, the issue of physical distancing comes in. Somebody who has been using the BRT for example now doesn't want to be cooped up with 30 other people and chooses to take his car out for his personal safety.You can't blame that kind of person because he's doing it for personal safety. So until these alternatives are put into place (and adequate communication and the reasons behind certain decisions are out in the public domain), then those kinds of interventions or those kinds of approaches would just be seen as not being inclusive. It's important to achieve development, but it's also important to achieve development in a manner that is respectful of the rights of the citizens and is inclusive, recognizes that people belong to different social-economic categories and also recognizes that people have different life experiences and ensure that at every point in time the rights and privileges of citizens are taken into consideration. So take, for example, disability rights. Apart from the BRT, even within the BRT not many bus stops that are being constructed are wheelchair compliant. Not many road signs have the Braille component. So these citizens who have rights as much as the next person, they're not even being thought about or catered for in the development of the city. So all these things go hand in hand. The first thing is to recognize that you want to make things work. The second thing is to make sure that you are making things work for everybody, and so the scale may not be as high or as large as one intends to, but things must be done in a manner that is inclusive and is respectful of the rights of all citizens.TL: Lagos is, among other things, the entertainment capital of Nigeria, the cultural capital of Nigeria. And it can definitely hold its own on the global stage. From what we've heard from our parents and through history, it used to have a very vibrant nightlife that seems to be... I don't want to see it dying, but petering out a bit. What do you think is responsible for that? Is it insecurity or gentrification in terms of housing? Or...what do you think is responsible for that? TL: Okay, Lagos has a very vibrant entertainment scene, but the only thing is that the entertainment is kind of skewed towards a particular sector of the society and that's where the problem comes. We also have a lot of privatization of resources. So take for example the Bar Beach. The Bar Beach used to be a weekly Mecca of sort for most Lagos families. So after church on Sunday, you go with your cooler with your family to spend the afternoon on the beach. You can't do that anymore. Number one, the beach doesn't exist. It is now Eko Atlantic City. But there are other beaches in the city. But all these other beaches you need to have some money before you can even approach because you have to pay to enter, pay for your parking, pay for your coolers and all of that. So the Commonwealth of the city has been privatized and so even the natural recreation facilities, one is not able to access them. The unprecedented urban growth also was a challenge where a lot of the parks and green areas were taking over for residential purposes. Over the last 10 years since Fashola's regime, Lagos has been deliberate about capturing some of those parks and gardens back, but there is also the challenge of access. Some of them are free, some of them you have to pay to use the services, and many of them are time-bound so after a certain period of the day you cannot access those services, and that's a problem. The other thing is with regards to sporting facilities. A lot of the sporting facilities are also, you know...they have financial implications and people are poor. It's difficult for you to divert the money that you want to use to eat to pay a gate fee to access the beach or the stadium or things like that. And so where do people do their entertainment? They're watching DSTV or they're doing the pools' betting which has serious social implications and economic implications. Or they have to indulge in things that are not wholesome, so that's the problem you know. And then we have also the security situation where people feel unsafe when they go out after some time. One, because there is no infrastructure to support nightlife. How many of our street lights are working? How many of our policemen are going out in the evenings, you know, to see that people are safe and all of that? And many of these nightclubs that even currently exist, where are they located? Many of them are located in the business areas - like on Victoria Island, on Awolowo Road. So these are places that are not easily accessible except you have a vehicle.So it takes you back to the infrastructure issues. If a city is going to have a 24-hour economy, then there must be infrastructure to support that economy. In Lagos, everything that is government-related, you know that is public, institutional related, shuts down at 5. So how do you expect life to go on when there is no enabling environment for life to go on in the night? So that's where that challenge is. But with regards to the music, to the dramatic arts and all of that, there is a resurgence of that coming up, but the infrastructure to support it in a way that triggers economic growth and is beneficial to more residents is where some more work needs to be done. I think the former governor did something called Community Theatres. And they constructed small theatres and cinema kind of places in five different local governments, but I don't know whether they have started operation and what the nature of their activities look like. TL: So my final question to you, which is a bit of a tradition on the show is what's one big idea...and this could be about anything, urban planning or any other thing that you're researching or interested in. What's the one big idea you like to see spread everywhere and you'll like to see people adopt or carry in their head or implement?TL: So for me now, something that really bothers me...and this is not even from an academic perspective, this just from somebody who's living in the city has to do with the waste, particularly the plastic waste. Our waste management structure is not robust enough to cover everything that needs to be done, but people are not helping matters. Lagosians are dirty. You know, there are throwing things out of the window, they are not putting their rubbish in the bin and things like that. They're not sorting their waste and the plastic waste is particularly stressful. The circular economy has come in with regards to the plastic bottles and so companies like WeCyclers and other recycling companies are turning this plastic into something that has economic value. So that's working. But those foam plates are everywhere, they're blocking the drains, they're making a mess of everywhere and I think we need to take personal responsibility first. You know, how are you working with your waste? What kind of waste are you generating? How are you sorting it out? How are you getting it into the bin and how are you getting it into the LAWMA trucks and all of that? That's the first thing. And then for the LAWMA people, how are they sorting it and making economic value out of it?But for me right now, we need to do waste sorting at home and we need to take personal responsibility for keeping our environment clean. I think a lot of the drainage problem in Lagos, apart from the really structural engineering ones, can be mitigated if people were more intentional about their waste management practices. TL: Do you think there needs to be [a] strong regulatory or punitive response from the government in terms of this problem?TL: Um, I think the first thing has to be massive orientation, reorientation towards living a cleaner life. Many people don't even know that it is wrong, many people don't know the consequences of some of their messy habits, so the government has to come out and, you know, educate. Public reorientation. Let people understand that throwing that bottle of Coke or something out of the window of the Danfo has implications for the quality of fish that we're going to eat if that bottle gets into the water, the kinds of chemicals that will be produced, and getting into the fish, the quality of the fish that we eat, the quality of the food that we get, and things like that. They need to understand that those seemingly careless waste practices have a direct link to the incidence of flooding in their neighbourhood. The other day there was a picture of Akobi Crescent in Surulere and it was full of those packs. And probably the government needs to enforce, you know...where are these products coming from? What are the alternatives? I know in the UK now when you go to eat at these restaurants, if you don't ask for cutlery, you don't get. And they're using recyclable materials, like easily biodegradable materials like bamboo, like wood, they're asking you to come in with your straws and things like that. Some of them are charging you for plastic bags in the supermarket. In Germany, for example, you get a trade-off for every plastic bottle you bring into the shops. You understand, as long as you bring empty bottle[s] you get some credits. In the UK your recyclables are weighed and you get a debit...you get a discount on your monthly bill for those recyclables. So we need a lot of those kinds of incentives in the waste management sector, then we need a lot of public reorientation before the issue of infractions, contraventions and punitive enforcement can come into play.TL: It's it's been great talking to you. Thank you very much, Dr Taibat.TL: Thank you, Tobi. This is a public episode. Get access to private episodes at www.ideasuntrapped.com/subscribe

I had a conversation with Elizabeth Omotunde, Emmanuel Era, and Ronke Bankole on the ongoing protest against police brutality in Nigeria. We thought out loud mostly on police reforms, what the legacy of the protests might be, and the complicated morass of the Nigerian bureaucracy. Many thanks to my guests for finding the time to offer their thoughts. Like I have reiterated multiple times, this is the moment for the political leadership of the country to use this example to tackle some of the roots causes of our multiple social ills. This is a public episode. Get access to private episodes at www.ideasuntrapped.com/subscribe

Trade economist Meredith Startz and I talked about her research on the information costs of trade. We discussed the strategies that traders use to lower costs associated with search (ensuring they get their goods to the market on time) and moral hazard costs (ensuring they get what exactly was ordered from their suppliers). We talked about how big businesses use fixed cost strategies to lower costs, the benefits of higher revenue for firms, and how innovative business models can improve contracting in long-distance trade. Meredith is doing important work, and I think her research deserves a lot more attention.  Bonus point; she also did field research surveying traders in Lagos. TRANSCRIPTTL: Welcome to Ideas Untrapped and my guest today is Meredith Startz. Meredith is a trade economist at Dartmouth College. You're welcome, Meredith. MS: Thank you so much for having me. TL: I love your work so much, I have to say. 'Cause, um...MS: Thank you.TL: Usually, when we talk about trade, at least from my familiarity with the literature and matters of policy, we usually focus on tariffs and like you mentioned in some of your papers, transportation costs. I kind of see your work as getting into the microeconomics of trade a bit, and I found it really, really fascinating. So briefly, if you can just introduce us to the concept of information costs in your work with you called search and moral hazard problems. MS: Sure. So let me back up just one step to sort of talk about the context in which I'm often thinking about trade costs, including information costs. So I spend a lot of time talking to and interviewing wholesale and retail traders often in Lagos, in Nigeria. And as you sort of said, while the policy world and often the academic world focus on kind of the macro side of trade and trade costs and things like tariffs and sometimes transportation costs. You know, if you talk to any business actually engaged in trade, there's a whole lot more to it than that. There are things we kind of often lump under trade logistics that really make up a big part of the business, and so if you talk to people in Lagos who are importing clothing, or electronics, or something like that, you realise they're facing all kinds of challenges that they deal with in their business every day that you can't really summarize through these kinds of standard trade policy, tariffs discussions. And so one of them that I ran across very early is that these traders are often travelling to the countries that they're sourcing from in-person to make purchases. So they'll get on the plane and go to China to buy things. And of course, they know that they don't have to do that. They could pick up the phone or get online to buy their products. And so you talk to them about why they're doing that and two things came up really frequently and this is where we're going to get to what I mean by information costs. So one is that they have to actually figure out what kind of products are available for sale, where in the world, who's selling it, what are the characteristics of those products, what's their quality? And when Economists hear that, it makes us think of what we call search - which is sort of a weird way of saying that the world doesn't conform to this very oversimplified assumption that Economists sometimes make use of that we call perfect information. Which is the sort of silly idea that everybody knows everything about the whole world that's relevant to the decisions they're making. Obviously, that's not true in reality. And in the case of traders, one of the ways it's not true is that they have to figure out what products out there are actually available, at what prices, from what sellers? So that's the search problem that I'm talking about in my work. The other problem that these traders talk about all the time that they sometimes solve by going to make a purchase in person is the fact that you can't just send money off to the other side of the world and assume that you will necessarily get back exactly what you were expecting when you were expecting it. And so when I talk about a moral hazard problem, I kind of mean the trust or contract enforcement problem related to that. You send off money, you don't know what you're going to get back. It could be the wrong product or a lower quality version than you expected. Or somebody could even just keep your money and send you nothing. So that's the second kind of information cost that I talk about in my work. TL: Yeah, that's fascinating. And I mean we buy these products every day, we interact with the retailers every day, and you're sort of getting into a lot of the things that go on through the backchannel. What are the strategies you observe? At least, from your study and what your model predicts, how do traders try to work around these costs? What are the strategies you observed? MS: Yeah, there are a lot of strategies, the one that I focused on a lot is the one I just mentioned which is travelling to do business in person. And the way I kind of think about formalizing that is that when you're standing face to face with someone in a market or with your supplier, you can almost literally exchange money for goods at the same time. Right? You can be standing there in the warehouse, you see the shoes that you want to buy, you've looked at them, you've checked them out, you know that they're correct. You hand over your cash or you sign off on that wire transfer and you pick up the box of shoes and you leave with it. And at that point, you know exactly what you're getting and you know that you've gotten what you paid for. And so this is kind of a very formal way of thinking about something that I think is just a really practical, obvious solution for people in the trading business, right? But if you think about flying to China, you kind of reduced your very remote problem back down to that face to face problem that you would have if you were right there in person with your supplier. And so that's kind of a way of avoiding all of these search problems and contract enforcement problems (one) that you face when you're far apart by just literally turning it back into a face to face transaction. TL: One thing I thought about though, I mean, hearing you speak and reading through your work is that individual traders bear this cost. And from your observation, are there high trust clusters among traders and firms, where, for example, they can pull their resources and have a representative go to China or Dubai, or some of these entry ports in order to reduce the individual cost of travel and search?MS: That's a great point and I had exactly that question when I started working on this. So I think the idea that you're getting at, is if some of these strategies you have for solving your problems like travelling abroad, carry these big fixed costs and you're a relatively small business, then you think it would be smart to get together and share that big fixed cost and only pay it once. To be totally honest with you, when I started asking traders about this, they kind of looked at me like I was a crazy person. Like, who are you asking me if I get together with my competitors and share all my information about the products I want to buy and let them go buy for me with my money? And of course, that's not always the case, we do see some people who collaborate with other traders.But broadly, I think what's going on here is, you know, if you put yourself in the shoes of these small businesses, the people that it would be the easiest for them to network with or, you know, the most sensible in some ways are exactly the people who work near them and deal in similar goods. Those are the people it's easy to talk to, the people who might want to buy the same kind of things, to see you at the same time. And those are exactly the people who you're in competition with, who you don't want to give your private information to, who you don't want to give a leg up against you. You know, you want to have newer, more interesting things that customers will like more at lower prices than those people. And so I think what we see is that it's actually really hard for these businesses to cooperate in that way precisely because it would involve sharing information or cooperating with their competitors. TL: So, how do big firms, I mean, these are small traders, right, and...how sensitive are these patterns to farm size? I think that's what I want us to start with, basically. MS: Yeah, I mean so if I'm understanding you right, just as it would make sense for a couple of small firms to get together and try to share this fixed cost, the larger your company is the more it makes sense to you from a profit perspective to use this kind of high-cost strategies that then let you get goods at lower prices or get better goods, for instance. And so we should see larger firms doing more of this. And you know, within the data that I've collected, which still focuses on fairly small trading firms, that is true. Larger firms are more likely to take this kind of strategies like travelling to go buy in person. I think there is sort of a broader question which is, as the structure of the economy changes and the nature of firms engaged in the retail sector or in trading changes, do you see kind of a shift in ways of doing business? And my suspicion is that that is true, right? That larger firms do engage in things like setting up supply chains and distribution networks that sort of have higher setup costs, but then let them (to) continue to do things at lower prices.And so in some countries, where you've seen a transition in the way retailing works, so for instance, in a lot of Latin America or in Mexico as you've seen this kind of big box store multinationals move in, you do see them lowering prices and changing the way supply networks work. And I think not much of that has happened in West Africa yet and why not is sort of an interesting question about how Nigeria's economy might change in the future. TL: I will understand if you want to pass on this question, but does that strengthen or weaken the case for big businesses generally from, say, a policy incentive perspective?MS: Yeah. That's a really tough question and this is sort of related to some work I'm doing now, so I may have a better answer for you in a couple of years. So let me lay out one thing that I think is a trade-off you might want to think about there. TL: Okay.MS: So, I think the kind of intuitively appealing aspect of increasing firm size is sort of what we were just talking about, right? That they have an advantage at paying these costs to set up really efficient distribution networks or supply chains. Right? The tradeoff going in the other direction is when you have large firms, they may have a lot of market power, either in the sense of their ability to raise prices for consumers or in the sense of their ability to sort of capture local regulation and lobby for policy or political decisions that are favourable to them, in a way that small firms have to be very competitive with each other and may not individually have the ability to influence those kinds of decisions. And I think it's not obvious, kind of, in theory, which of those is going to weigh out, right? That's an empirical question. And I think one thing that's interesting is to make a very broad generalization. I think you've seen this kind of big-box chains struggling both in West Africa and to a lesser extent in East Africa in recent decades, right? So you have the example of ShopRite which made a big initial expansion in Nigeria and is now pulling out.And I don't know exactly what all went into that, how much of that was about bottom line, business tradeoffs not making sense versus other things. But the fact that Nigerian retailing is still so dominated by these small scale enterprises suggests that there may be some kind of countervailing costs or challenges that large firms face in scaling up, which might even directly outweigh the advantages you expect them to have in setting up sourcing or distribution networks. Right, and so I think there's both a question kind of right now, are they actually more cost-efficient, and if not, what are those other countervailing features? And then there's a second question down the road which is, suppose they can actually do things at a lower cost, does that result in lower prices for consumers or they're kind of able to capture markets in a way that makes things not actually better for consumers in the end?TL: Talking about the struggles of large larger retail chains in West Africa and the case of ShopRite as an example, one thing I also found very interested in your results and your paper is the role of higher-income generally in the population and an increased consumer spending. And you pointed out that in that kind of environment or economy, it's not really about firm size, it's about the revenue of individual firms. Can you just outline how that works briefly? MS: Sure, I mean that I think relates a lot to what we were just talking about, right? The really simple insight there is that suppose you have these strategies for overcoming, for instance, search or contracting problems like travelling or like investing in a distribution network, they carry some fixed cost. When a firm has higher revenue and they expect to be able to sell more to more people, they're going to be more able from a profit perspective to carry those big fixed costs. And to the extent that those strategies actually reduce marginal costs, they are then able to supply goods at lower prices. That abstracts from what we were just talking about, which is these sort of other issues about market power or regulatory capture.TL: Does your model indicate any comparative result between an overall reduction in information costs generally, and how some of these multinational retail firms with established supply chains like you mentioned and some market power (which I would interpret as fixed cost strategies used in reducing this information cost)....which of these channels and I know this may be asking too much of you Meredith... which of these channels would you say improves welfare faster in terms of prices and, just generally, economically?MS: Yeah, that is a really hard question. Let me say this...TL: Okay.MS: You know, if you ask most economists, I think their instinct will be - solve the underlying challenges, and then let the market tell you what the best strategies are or what the right firm size is. That's a big oversimplification, but I guess what I mean by that is I'm not sure there is necessarily a conflict between trying to reduce information costs for everybody and allow these sort of larger multinational firms to kind of bring in some of their cost advantages, right? Trying to reduce this other kind of frictions or challenges related to trade which might be about the difficulties of travel, it might be about financial regulations, it might be about, you know, access to Internet or infrastructure. Those are likely to help with everybody, right? And if you solve those problems then you can see, well, is what happens that these small firms are able to compete so much better that actually they survive or is what happens that kind of enables the ShopRites to come in and do an even better job. And so I would say rather than kind of trying to answer that question ahead of time and plan for it, you just solve the underlying problems and then you learn a lot about who's able to operate best in that environment. TL: I understand your answer, but why I find that question relevant is the way that...and this is a bit political, the way that policy is actually done here, at least in my experience in Nigeria, where local firms are prioritised and even in some cases there are very serious barriers in terms of policy in the way of large multinational firms. You know, there's a bias towards local firms and policymakers kind of treat it as a tradeoff. Because in some countries, again Nigeria as an example, there are no really big local retailers with experience in supply chain management and all these advantages that multinationals may possess.So I feel like if there is a better answer or a more informative answer about the implication of what you are making a tradeoff as a policymaker, it might not be economically speaking. Like you said you, you may just have to improve the overall business environment and let the market dictate. But as a policymaker, if I know that letting multinational firms operate alongside local firms and not erect all these barriers and make it an unnecessary tradeoff, I'm actually improving the overall welfare of the people and it might improve how we discuss trade and the overall attitude of policymakers. That’s why I find that question very relevant because trade can be a very sensitive issue in terms of policy here. MS: Yeah, I completely hear you. And I think it's worth distinguishing two things in what we're talking about, right? One is about, kind of, the firm size and the business model and the other is about multinationals versus local firms. And I hear what you're saying that in Nigeria we may not be able to separate those things in practice if there aren't, kind of, local champions that are able to expand that larger-scale retailing model. TL: Yeah MS: The evidence that we have from other countries right now, right? Which you always have to be a little careful when you extrapolate from one context to a very different context. But the evidence that we do have seems to suggest that those kinds of big multinational retailing firms do help consumers when they enter the market. There's a very nice paper from the expansion of Walmart in Mexico by 3 economists who, sort of, studied related issue that says that that definitely lower prices for consumers and it actually did it in two ways. One was that the Walmart subsidiary itself offered lower prices, but the other was that it provided more competition for local firms who then also lowered their prices. So you know, I think, my inclination is to say that I have a little trouble seeing, especially if you don't have local champions who can step up and try that business model that it's a little harder for me to see why you'd want to block firms from other countries that are able to do that. But as you say things are complicated and there's sort of a lot about how politics in any particular place works that makes it harder to implement that in practice.TL: Interesting. One other thing I also like about your work is that there's a lot of room for improving the status quo without really spending so much money in regards to developing countries - without committing too much resources to interventions, there are some frictions that you can just get rid of and would generate some positive results. So I want to talk about contracting frictions a bit. You talked about third parties using financial services to deal with some of these frictions but, again, there's a situation where they bear excessive liabilities and they don't have the incentive to invest in providing those services. Are there government interventions or regulations that you think can create a market for reducing contracting frictions?MS: So my hunch is that a lot of what is needed here is not only a conducive policy environment, but also innovation to make these type of financial and legal services more useful and accessible to small firms. So for instance, things like letters of credit or international arbitration services are perfectly well-established tools that large firms all over the world used to deal with this same kind of contract enforcement problems that they face when engaging in international trade. And I think, you know, the reason those are not very accessible to, say, smaller wholesalers or importers in Nigeria in their current form is not necessarily any specific regulatory barrier. But because for a bank to be willing to offer something like a letter of credit, they have to charge a cost that would be prohibitive for a small firm, for a bank to be willing to take on that liability and process the service. And so I think probably a lot of what we need is innovation in how this kind of e-commerce platforms or financial services work to be able to provide that same function at a lower cost, right? 'Cause I think what we see, certainly in the data that I work with, is that if the cost of a letter of credit isn't lower than the cost of a one week trip to China? Importers are still going to solve their problem by just going to China.TL: Yeah.MS: I'm not an expert on financial regulation in Nigeria, but I think that maybe the best thing you can do is try to set things up in a way that actually encourage innovation in these services, right? Not just encourage the entry of kind of established players providing established products, but innovation that lets people figure out how to adapt these products in a way that works better for the local economy. TL: How do traders respond to huge exogenous shocks like the global pandemic that the whole world is dealing with? How does it affect their strategies in terms of cost and every other thing they do to adapt? MS: Yeah, as I'm sure you can imagine, it's been a really tough six months for these traders that I work with. So we've been doing some high-frequency phone surveys, just calling them to see how they're doing and how they're coping with things. And you know one thing that I think is interesting is they were actually feeling the crunch from the pandemic well before, I think, most people were because they started to see problems with their supply chains in China back in January. Right, which makes sense when you think about where they're getting their goods, and where was experiencing problems that early. So they've actually been suffering through this even before the local lockdowns and before, kind of, the general public started having issues. So I think overall, what we're seeing is that so far these kind of businesses are mostly surviving. They made it through the lockdown. They, kind of, totally shut down for a month or so and they're now back up and selling. And they're kind of facing problems from two sides as you might expect, right? So the demand side is maybe not surprising right. Customers can't come around as much, customers are worried about their own income and their own livelihoods, and so they're buying less. And of course, the restrictions on interstate travel in Nigeria also cause problems. The kind of importers that I work with are selling not only in Lagos, but throughout the country. And so when half of their customers couldn't show up from other states where they had to kind of incur all these extra costs to get goods to them, that was really causing problems for them as well. On the supply side, they are still seeing problems, so when we were interviewing these traders as of early July, a lot of them still had not restocked this year. And they had about a month's worth of goods in stock, and so they were facing the challenge of how to deal with that. We're going to go back and talk to them again soon, so we'll find out what they're doing. But I would say, overall, the attitude seemed to be one of a holding pattern, just kind of wait and see what happens. And so we saw people starting to think about things like well, can I buy and sell more online or can I find different ways to deliver products to my customers? But in terms of their basic business model, it was really a see if we can wait it out kind of attitude the last time that we talked to them. TL: It's been terrible. I can imagine.MS: It's really tough, yeah.TL: Yeah. I know I've been pushing you into policy talk quite often, so are there things you think traders - and of course, we can't really ignore policymakers in the whole picture - can do to better mitigate the effects of future shocks? I know we can really predict what's going to happen next, no one saw this coming, I don't know if anyone could have. But as a sort of general heuristic, what can better be done to mitigate the effects of future shocks? MS: Yeah, that's I think the question on pretty much the mind of everybody in the world right now. You know, I think one thing that seems to have been quite hard, especially in Nigeria, that I think some countries or some regions in some countries have dealt with better than others is, there's sort of no planning for this kind of shock, right? I mean, kind of by definition, this is sort of such a large catastrophic problem that it would be hard to set up your business in a way that was completely immune to or insured against this kind of challenge. And part of what's particularly difficult about this kind of catastrophe is, in a way, we don't want people to go back to business as usual. From a public health perspective, the question isn't how can we get customers out there buying more things? It's how can we tide people over until we deal with the health problems so that then we can go back to business as usual. And so I think one thing that some countries have done better than others is basically finding ways to help people just tide things over until we solve the public health problem. And my sense is that in Nigeria, not just from a business perspective, but even from a private citizen's perspective, there is a feeling that palliatives have not been very forthcoming or emergency loans have not been very forthcoming, and if you sort of talked to people about what have they actually been able to access to try to tide their business over or get a little bit of working capital so that they can get going again after the lockdown, they have struggled to access those kinds of things. And so, I think looking toward the future this is kind of what we have governments for, right? It's this kind of huge public collective problems that it's really hard for individuals or businesses to self insure against, and so being more prepared to give that kind of emergency insurance and emergency support that just gets people through to the other side, I think, is probably what we can focus on.TL: Hope we all pull through together.MS: Absolutely.TL: Yeah, so we're going to get into some speculative grounds here, so please just indulge me. MS: Absolutely.TL: So as a general question I want to ask you this. Why is straight policy so controversial? I mean, either throughout history or now in Africa, at some point in Latin America. Importing versus exporting. Local firms versus foreign firms. What are the surrounding issues of trade that makes the economics, which to me seems pretty clear, so difficult to accept either by elites or policymakers, generally? MS: Yeah, so here you're getting, sort of, my personal opinion as somebody who kind of wonder sometimes why trade economists aren't more effective at communicating what we know about the world to policymakers or to the general public. My sense is that there are two things going on, right? Or it's kind of the intersection of these two issues. So, one is that people throughout history in all circumstances are very susceptible to us versus them narratives. And so when you start talking about international trade or foreign investment or multinational activity in your country, it very naturally lends itself to that kind of us versus them political narrative, right? If you need somebody to blame for economic problems, it's very easy to say 'well, we don't want these foreigners being the ones who are profiting in this circumstance, we want it to be us.' One of [the] deep insight of economists about trade is about the gains from exchange due to comparative advantage, which is the idea that if you have sort of different endowments or different skills in different places, right? So one place has a lot of capital, one place has a lot of skilled labour, or one place has a lot of unskilled labour. The kind of deep insight about trade is that if those places interact with each other economically, actually the kind of total surplus that everybody has access to is going to increase. And if we divide that up the right way, everybody can be better off. And economists really like this idea, and we think it's probably true. The thing that we haven't done so well about communicating about is that we've also known for a long time that that doesn't mean that everybody does end up better off in practice, right? There can be allocative or distributional consequences right where even if the total pie has gotten bigger, we fail to divide it up in a way such that everybody is actually better off in the end. And trade economists know that. And we've known it for a long time and I think to maybe unfairly malign my profession, we've kind of thought that that second part of the problem, which is how to divide up the pie so that everybody is better off, is kind of a problem for somebody else.That's for the politicians or the political economists. Or the labour economists, I don't know who. And so we've really kind of pushed this narrative of trade is good, trade is good without then addressing the second part of that, which is trade is good, how do we make it good for everybody? And I think that's really fed into this kind of natural us versus them story, which is that it's easy to blame the foreigners for your economic problems. I wish I had a better package to offer you here, but I think that's really on me and my profession to come up with better ways of communicating about how you bring both parts of that puzzle together. Right? Trade can be good, and then how do we make it good for everybody? TL: Okay, 2-part question in reacting to that. One is that, I mean, some economists might try to dance around that fact but the economics is also a normative science, right? And I see economics as utilitarian in a way. So if protectionism benefits a few people but you have a more open trade regime and you liberalize and it benefits a lot of people, even though, like you said, some people are going to lose out. Is there something fundamentally wrong with that vision of the world?MS: I think, no. If I'm understanding you correctly, you're saying 'does everybody have to win to make it a good idea, or can we just have more people winning?'TL: Yeah, yeah exactly. MS: Yeah no, I don't think economics has anything to say about that, sort of, context free, right? I guess what I was sort of trying to emphasize before is you can say trade is good without even having to argue that it's better to make more people better off at the expense of a few. Now, you may also be right that we can go a step beyond that and say 'look, even if we can't redistribute perfectly so that literally everyone is better off, we're still in favour of this because we can make a lot of people better off and we're willing to accept the cost of a set of people who lose.' Personally, I am in total agreement with you about that. I would say that I think there's a bit of a cautionary tale in that strategy, in the backlash against trade that I think you're seeing in a lot of countries in the world right now, including my country, including in the United States. Where, increasingly, there's a negative reaction to free trade and pro-trade policies of all sorts, and I think a lot of people think that this may be because, you know, we… where, by “we” I mean, sort of, politicians and policymakers and economists and the general public kind of ignored the set of people who were losing from trade for too long. And, it doesn't necessarily have to be the majority, it just has to be a group of people who are really hurting to then kind of change the whole narrative and to change the public view of trade. And so I think you do still want to be a little careful about saying, ‘well, the majority gain, and so we're willing to accept some losses’ [be]cause that could backfire on you in terms of the public perception of trade later on.TL: The second part question is, would you think we'll be better off if there are more economists running policy? Maybe not every policy, but at least trade policy and we don't get into all the political complications or all the other things. Because...I'm not an economist, obviously, but economic findings can be counterintuitive. A couple of days ago I was still listening to somebody at the Central Bank talking about the recent ban on importation of maize that 'it's pretty stupid to have someone else produce what you eat.' But we know that is not true, right? So I'm just wondering would the world or us in Nigeria or anywhere else where some of these things can be a problem be better off if economists just run things, you know, and then we won't have to have endless tribal debates about some of these things?MS: You're asking an economist, 'should you just hand us the reigns to let us take over?'TL: Yeah.  MS: You know, my personal preference... I am really speaking for myself here, I would be wary of just letting economists run things, or at least let me put it this way - letting academic economists run things. You know, we're very motivated by a desire to understand how the world works and the skills that make you good at that are not always the skills that make you good at, you know, thinking about or empathizing with everybody's circumstances, or communicating about that, or coming up with creative, practical solutions. Right, and so I think actually, in my ideal world, you have policymakers who are good at those things who are really, really listening to their advisors who are a bit more technocratic, who include economists and even academic economists. And I think I would actually prefer that to letting economists run things, because I think economists can sometimes do stupid things like discount the set of people who are really, really hurting because they've been on the losing side of trade for the last 30 years. That's kind of not our skillset to know how to deal with those things. And so I think you want policymakers who are a bit more well rounded, but who take really seriously the technical advice that they are getting from economists. TL: That's a very important nuance. So how do pro-trade institutions then evolve? That is, how do you have this sort of equilibrium that you're describing where the people running things may not necessarily be academic experts or economists, but they take the advice of experts seriously. They look critically at the evidence and things like that. How does a country evolve such institutions, generally? I know I am asking you hugely speculative questions. MS: This is hardball here. If I knew the answers to this, you could just give me the Nobel Prize right now.LaughsTL: So I'm just interested in your opinion and your speculations, so...MS: Yeah. TL: Just feel free.MS: Yeah, Okay, so let me try to say something about two different sides of that. So thinking about institutions more broadly. I sometimes wonder if, especially when it comes to trade or industrial policy, we get a little bit too fancy. That, you know, as far as anybody knows, there are some sort of fundamentals that seem to be associated with countries getting richer and people's standard of living improving and those are things like good infrastructure investments, and increasing human capital through health and education and international connections and communication. And having sort of sensible domestic policy even in just a very limited sense of not unnecessarily getting in the way of businesses doing what they need to do. (Kind of ease of doing business-type thing is what I'm thinking here.) And far be it for me to say those are easy things to accomplish, those are incredibly difficult things to accomplish, but you know some of it is not that complicated, right? Some of it is kind of stop getting in your own way. And, I sometimes wonder if we spend a lot of time thinking about, you know, should we ban imports of this product or that product or try to have this kind of industrial policy and it's not that those couldn't have important effects on development but I sometimes wonder if we're spending a lot of time thinking about that rather than thinking about how to just improve the fundamentals. A kind of different way to think about your question, which is less about who is setting policy and more about kind of how do maybe nongovernmental institutions arise that are helpful to trade? I think is a super fascinating question that, to be totally honest with you, I don't think academics know a ton about. But let me give you an example, which is that credit bureaus, which are basically organizations that just report on the creditworthiness or the past history of individuals or firms, didn't start as a policy intervention, right? If you look at their origins in a place like the US, that was actually a private business that started offering credit reports on individuals and then selling a service to businesses which was just their reports on all these people so that they could make a better decision about whether to lend them money or whether to go into business with them. So some of those kind of things I'm not sure we have to look to government for, it's more about thinking about what are private businesses or sort of mutual aid associations or business associations trying to accomplish and are there things that we're kind of putting in their way that make it more difficult for those sort of institutions to arise? I know that's a very abstract answer to a very tough question. So maybe a better of putting it is, I think that's a really important area for further study.We know for instance, in the areas that I work in that market associations do a lot of work in Lagos. A lot of things like providing local order and dispute resolution and facilitating security or utilities or cleanups. Those are actually things that are at least in part being provided by these private market associations. So then you start asking yourself, 'okay, why are they not doing other things?' Why are they not providing kind of a credit bureau type service? And I wish I knew the answer to that question. I don't. But I think that, you know, that's sort of very fruitful both in terms of trying to learn about how the world works, but also thinking about kind of where some of these protrade institutions could come from in the future.TL: How much do some underlying societal factors or initial conditions affect the evolution of pro-trade institution? What I have in mind here is culture, right? How much influence would you say that has on how institutions and, specifically, protrade institutions like we are discussing, how much influence do you think they have in the evolution of such institutions? I mean, one example I got from, I think [Avner] Greiff was, the Maghrebi Trader (Jewish traders) in Italy and the Genovese traders and how the former relied on ethnic networks and the latter kind of developed this statewide rule of law contracting regime. What determines such divergences? I mean, speculatively?MS: Yeah. I think it's pretty clear that there are...this is going to now sound so abstract as to be a bit meaningless, but you know, obviously there are multiple ways of getting the same thing done. And just clearly you look around the world, there are different ways of doing business, and that those ways of doing business are kind of sticky overtime right? Certain places kind of have certain traditions and ways of doing things and they keep doing them. I think the place you want to be careful, though, is how much those kind of ways of thinking about business or those attitudes are a cause versus a symptom. So some of them are clearly a cause, but let me give you an example. You know, in the kind of work I do, people talk about trust a lot. And they try to come up with ways of measuring trust right? And we go around the world and we ask people questions about, you know, 'in general, how much do you trust people and would you trust your neighbour to do this? Would you trust a stranger to do this?' And then we try to think about, you know, is that a cause of growth or of a successful economy.I'm very wary of that kind of thinking, that trust is a cause as opposed to a symptom, right? It's certainly meaningful. It's certainly correlated with all sorts of things like how you structure firms in your country. Like, there's some evidence that higher trust places even within countries are more likely to have larger decentralized firms for instance. But if you think about it, like, where do[es] trust come from? A lot of it is a response to the conditions that you experience in your daily life, right? And if you're in a place where your experience is that you can't assume that your local government or your police or whoever it is will follow through on what they say they'll do. Or will follow the rules or will make other people follow the rules, right? Or that somebody will be brought to justice if they do something to wrong you, then, of course, you say you don't trust people. And if you live in a place where if somebody steals something from you, they get caught and have to pay you back, then you might say that you have higher general trust because you correctly believe that other people will not end up doing bad things to you. And that doesn't necessarily mean that the people are fundamentally different, right? People would be inclined to steal things all over the world. It's more a reflection of the environment you live in and how that constrains the way people behave. So, sorry you got me on my high horse about this particular issue, but I guess I'm really cautious about essentialist thinking about things like culture or trust kind of determining our outcomes, as opposed to reflecting the circumstances we are in, and maybe kind of nudging us along one path about how we tried to accomplish the same thing.TL: That's abstract like you said, but I see your point.MS: You got us into philosophy here, right?LaughsTL: Yeah, one thing that has always got me thinking too is that, earlier you talked about industrial policy, right, and how we can overthink some of these things. In terms of development and how it relates to trade, the "East Asian Tigers" have sort of become the standard for other low to middle-income countries. How much weight would you ascribe [to] export as a strategy in how those countries develop?MS: Yeah.TL: Again, that's a bit speculative, but let's go with it. MS: So let me separate kind of two things. One is, how much you need a strong manufacturing sector? And the other is maybe something about trade balance, right? How much you need to have net exporting to promote growth. And I think the latter, right, this kind of intense focus on exporting has led to some policy choices that there's not great evidence for. So there's this now sort of old-fashioned idea about import substitution that you want to, sort of, restrict imports in part to kind of give your domestic industries a chance to grow strong and then start exporting and that's what you really need for growth. And I will say that there is I think very limited evidence that that actually works. The fact that some East Asian countries did that does not seem to extrapolate to... you know, we can't say that that generally has a causal effect on growth, and I think some countries are sort of nonetheless hanging on to that old idea in a way that is kind of dangerous. The more general question about manufacturing is a really tough one right? Like there are a lot of countries out there that are trying to emulate the East Asian growth miracles, and I think there is a tendency to say, 'Well, okay, they followed this pattern, how can we follow that pattern too?' Dani Rodrik, who I think is probably one of the world's foremost experts on growth and structural transformation, has sort of for a long time, I think, be more of a proponent of the 'you need a strong manufacturing base approach.' Recently, he's been writing a lot about how growth patterns in the last couple of decades haven't necessarily involved that same pattern of industrialization and promotion of manufacturing, and that there's been some sort of skipping more directly to a more service-based economy in a lot of countries that have been growing quickly. And I think it's a little too early to know whether that pattern is equally successful. But I will say that I don't think we have a ton of evidence that just because some countries happen to follow this pattern, that there's anything that says you have to go through that exact same set of steps in order to grow.I'm gonna be on the same hobby horse again just bringing it back to the case of Nigeria. You know, I do think that there's a tendency to set up a bit of a false dichotomy, right? You sort of talked about it [that] often, for sort of political reasons, it's popular to feel like it's a good idea to ban imports of something or to discourage foreign investment. And this is kind of set up as a like us or them situation. I think there's not much evidence that that's the case, right, that if you kind of work on fundamentals like infrastructure, human capital, good domestic policy, that's going to help your domestic firms. And if you don't do those things, keeping everybody else out doesn't necessarily do you any good. TL: Interesting. How much do free trade agreements... I'm sure you're aware of the African Continental Free Trade Agreement that even Nigeria has been very slow to ratify and it's even keeping its borders closed to trade and making negotiations and things a bit difficult. But how much does do those agreements between blocs of countries, how much impact do they have on the overall pattern of trade generally? MS: Yeah, this is well outside my area of expertise. My understanding is that regional trade agreements actually can have quite a bit of influence on trade patterns. What I will say is that I think there can be a big distinction between what's on paper at a high level in these agreements, and both the nitty-gritty of the regulations and what's actually happening on the ground, right? So I think what you've seen in some of including, like, African regional trade agreements in the past is, you call something some sort of trade agreement or free trade zone, but when you look at all of the accompanying regulations like phytosanitary regulations or border control approaches or harmonization of, you know, product regulations, those aren't in place. And so you get rid of the tariffs, but you don't still have anything that really looks like free trade if the goods are being held up at the border and hit with all sorts of fees for inspections or rejected for phytosanitary reasons supposedly or something like that, right? And so I think there is a lot of legwork to turn this kind of high-level intentions about regional agreements into something that actually encourages higher trade flows on the ground. You know, especially when it comes to smaller traders, if you think about small agricultural traders engaged in cross border trade. They are the ones who often either aren't really complying with what's on paper or are getting kind of held up by all of these little fees and inspections and regulations that they have to deal with. TL: That's interesting. Tell me a bit more about what you're working on currently. MS: Sure, so one thing that I've been thinking about recently actually, kind of, brings us back to the beginning of our conversation when we were talking about larger firms that might have kind of more formal supply chains or distribution networks. And so I've been thinking about, you know, in a place where you don't see a ton of those kinds of firms, how do goods actually get all the way out to consumers? And not just in a place like Lagos, but you know, maybe think about somewhere a little bit more remote, a smaller town, or even somewhere rural. And what's interesting is that instead of kind of having one integrated supply chain where one firm owns the goods and imports them, and employs lorries and distributors and takes them out to its own stores, what you see instead is kind of a chain of actors who are all involved in getting those goods out. Right, and so you might see something like a cell phone or shoes or food products or whatever it is passing through the hands of you know 4, 5, 6 even more different firms or people on its way out to consumers. You have lots of intermediaries for buying and selling along the way, and so my recent work has been trying to think about why does that happen and when do we see goods passing through the hands of more intermediaries? And how does that affect consumers? And I think that kind of instinct for both a lot of economists and a lot of policymakers is that middlemen are bad, right? Middlemen are people who don't add value and maybe they increase prices and that must be bad for consumers. And So what I've been trying to think about both, kind of, empirically and in theory is: Is that true, and if so, when is that true? And one of the conclusions that I'm starting to get to is that in a situation where you have kind of a remote consumer, going through that long chain can actually be good because it's pro-competitive right? That if you had to have one big firm serving that little market, they would be a monopolist and they could charge really high prices. And if instead, you have this chain of smaller actors and goods pass through lots of hands, you might actually have more competition in that local market and that might be good for consumers in the form of lower prices. TL: I really can't wait to read it. That sounds super cool. MS: Great.TL: One final question before I let you go - you've spent a lot of time with me, thank you very much - is what's the one idea you really like to see spread? It may be about trade or economics or your personal philosophy, anything generally. So what's that one idea you really think deserves a lot more attention in society or the world, generally?MS: That's a great question. I think, you know, you may have gotten this idea from our conversation so far, but an idea that's important to me is that people are really infinitely creative and energetic in solving the problems that they face. And that if policymakers and academics follow their lead a bit more, you might find some unconventional approaches to solving the kind of economic challenges or promoting growth in the ways that we're after. So in my first project that we were talking about, right? The example of this is that people have these search and contract enforcement problems and they just get on a plane and go there in person to solve it. And I don't think I would have thought of that, I don't think most policymakers would necessarily have thought of that as a trade promotion tool, right? But if you look at what people actually do in reality to solve the problems they're faced with, you get those kinds of ideas. And so in the kind of research I do, for instance, when you talk about contract enforcement problems, people often take a very literal approach to thinking about policy solutions, right? Like, okay, contract enforcement, you start thinking about improving the court system or increasing the rule of law right? And those are very good things. If you can get them right, that's a great idea. But, you know, even in countries with very strong rule of law, a lot of business and trade-related issues are resolved without the involvement of those formal institutions. They've involved things like personal relationships and travel and financial services and arbitration and credit bureaus and so on, continue to be important no matter how rich your country is. And so I think looking to those kinds of solutions that people actually use in practice gives you a lot of ideas about how you might be able to sort of smooth the path to these underlying goals without something like improve the court system, which is a really tall order, whereas maybe change your air services agreement, or, you know, let firms experiment with new trade credit services might be a slightly easier ask that could help us accomplish the same goals.TL: I love that idea so much and we do our best to help you spread it. MS: Thank you.TL: Yeah, thank you very much. I've been speaking to Meredith Startz who is the assistant professor of economics at Dartmouth College. It's been fun talking to you, Meredith. Thank you very much. MS: It's been a pleasure. Thank you so much for having me. This is a public episode. Get access to private episodes at www.ideasuntrapped.com/subscribe

I had a very interesting conversation Shelby Grossman - political scientist at Stanford University. We talked about her research on informal trade in Lagos, and what we can learn generally about how institutions form from her findings. You can read this essay for a general background and explanation on what Shelby and I discussed on this episode.Download and other listening options are here - and you can kindly give us a rating here.TranscriptTL: Today, I am on with Shelby Grossman. Shelby is a research scholar at Stanford Internet Observatory and she is a political scientist. Welcome, Shelby. SG: Thanks so much, Tobi, for having me. TL: One question I would like to start with is that institutions that promote prosperity and positive economic activities like trade, like property rights, how do they develop in countries that do not yet have them? SG: Yeah, that's a great question and a lot of political scientists try to figure this out and you know, no one knows for sure. So there are many political scientists who think that there is a correlation between democracy and rule of law and contract enforcement. But I think what is interesting to me is how even within the same country, in different places, you can have different levels of rule of law and different types of property, of contract enforcement. TL: What are the patterns and the correlations that you noticed that really stand out from your research over the years? SG: In terms of property rights protection?TL: Yes.And so what I've observed, I think the main pattern is that good private governance, good private contract enforcement, is more likely when the state is actually threatening the group - SGSG: I think the thing that I have observed is, you know, a lot of people tend to think that when the state does not provide property rights protection, that private groups will emerge to provide this service. So private groups will emerge to provide impartial contract enforcements and those types of services. And the pattern that I've observed is that that doesn't always happen. So sometimes you have private groups that emerge that actually extort from their own group members. And so what I've observed, I think the main pattern is that good private governance, good private contract enforcement, is more likely when the state is actually threatening the group. So when the state threatens to intervene in a private group, that's when the group organises to provide these services. And in the absence of threats from the government, private group leaders actually extort from their own members. TL: I think that's one bit I found most fascinating from your field study in Lagos. I mean, usually, the intuition is that without government intervention, people would handle their business, enforce property rights within their groups. But, which I found counter-intuitive in a way, you're saying that the threat of government intervention actually promotes institutions that protect the interest of group members. What are the channels for such emergence?SG: So there are a couple of channels. To make it more concrete, my research focuses on markets associations in Lagos, so these are like when traders organise themselves or when traders are all in like a certain area and then they elect one of their own traders to be the head of the Market Association. And so to make this really concrete, there is one Market Association that I find super fascinating. It's called Oke-Arin in Lagos Island, it's predominantly a wine market. And this is a Market Association that, at least, at the time that I was studying them, they were kind of a paragon of good governance. So the market leader did all sorts of things to promote trade in the market. If a supplier sold one of his traders bad wine, like substandard wine or falsely labelled wine, he would organise a market-wide boycott of the supplier. And by doing things like that you just make it less likely that suppliers are going to cheat anyone in the market because they're afraid that they too will be boycotted. So what explains this? What is the reason for why this market is so well-governed and what I found from talking to the market leader and lots of traders is that this market is really threatened by NAFDAC, the National Food and Drug Administration, is that right? TL: Yes. SG: So NAFDAC has lots of authority to intervene in Oke-Arin and if they catch a trader selling falsely branded wine or substandard wine, they can arrest the trader. And so it's in the face of that state threat that the market leader does super aggressive policing of his own traders. So if he catches a trader selling falsely branded wine, he will lock up the shop, he will confiscate the goods. And he told me, literally...he said that 'the reason I do this is because I want to keep NAFDAC out of my market.' And you know when NAFDAC comes, it's not just NAFDAC. They come with the mobile police who are, kind of, a frightening sight sometimes, I'm sure you've seen them, they have those like big guns and the trucks and they scare away customers and so the market leader thinks it's in the best interest of the market to try to keep these people out of his market. And he does this by really regulating the quality of the goods that the traders are selling. So to step back and abstract from that, I think one channel is that when you face threats from the state, you want to keep them out of your business and so the way to do that is to not give them any excuse to intervene. And to not give them an excuse to intervene, you need to be kind of keeping your house in order, essentially.TL: Yeah. And maybe I'm trying to project too much into this one study. I'm just wondering, the findings...does it scale into other areas of the society? Like the relationship between citizens and police?SG: Interesting, tell me more about what you're thinking there? TL: Oh yeah, so what I'm thinking is, for example, there's been a movement, largely on Twitter, about the anti-robbery squad in the police called SARS. They're abusive, Amnesty just did a report recently about police brutality, which is pretty damning. They're abusive. There is no rule of law. Citizens basically have no rights when it comes to their relationship with the police. So I'm looking at this study as... if you have citizens' groups like the market associations, can they extract compromises that further entrenches the rule of law and the value for obeying the law and respecting rights in that arrangement the way we do with market associations?SG: Yeah, that's really fascinating. I think you definitely do see market associations negotiating with [the] police, negotiating with government officials. So the main way you see this...and let me know if this is not answering your question... the main way you see this is with the local government. So local government fees are set at the market level. So you can have two trade us in the same local government, but they will pay different fees depending on what market they’re at. And typically what happens is the market association negotiates with the local governments over fee collection and you can argue that this is kind of a way of encouraging rule of law, at least for, like, the well run market associations. Because sometimes market associations negotiate with the local government in a way that only benefits the market leader; essentially, the market leader and the local government are like colluding against the traders. But when it works well, what's happening is the market association is making local government taxation more predictable for the traders, more fair and I think that in itself is a form of strengthening the rule of law, because traders don't want to have unpredictable visits from my the local government where each time they come, a new fee is charged because that really makes it hard for traders to make plans for their business when they don't know what their level of taxation will be. So I think in that way - and many other scholars of argued this as well, I'm not the first person to say this - by having organised societal groups negotiate with different government entities, it can be a way of creating rule of law. The downside is that they're only creating these agreements for themselves, so it's not clear it's going to affect anyone other than the market association that's doing the negotiation. But I would argue that that's better than nothing and that is maybe the first step to a more like generalised rule of law. TL: I think you just went where I was going with that question that how does what is generally viewed as the ideal institutional form, how does it emerge from such group arrangements? And what I mean is constitutional individualism. That is, you, as a citizen, have a rights and your rights are protected and secured under the law?SG: Yeah, so there are different theories, one big theory is that war can actually make this more likely. For example, in Europe when, you know, various territories were about to be invaded, the way that they were able to defend themselves was by taxing people. Because taxes would help them pay for people who could fight off these attackers. But people aren't just going to agree to be taxed just, like, easily. They're going to want to hold onto their own money, and so the way that leaders were able to get people to pay taxes was by offering them various rights. And this is, you know, one theory for the emergence of democratic forms of government and rule of law. So it's kind of counter-intuitive that interstate war can actually make the emergence of democracy more likely. And so one of the things that's really interesting about Africa is since independence, there isn't really that much interstate conflict in Africa. Of course, there's a fair amount of intrastate, like civil war, but there isn't really that much interstate conflict. And some people argue that this has actually kind of stymied the emergence of [the] rule of law in some sense. Certainly, no one is advocating that there should be interstate war, but it's kind of a counter-intuitive silver lining of that kind of conflict. TL: What role does government capability play in this? So thinking about NAFDAC from the example you talked about, NAFDAC had this era where they took the job of regulating and policing fake and substandard products seriously. So now, the leadership changes and so is zeal or the mission for that regulatory drive. So, if the incentive or the ability or the capability weakens for government or any particular institution, does it change the incentive for the market association? SG: Yeah. Absolutely. I think, for example, I definitely don't want to say things are perfect in the US, things are not perfect in the US. We have many issues related to the rule of law, but in general in the US, you don't see like business associations operating at the same level as you do in Nigeria. And I think that's in part because rule of law is stronger in the US. And So what I mean by that is like when you can feel pretty comfortable relying on [the] courts to enforce contracts, you don't actually need these private associations to do that for you. And so what's interesting about dive of the Lagos markets is that many of the traders are themselves informal, by which I mean either that they are not registered with the Corporate Affairs Commission or some of their transactions are Informal. So some of their transactions are undocumented, and when that's the case you obviously can't rely on the courts for contract enforcement because nothing about the transaction was formal, and so that causes you to need these private associations. I think in general, as the rule of law increases, the role of the private associations decreases. That being said, that's not always the case, so there are many types of products that are sold in the US for which people cannot rely on the courts for contract enforcement. So a famous example of this that Barak Richman has done a lot of really fascinating work on is the diamond trade. It's actually really hard for courts to enforce diamond contracts for many reasons, it's also just really easy to steal diamonds and get away with it because they're so tiny. And so as a result of this, there's actually a really big role for private associations in the diamond industry in the US. In the US it's predominantly Orthodox Jews who trade diamonds and have all this really fascinating associations that Richmond has written about. But to answer your question, I think, yes, in general as a rule of law increases, the role of these associations is less critical.TL: I'm also wondering about the role of the civil society in all this. We can also view them as some form of association or groups who are trying to organize citizens like themselves and advocate for various rights or stop various form of abuses. Do they have the same incentive as traders who basically have a lot of skin in the game? They have a lot to lose if those institutions are actually predatory. Or are the incentives different?SG: Yeah, so actually one of my colleagues Hakeem Bishi is starting to work on this by looking at residents associations like neighbourhood associations in Lagos and I'll be interested to see what he finds. But my hunch is that these traders actually aren't that unique, that I think this would apply to other types of civil society groups. So you can easily imagine a head of a residents' association being predatory and collecting funds that they say will be used for private security, but maybe underpaying the security guards or saying that they'll hire ten security guards when in fact they only hire five. So I think it's simple to imagine that there will be similar incentives for other types of associations, but of course, also, it could be different, so I'm excited to see what my colleague Hakeem figures out.TL: Again, I see your study...and I'm sorry if I'm projecting too much onto this. Please stop me if you think I'm overreaching. So again, I'm just curious that in Africa we're not in the original state anymore, so, we just have intermediate states. We can't have wars anymore. A lot of the channels by which these institutions emerge are way, way into the past. And of course, globalization has allowed for all kinds of interventions. So how do you approach things like political reforms? Like you want to reform the judiciary, you want to reform the police, is it more effective with an approach like this bottom-up market association types or top-down? Which offers a country the most feasible path to credible political evolution?SG: Yeah, I mean, this is a really tough question. Like, if people knew the answer to this, then it would be pretty easy to just, you know, have judicial reform everywhere in the world. And so I think no one really knows the answer to this question. I think there are some theories that elite competition can lead to some of these reforms. There are other theories that, as you mentioned, like grassroots movements are more effective? I definitely don't know the answer to this. I think my one opinion is that I don't think international aid is really the way to go. You know, I've just seen too many examples of international organizations coming in and, like, thinking that it's just an education problem that if only people knew that this policy is better for rule of law, then they would implement it. And thinking that if you just tell people to do that, it will happen. And of course, that's not the issue. There are so many reasons that things are the way they are. Various people benefit from [the] current structures of power. So yeah, I don't really know the answer.So one other thing I would say is, I think there's really space for looking at subnational variation and I have a colleague Jonathan [...] who does this. Like Nigeria is such a cool country because it's a federal system and there's huge variation in rule of law at a state level. Jigawa, Kaduna, Lagos, of course, they have their problems but I think in general people think they're relatively well government compared to some of the other states when it comes to rule of law. And so trying to figure out what's going on there, what explains that variation and some people have theories and say, 'oh, it's just because Tinubu exists.' A very like individualist account, like Tinubu has a long time horizon and for various reasons, maybe like earlier...this is an argument made by D.N. Degremont, that... when the APC did not control the Federal Government, Tinubu aspired to control the Federal Government and thought that by improving some of these things in South-Western Nigeria, that that could increase the strength of the APC vis a vis the Federal Government. So there are those types of theories as well, but I think there is a lot more room for people to do more research on this kind of subnational variation. But I'd be curious to know what your thoughts are on this question. TL: Yeah, I think there is some... in my opinion, again, I should state that I don't have any clear evidence, but I think there's some credibility to that explanation. I mean, one area where Tinubu really did punch above his weight, so to speak, was in the area of revenue. When there was a power struggle between Lagos and the Federal Government over local government creation, and Obasanjo did not release federal allocation to Lagos, Tinubu did a lot of things and increased Lagos' revenue and the state was able to punch above its weight in public infrastructure projects and some of that legacy still abounds. Again, there are political benefits because he was also able to finance electoral competition for the party in federal controlled states, so I think that explanation has some merits, in my opinion. SG: Yeah, and it'd be interesting to see if the explanation holds outside of Nigeria. So like if in other federal countries where you have a similar political dynamic where there is a politician who is not currently in the ruling party but aspires to be in as a long time horizon... I don't know maybe these conditions are pretty narrow, but it'll just be interesting to see if you'll see similar dynamics playing out when those conditions hold in other federal countries. TL: What explanatory power would you grant to the so-called resource curse in all of this? SG: Yeah, I mean, I think the resource curse is really compelling. But as you just noted, I think it holds a lot of explanatory power for why the Federal Government of Nigeria is the way it is, but at the same time, it's so fascinating that Lagos was getting these oil checks as well and still felt the need to increase its own tax base for some of the reasons you were just saying, like, Obasanjo not recognizing all the local governments and withholding funds for that reason. So, I think the oil curse is not deterministic, that even in a country that has a lot of oil revenue as a percent of total national revenue, there are still ways to overcome that which we see in Kaduna, in Lagos, in Jigawa. TL: And I want to go back to elite competition, something you mentioned earlier. It's a bit of a chicken and egg problem, as some of my colleagues have put it. Some have argued that before we can have some of these reforms take hold in Nigeria, there has to be a new middle class that would emerge, with [a] new ethos that can drive the discourse and push back and ask pertinent questions of the government and maybe even run for office and change the system from [the] inside. But, the flip side is that without policies that promote growth, you cannot have the enrichment that allows for the emergence of a middle class. So how do I, for example, resolve that dilemma? You're the expert. SG: Well, I don't know if I'm the expert on that question, but yeah, I think the thing that's really fascinating about West Africa, but this is probably true more generally, is how expensive it is to run for office. So one of my friends, Amanda Pingston, has done research on this in Benin Republic, and she shows that it's so expensive to run for local office, to be an MP in Benin. That basically because... you know, Benin is very different from Nigeria in that it doesn't have this big of a private sector economy, and so as a result, really the only people who can afford to mount this campaigns are people who already had positions in government because that's the way that you can make money in Benin.And so as a result, the people who are running to be MPs are people who have already had positions in government, and it really prevents the emergence of a new ruling class of people who were shopkeepers and built up a little business. In Benin, the public sector employment is just such a high share of employment that that can't happen. So obviously, to some extent, that's different in Nigeria, but to some extent, it's not. So you can imagine that there are many states in Nigeria, maybe in the northwest, the northeast, where, really, the only people who could afford to run for office are people already connected to the government in one way or another. I think Lagos is a little different because there are so many other ways to make money beyond being connected to the government. So I think that's part of the problem, but it's all chicken or the egg, what has to happen first for the nature of the ruling class to change? But I definitely think money is a big part of it.TL: One other thing I want to get your reaction to is corruption. We can agree that corruption is bad, especially in relation to [the] public treasury and its influence in robbing people of the provision of public goods, which is [the] government's job. But one thing I've encountered recently from political scientists, Ang Yuen Yuen (I hope I'm getting her name correctly), using China as an example, is that low corruption, especially at the local level, can actually be harnessed for positive institutional building and building the state. She gave examples of how Chinese officials will leverage personal relationships that we would standardly label as corrupt constitutionally to provide roads, build schools, build bridges, allocate land. What's your reaction to that view? Is there a positive niche for corruption? SG: Yeah, so I have kind of complicated views about corruption and in general, I don't really use the word in my research just because I feel like people define corruption differently. So one of the things that I found so fascinating in talking to traders in Lagos is they don't mean the same thing I mean by corruption. So, for example, it is very common in Lagos for local government officials, when they collect fees from traders, to pocket some portion of them and then the other portion goes into the official local government bank account. So I would consider that corruption - that's the use of public funds for private gain. Traders, on the other hand, do not consider that corruption. What traders consider corruption is if all of the sudden the local government raises fees exorbitantly, or if the local government has been collecting 500, 500, 500 and then one time they say, ah, today, we are collecting 1500, that's what traders consider corruption. And traders don't necessarily care about what proportion of their fees are just going straight to the chairman versus into the official bank account.So, most people would say 'oh, that's bad,' that these local government chairmen and the lower level bureaucrats are pocketing these funds. On the other hand, they're probably on underpaid. So maybe this is a way of topping up their salary, not in a way that's going to let them buy a Mercedes, but just in a way that's going to give them a decent salary. So I don't really feel like it's my place to say this is bad corruption versus this is good corruption. But I think there are a lot of political scientists who actually think that focusing on corruption as a way to get to better rule of law is kind of misguided, and that actually you want to align incentive between politicians and advocates for the rule of law and maybe by getting angry about the 20 percent of the contracts they took as kickbacks is not really the most productive way to go. TL: The control of violence, how important is it in the emergence of institutions? I know Douglas North, Patrick Wallace and co. have done some work in this area but what are your views?SG: Yeah, so I don't have any great thoughts on this because I've never really studied violent areas. I guess Lagos used to be more violent than it is today, but, yeah, I think it's complicated. I'm really only familiar with these big picture arguments about the history of Europe and wars and state-making. But I think in general, violence is certainly bad for trade, in the short term at least, it just makes the lives of traders unpredictable and you really want predictability when you're a trader because it allows you to plan and make long term decisions. TL: So I have a bit of pet theory and I want you to tell me where I'm wrong. Now, the way I think about this... it's not mutually exclusive, but I see some form of tension, especially in a country like Nigeria, between rights and social order. And I think that sometimes our push for rights, especially with institutions that do not have the capacity to establish or govern that order may be a bit asking too much. So in a way, I think that for institutions to emerge and develop and mature, the state has to establish its monopoly of violence, so to speak. And in that process, citizens may have to tolerate, of course, not to a great extent, but the question is where do you draw the line? So citizens may have to tolerate some form of abuse of their rights. What do you think of that? SG: Can you tell me more specifically, like, what rights you're thinking of? TL: Okay, let me give you an example. There's a common practice here which, again, some aid agencies and nongovernmental organizations have documented quite a lot, which is arrests and imprisonment of innocent people. There's this policing form where, to establish order in a particular neighbourhood, the police just go and do these raids. You know, there are no investigations, they just pack a lot of all these young men and lock them up. And in some cases, again, I should specify...in some cases, some of them are truly guilty, but in other cases, they pack a lot of innocent people and then lock them up. Sadly, some, for years. But I've also kind of noticed that the problem with policing in relation to that problem is that the police, as an institution itself, does not have any capacity to actually investigate crime, so they just have this one-cap fits all approach. But as citizens, the way we demand for our rights to be respected is that, 'uh, well, no. There is no excuse for arresting the innocent, the police should be able to investigate the details and know who is guilty and who is not and what happened behind the scenes,' and...you know, we have this list of demands. And sometimes I feel we are demanding something that our institutions cannot deliver at the moment. SG: Yeah, that's really fascinating. I don't know. There might be something to that. At the same time, I would be a little afraid that when you arrest an innocent person and keep them in prison for several years you're going to be creating someone who when they're released is not going to be promoting societal order and is probably going to be really angry at the government and probably isn't going to be the most productive member of society after that. And also probably, you know, his entire extended family is just going to be really angry at the state as well. So I don't think that is super productive but at the same time, I hear what you're saying. Should we arrest no one because the police don't have the capacity to do true investigations? That doesn't seem like the right answer either.So, yeah, I don't really know what's best with that. And probably there is some middle ground where, I don't know, maybe you could have like community groups that partner with the police? Obviously, this could be problematic in various ways but I think there are some models of community policing where the community maybe has better information on what actually went down than the police do. But I totally hear what you're describing and I think people will comment and are like (citizens who are like), 'you shouldn't arrest anyone if you don't have a capacity to perfectly investigate the case,' I think that seems misguided as well.TL: Yeah. I agree with you. Tell us about what you're working on currently. I know you're working on disinformation, what threats does misinformation pose to developing countries like Nigeria?SG: Yeah, so, I've recently shifted a bit to focus on disinformation campaigns and in particular foreign, online, disinformation campaigns. You know, for example, I helped to uncover at the end of last year a Russian disinformation campaign that was targeting a bunch of African countries, not Nigeria, but Libya, Madagascar, Mozambique, DRC. And what was really interesting about the campaign was this was a campaign that was linked to a Russian oligarch named Yevgeny Prigozhin, so this is the same guy who coordinated the social media information campaigns that targeted the US in 2016. And what's really interesting about these campaigns was that he'd created all these Facebook pages that were working to bolster the ruling party in these countries or other political actors that he supported. But he actually wasn't pushing fake news or misinformation, he was just posting like hyper-partisan contents. Contents that said things like: 'wouldn't this guy make a great president again? You should vote for him.' So that's not necessarily untrue. It's not even falsifiable, it's just like a sentiment. But this operation was trying to create the impression that there was a whole lot of grassroots support for these very individuals, and I think that's really dangerous especially given that so many people get their news and information from social media these days. If you think that there is so much grassroots support for someone, that can possibly change the way that you think about things.So that's like some of what I'm doing, and then more recently I've started investigating belief in misinformation in Nigeria. So there have been a lot, a lot, a lot of untrue things about the coronavirus that has spread around the world. For example, there are conspiracy theories about the role of 5G, about Bill Gates trying to kill people, and so I've been looking into belief in those types of misinformation, which also can be dangerous. Because if you believe 5G causes coronavirus, then maybe you're not going to wash your hands because you don't believe that that's the way in which the disease spreads. TL: And what responsibility do you think that the big Tech companies who owned some of the platforms where a lot of this disinformation campaigns happen, what responsibility do you think they should have in relation to this problem? I know there's a lot of accountability in the developed countries, but it's almost absent in public discuss over here. SG: Yeah, I think the platforms should have primary responsibility in dealing with this stuff, in part because they have more information than you or I do. They have information like IP addresses, and so they are better placed to figure out that certain posts are not coming from within Nigeria, even though they are pretending to be coming from within Nigeria, and, you know, just give it their automated methods. I think they are in a better place to put warning labels on 5G misinformation, that type of thing. And I think to some extent they're actually doing a ton. I think they're increasingly taking content moderation seriously. They found much of the Russian network targeting Africa, so to some extent, they are actually doing quite a bit of investigation into disinformation campaigns targeting countries outside the US.But at the same time, for sure, their work is US-centric and the policies that they have in place are not implemented equally across countries. I think that is problematic. And I think there should be pressure placed on the platforms to hire more people who can help them implement content moderation policies carefully across countries because it's really hard for an American to know what hate speech in Myanmar looks like. You really need someone who is from Myanmar to do that. I mean, the challenge then is that it's actually really hard to hire the right people to do this kind of content moderation work. This is a point that my boss has made a few times. If you want someone to do content moderation in Myanmar, first of all, Facebook often doesn't want to hire people who are in Myanmar. For safety reasons, they want the content moderators to be outside of the country. But then you have to find someone who's not based in Myanmar and who is kind of impartial. So not connected to the ruling party or anything like that, and that can be really tricky. I think they can be doing better but there also are real hurdles to defining the scope of some of these policies across different cultures. TL: Tell me how does a country like the US find itself in, if we were to believe the media... in a place where there's been some form of institutional decline? There are different investigations about presidential abuse of power or corruption, and even the government's response to the coronavirus. You're a political scientist, so tell me, how does a hyper-developed country like the US find itself in such a position? SG: Yeah, so it's a tough question. I think you know the big picture of what happened is we elected a populist president and populist presidents globally are generally not good for democracy. So Trump is in my mind not that exceptional. He, in many ways, acts similarly to people like Chavez and populists elsewhere. And I think there are a number of ways in which populists can lead to democratic decline. Trump is always bashing the mainstream media and that's a common, common, common strategy of populists. And when you reduce trust in mainstream media, then the only person you trust is the president and so Trump can say anything he wants and people will believe him because there're not going to believe what the New York Times or the Washington Post or the Wall Street Journal says. So I think that's part of what explains the situation that we're in right now is that a huge portion of society just doesn't believe mainstream media anymore, and so they're willing to go along with or not try to counter various actions that Trump takes. I do think a lot of people who voted for Trump, they're not dumb. I think they do often see what he's doing and they're angry about it. But I think in general like that's what's going on. We elected a populist and he is acting in the same way that populists always do and more times than not, having a populist leads to democratic erosion. My hope is that America is strong enough to surmount this. Many other countries that have had populist presidents have been a kind of weaker democracies, like they haven't been democracies for that long and I think the fact that America has been a democracy for so long means that maybe trump won't do a ton of permanent damage, but I think it's hard to say. TL: I hope it gets sorted out as well. SG: Thanks. TL: I'm going to ask you one last question which is a bit of a tradition for the show and our listeners. What's the one big idea you're most excited about right now and that you would like to see spread everywhere?SG: I think I'm going to do two big ideas. TL: SureSG: Related to my two, kind of, fields of research. So I think in terms of the disinformation stuff, the big idea is that most disinformation is no longer untrue. So most disinformation is people spreading hyper-partisan content, but trying to deceive people about their identity. So I think so often when people think about disinformation they think about fake news, but increasingly the sophisticated actors are not pushing fake news, they're pushing unfalsifiable hyper-partisan content, and I think people need to be more aware of that. I think the second big idea that I want people to think about more is that, as I mentioned before, not all private governance is good. That often times when the rule of law is weak and private groups emerge, the leaders of those groups are predatory and extort from their own group members. And I think a lot of times when people think about private associations and civil society, they're just thinking about the upside but oftentimes civil society groups can be predatory. So I think that will be the second big idea. TL: Thank you very much, Shelby. Shelby Grossman it's been wonderful talking to you. SG: This is fantastic, so fascinating. Thanks so much, Tobi. This is a public episode. 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The central bank’s management of the FX market and trade is back in the news again - so here is my conversation with economist Walle Smith on some of the issues. We recorded this two months ago, but some of the fundamentals have a foregoing relevance especially in the current policy climate. I started by asking Walle whether conventional monetary policy has failed in Nigeria.You can get the episode and our other episodes on most of the popular podcast players here - also kindly rate us here as it helps others search and find the shows. Thanks for listening as always. This is a public episode. Get access to private episodes at www.ideasuntrapped.com/subscribe

I had a chat with Mark Lutter, founder and executive director of Charter Cities Institutes about the potential of charter cities to boost a nation’s prosperity and development. Our conversation touched on state capacity, why American institutions appear to be failing, and why Silicon Valley elites have no political influence.You can download or listen right in the player above - or from your favourite players and podcast providers here. You can rate us here, this helps others find the show. Reference guides by CCI for people new to the idea are here. You can also read my writings on cities (here and here). TranscriptTL: Welcome to Ideas Untrapped. Joining me is Mark Lutter. Mark Lutter is an economist and he is the founder and executive director of [the] Charter Cities Institute. You're welcome, Mark. ML: Thanks for having me on. TL: Yeah briefly, please. What are Charter Cities and what do they bring to economic development? ML: Sure, so Charter Cities are new cities with a special jurisdiction that allows them to have a more competitive business environment. And we believe they are important because, over the long run, they're a key determinant of economic performance, economic outcomes and […] governance. If you have good governance, a country will do relatively well and if you have poor governance, a country will do relatively poorly. The challenge can be that it's difficult to reform governance on a national level. There's a lot of special interests groups. There's a lot of politics that goes on that sometimes make the reforms quite difficult to implement. And, Charter Cities, because they're new cities, they can be built on Greenfield sites where there are fewer special interests and because they have a special jurisdiction, it can be politically feasible to implement deeper reforms than might be possible at the national level.So these deeper reforms are to improve the business environment combined with a new city allow for more economic development to occur than otherwise might take place. So if we look at the last 40, fifty, 60 years, we've seen cities like Shenzhen, Singapore, Hong Kong and Dubai emerge from practically nothing to become global metropolises. And we believe that success is replicable. Particularly because there are a little under 80 million new urban residents annually, so urbanization is growing extremely rapidly across Africa and across Asia, and we believe it's quite important to make sure that we get things right now because it's much harder to change governance, It's much harder to change infrastructure once a city is already built. And so we believe that if we can help set up this sort of right institutions now, the right set up now, the right layout of new cities now, it can basically save a lot of headaches over the next fifty [to] hundred years, and help lift tens of millions of people out of poverty and make things better for economic development. TL: Yeah, so, obviously, I'm not new to this idea and we've talked a couple of times about it. Thinking about Charter Cities, it's a big project. So what do you think are the effective financing structures that make them feasible knowing the fiscal challenges that some poor countries face?ML: Sure, so the way we think about Charter Cities is as Public-Private Partnerships with the host country. So we're not asking the host country to build the city, we're asking the host country to help create a governance framework that can make the Charter City more competitive. And we think that this is especially important now in the post-COVID world where a lot of countries, particularly in emerging markets might be resource dependent on oil and like Nigeria. Or copper, like Zambia. And prices have rebounded somewhat over the last few months, but given that they're much lower than they were a year ago, I think there is a reasonable expectation that demand will continue to be relatively low, at least, until a vaccine is discovered. And so that means these countries have big holes in their budget and will need new financing mechanisms and we view Charter Cities as potentially one of those financing mechanisms. Charter Cities, because they're new cities, they can be built on Greenfield sites where there are fewer special interests and because they have a special jurisdiction, it can be politically feasible to implement deeper reforms than might be possible at the national level - ML The Charter City would have a revenue-sharing agreement with the central government. It will be able to attract a lot of foreign investment, create a lot of economic activities, create a lot of jobs and then some of that wealth that is being created would be transferred to the central government that might be able to help plug the hole that is currently being left by low commodity prices. Additionally, we just think if you build a successful city, it will generate a tremendous amount of wealth. We're still in the early Charter Cities phases and the specifics for financing Charter Cities haven't all been sort of worked out, but the general hypothesis is 'look, if you create a successful, functioning city, then there will be a lot of wealth that is created and you just need to capture some of that wealth that can pay for the initial infrastructure investment that can pay for the costs associated with setting up and building a city. So, that's at least the eye level overview of how we think about financing Charter Cities.TL: The question of financing is important here because some would argue, and I think, Chris Blattman has actually made this argument that given the risks involved that these investments may not pay off, it's actually an objection to not doing it. How do you react to that? What are the big payoffs for charter cities as opposed to other development interventions like cash transfers and other forms of aid?ML: Sure, so, it's definitely possible that for one or more charter cities the investments will not pay off. That's the nature of an investment, they're not necessarily secure and so there is always risks associated with investments. The risks associated with charter cities might be higher depending on where the charter city is being built, depending on what the local politics are, depending on the sort of skill of the developer. But I think, I would, I guess, sort of, differentiate as to what we're talking about in terms of investment. So if we're talking about cash transfers. Cash transfers are not an investment per se. Cash transfers are a transfer of wealth. They are basically a donation. It is comparable to charity. And most of the evidence on cash transfers is relatively good. You give people more money, they're able to spend the money to get better things. Recent studies have suggested that this does have relatively long-lasting impact on improving people's lives, so I support cash transfers. Charter Cities, at least, the way we at the Charter Cities Institute conceive of them are led by private developers who are building the physical infrastructure themselves. So this is an investment, not a donation. The expectation is if you raise 700 million dollars to build a power plant, to build roads, to build water, electricity, etc, then you expect a return on that capital investment that can justify the risks associated with that particular project. So this is a commercial venture, not a development venture per se. And we believe that Charter Cities can pass this sort of commercial venture test where, okay, if people who are humanitarians want to get involved, that is great, but as a mechanism for social change, I think the profit motive tends to be important and can allow for more social change in a shorter period of time than asking everybody to change their behaviour out of the goodness of their heart. That being said, there is space for, I think, donations in the Charter Cities space. The Charter Cities Institute, for example, is a 501C3. We rely on donations. We are trying to kind of incubate this Charter Cities space, trying to bootstrap it, creating a network of different city developers, developing a set of best practices, things like that. But we have done at least internal calculations that we have published on the research portion of our website, where we look at GiveWell which is a well-known charity evaluator. And we look at GiveWell and the cost-effectiveness of various charities that they evaluate and based on some assumptions that we make about our own effectiveness and these assumptions, I believe, are quite conservative. We are comparable to the most cost-effective charities in the world; if not more effective than them. TL: Charter Cities, at least, as an idea, in its current framing, is not new. Paul Romer kind of reintroduced the idea a while back. And with implementation - Honduras, Madagascar - they've run into some problems. What are you doing differently at CCI, and how does your model differ from that proposition? ML: Sure, and that's a good question. So Paul Romer obviously pioneered this space but didn't have as much success as I think he would have liked. And what we've tried to do is learn from his impact and see how we could try to have a bit more success this time around. So first let me talk about differences with Paul Romer's model and our model for charter cities. The similarities are: both of the models involve cities with a special jurisdiction that allow them to have a different institutional framework than the rest of the country, an institutional framework that is more conducive to economic development, and to growth. Those are the similarities. I think the differences are that Paul Romer advocated a high-income country, for example, Canada administers a Charter City in a low-income country for example, Honduras. So Canada would help create the administrative structure, they would be responsible for it, and that is the mechanism by which part of Honduras could have good governance. We have not pursued that model for, I think, two reasons. One, we're not sure it's feasible. There is a lot of blowbacks associated with charter cities, we're sometimes accused of being neocolonialists, and I think having a high-income country act as a guarantor in a low-income country brings up some of those unpleasant historical memories that might make getting political buy-in a little bit more difficult. The second reason we're not pursuing that model is we're not sure it's the best model, even if you, sort of, assume away the political challenges of it. So looking at, for example, the response of many countries in the West to COVID, the US has had a relatively poor response to COVID. Our institutional capacity as somewhat decayed, we aren't as vibrant, as effective as we were 50, 60 years ago, there's a general lethargy in our own institutions, and I think that that lethargy would likely translate to helping to build new institutions in emerging markets. And so there is a question of 'is the high-income country the best institutional entity to help administer a charter city?' And we believe it is not. So what we do is we partner with new city developers. There are by Journalist Wade Shepherd...he estimates there are over 200 mass or fenced cities being built around the world right now. So we try to partner with these new city developers, typically private entities, sometimes they're public but we prefer our partner with the private ones because they tend to be a little bit more effective to figure out okay, they're building a new city which might have a hundred thousand residents, which might have a million residents, so we partner with them to try to improve their governance system. And this might mean working with the government to improve the special economic zone framework. If there is a relatively advanced special economic zone framework in place, we might work with the city developer to figure out okay, what does it actually mean to create this new administrative structure from scratch. So that's the difference in approach.I guess before I go into why I think we'll be effective, I think, a few other points. One, Paul Romer was quite effective at generating attention and, sort of, starting the conversation and working with governments, at least, up to a point. We're taking a bit more of what might be described as, sort of, a systematic approach. We're somewhat worried about the ecosystem of charter cities being too dependent on a single person or on a single country. So we try to diversify risk by partnering with a lot of different organizations, by working in a lot of different countries, by really helping to spread the idea of charter cities as far as possible such that if one project goes under a hard time or fails, there are other projects that we can shift our attention to make sure the momentum for charter cities is not lost. As to, I think why we think that we will be successful where he was unsuccessful, I think we've learned a lot from him; and in addition, I think the last 10 years, there's been a bit of an increased interest in charter cities. And then second, we're just seeing it on the ground. We have engaged two projects where we are helping them create these legal structures, these administrative entities from scratch to governing these cities. The projects have a degree of political buy-in. We are regularly reached out to by new city developers who are interested in improving governance in those cities. We're basically at the beginning of a charter city's moment, and I think over the next year, the next two years, it will become clear to everybody who isn't paying attention now that the charter city's moment is here, that these projects are real, people are building them, people are moving dirt, people are moving in, money is being raised, etc. that it is no longer just [an] academic discussion, but it is a matter of sort of on the ground, things happening and executing.TL: I mean, hearing you speak, I thought of a question, which is - to a layperson, like, what exactly are the channels of improvement to income and livelihoods in building a new city, for example?ML: Sure, so, If we look at a city like Shenzhen, 40 years ago in 1980, Shenzhen was a number of small fishing villages, the total population in the area was about a 100,000 residents. The average income was about $500 a year. It was a very impoverished area and currently, Shenzhen is the manufacturing capital of the world. It has a total population of around 20 million people, they have a subway system that rivals New York. It is a sort of, shiny, gleaming metropolis that really transformed in just 40 years. So while China had several sort of specific conditions that mean that the success of Shenzhen is unlikely to replicate at that magnitude. For example, China had first basically prevented urbanisation from occurring, so there was a pent up demand for urbanisation. As well as China had very stringent regulations and laws which had precluded a lot of economic development. And while Africa, for example, many countries have bad regulations, I'm not sure they were as bad as China in the 1980s. But that being said, we believe that a degree of that success is still possible even if you get half of Shenzhen, that's a city of ten million people, that sees your income rise by like 10, 20X over a 40 year period. That is a huge change. If you look in a lot of sub-Saharan Africa, for example, what's occurring now is called urbanization without industrialization. And this means that people are moving to cities. And typically when people move to cities, they become more productive, they are able to make more money, they live better lives, they leave their kids better off, and it's this virtual circle. And now, unfortunately, in some parts of sub-Saharan Africa this is not occurring. People are moving into cities but their productivity is not increasing, they're not making more money, and their kids are going to stuck at the same sort of level in income and quality of life that they are today. And what we believe charter cities can help do is to, I guess, help change that to help create these opportunities for these people that are currently being left behind by the global economy and to create this positive dynamic, this positive feedback cycle that leads to people's incomes being increased by 5 percent per year, 10 percent per year. Which because of the power of compounding interest, if your income is increasing at 5 percent per year, that means, every 14 years, your income doubles. So 28 years later, your income will be four times what it was originally. Forty-two years later, which is about the total working life of an adult (about 42 years), your income will be 8 times what it was when you started. You've seen an 8 fold increase in income, [which] is just tremendous. So if we can help create that dynamic, if we can help generate this type of growth, I think that will lead toad to a big improvement in a lot of people's lives.TL: It's interesting you talked about Shenzhen before we move into the specifics of that. Shenzhen is usually described as a special economic zone. Is that different from Charter Cities, or is essentially the same thing? ML: Sure. So, Special Economic Zones. We consider Charter Cities to be a subset of Special Economic Zones. The special economic zone is just an area that says that the laws of the host country don't apply to this area, or like some subset of the laws. But typically, special economic zones tend to be relatively narrow in their focus. They might only encompass an industrial park, they might only be a few dozen or a few hundred acres. They have a relatively set degree of difference from the host country in terms of laws, so it might have lower taxes or it might have a one-stop-shop but they don't really have this deep regulatory reforms. They tend to focus on a single industry, so maybe textile, manufacturing or maybe electronics, they aren't broad-based. Very rarely do special economic zones have residential. And lastly, they tend to be too small to generate sustained economic growth. If you have an industrial park that might be successful, that might create a lot of jobs but that's not really going to create this dynamic positive feedback cycle like a city can. Shenzhen whilst frequently described as a special economic zone, at least, according to our definition, it is more like a charter city. The jurisdiction is 320 square kilometres, so that's the size of a city. It is multi-use. They have residential, they have commercial, they have industrial. They have the sort of full dynamics that you expect to see in a city with a lot of different economic parts moving. There was a lot of authority devolved from the central government to the city government. So while many special economic zones might only have like a tax incentive, basically in Shenzhen, with the exception of military and like Mail distribution, you can almost experiment with whatever you want you on the Shenzhen city level. And that allowed for a lot more autonomy than most special economic zones allow. So while Shenzhen is sort of colloquially referred to as a special economic zone, it fits our definition and our understanding of what a charter city is a little bit more closely than most special economic zones around the world which are quite different from Shenzhen and as such haven't had the same impact that Shenzhen has had.TL: Two-part Shenzhen question here. I agree with you, Shenzhen fits better with what you are describing. I mean, there was an industrial zone in Shekou, and of course, there was the whole area that was developed for all kinds of things, tourism and the rest. Now, the first question is that there was a lot of planning and execution in making Shenzhen work. How does the administrative capacity of the host country, how does it affect the execution of a Charter City?ML: Sure, and I think this is an important point. One of the increasing discussions in economics and international development has been focusing on state capacity in which the administrative capacity of a country or a government can be thought of as - are they able to execute on tasks in a timely and effective manner? So a country with this higher state capacity would be able to build a road cheaper and more quickly than a country with a lower state capacity. And in Shenzhen it was the local government that administered the city. China has had 3000 years [of] history of statehood. So they have a lot of experience in capacity with administrating cities and they just had to adapt it the circumstances at hand. And I think one of the challenges in some emerging markets is that there isn't that long history of statehood. There isn't that long history of administrative capacity, and so the current governments are not being very effective in administering the entire country. So if they start to administer a charter city, you would see a similar type of dysfunction. To solve this problem, we are advocating a special jurisdiction with a separate administration from the host country. And so the city would remain part of the host country, it would be governed by a separate bureaucratic apparatus, it would have different standards for hiring, different standards for firing, different standards for promotion, etc, which would allow it to develop a more effective administration than the host country. And so, to this end, we're engaged in [a] sort of early-stage discussion about helping to establish this administrative apparatuses and we're beginning to think about what it means to develop a pipeline of administrators for a Charter City that would help [to] work with educational establishment to create certificates, to create courses that might help teach you how to administer a charter city. 'Cause this is sort of a monumental challenge, there are so many moving parts and you don't really want to hire people from the host country because then they bring the bad culture of the host country government, they bring the sort of, I don't know… the sclerosis that often exists in host countries' bureaucracies that leads to the need for charter cities. But you don't want to transplant that bureaucratic dysfunction to the charter city, so you would have to basically create a new administrative system and a new education system to train those administrators. TL: Yeah, so with the special jurisdiction, what guarantees continuity? I'm imagining that the government of the host country would still have some form of authority over that jurisdiction however limited. And what guarantees that another administration does not come in and say, 'Oh, yeah, well, for political reasons or whatever, we're going to withdraw our support for this.' Or is there a specific framework that you've outlined which guarantees long-term autonomy?ML: Sure. I'm glad you asked that question, that is one of the challenges for charter cities. How do you ensure that there is administrative continuity in the charter city and the host country hasn't changed their mind and limit some of the authority that they had previously granted to the charter city? We are seeing that, for example, right now in Hong Kong, where the Chinese government is passing a national security law that many on Hong Kongers believe changed the sort of terms of the agreement in 1997 when Hong Kong was transferred from the British to the Beijing government. There is no silver bullet for preventing, right? You can't do a magic trick and say 'alright, there is no risk of expropriation of the charter city' but there are a number of strategies that can be developed to mitigate that risk, and in fact, we published an outline of these strategies on our website called the Risk Mitigation Guide. It is in the reference guides. And it should give an understanding of strategies that can be taken to mitigate that risk. So basically, they're business project, they need to be profitable while obviously they're political projects as well. They need to get buy-in from the host country and so there are several ways to do that. First, you need to make sure that the development of the charter city itself has an extensive stakeholder management engagement in the planning processes. So you need to work closely with the host country at the central government, you probably want to work closely with the local government, whether it's state or provincial to make sure that you acquire the land justly, to make sure there is buy-in. You could, for example, offer the state or the national government an equity stake in the charter city to align interests of the government with the charter city itself. Second, you probably want to involve business and community leaders in the charter city. Successful institutional change requires the allegiance of the ruling elite, so making sure that there is an incentive for those people who are particularly influential in the country to align with the success of the charter city is important. Third, you probably want to attract industries that create a lot of jobs. It is politically difficult to change something if a lot of jobs are being created, if a lot of investment is being had, things like this. So, make it more difficult for the politicians to take action against the charter city by creating a lot of jobs, by making it successful, etc. Third, most countries in the world are signatories to a variety of international treaties. So if you sign a contract with the host country and they expropriate you, depending on how you draft that language, you might be able to go and sue them in the international court, and if you win to confiscate their overseas assets. This is basically a last-ditch solution. If you get to this stage you've already lost. But it might help sort of as a bit of a deterrent against host country trying to confiscate your assets by demonstrating that there is some recourse to that action of expropriation. Another strategy is to list the city on the Stock Exchange. So after 10 or 15 years after the city is successful, maybe you put a listing on the local Stock Exchange for a certain percentage of the value of the developer who has built out the city. What does this mean? Well, this oftentimes, the pension funds and other sorts of financial managers will buy that stock and so pension funds and these financial managers tend to be relatively politically powerful and therefore if their future income streams are depending on the success of the charter city, then the host country might be less likely to take actions against the charter city. And Lastly, I think just to really emphasize the first point - it's very important to make sure charter cities are integrated with the local government, with the community - that the benefits of charter cities are being widespread. The best way, I think, to ensure that there's a minimum of risk of expropriation is just to make sure that it becomes very apparent that the charter city is being successful, it's creating jobs, that everybody is being engaged and participating in the upside of a charter city. TL: The second part question is that… I mean, I'm glad you talked about local governance. In building a charter city, I imagine there are allocative decisions that the government would have to make. I compare Shenzhen to maybe some other initiative like Gurgaon in India and one thing the Chinese government had with Shenzhen is that it still maintained control over the allocation of land. And, at least in my opinion, that allowed some kind of diverse development in terms of the industrial and residential developments that took place, and also in the building of public goods, in the provision of public goods generally. But what you see, at least, I wouldn't call them charter cities, with projects like Eko Atlantic City and others of such is that, yes, they are planned but, maybe for financial reasons, the allocative decisions are made solely for real estate developments. Maybe that helps in recouping some of the investment. So, I guess what I'm asking is, where should the allocative decisions lie to create the proper incentive for a truly income enhancing city to develop?ML: Sure, yeah, and I think that is an important question and looking at Shenzhen versus Gurgaon in India. Gurgaon is quite interesting, for the listeners who don't know, basically because of this sort of historical quirk, there was no government which allowed for no zoning and land use regulations and so a lot of tech companies and sort of large companies went and built offices there, advanced infrastructure there, so it has a lot of office buildings, things like that but because there is no governing structure, the public infrastructure tends to be quite poor. So if I remember correctly, there are basically no sewers, most of the buildings have to run on generators. It allows this freedom to build but it combines that with this lack of government. While Shenzhen, the government has been relatively effective in providing public goods, at creating an open space that allows for its success. And I think if we look at all the planned cities around the world being built today, Eko Atlantic being one example, I think you capture it well in saying that they are real estate, they're not really cities. So, real estate you tend to define everything very carefully, it's 'we build a thousand houses and we sell them each for this much money and this is what the margins are' etc, while a city is evolutionary, it's dynamic. The sort of level of planning of the city government tends to be much smaller. It's not saying we're going to build an apartment building here and we're going to build a commercial district here. It's trying to create the enabling conditions for growth and for success. And what we're trying to do is trying to kind of change the conversation with some of these new city developers to focus on more of an inclusive model where it's aimed at a broader set of residents. Where right now a lot of the new cities are aimed at sort of upper middle income or above, but how can you push the price point down? So one of the projects that we're working on is a document that is tentatively called a draft master plan. What this will do is it will be a master plan for a charter city. We're thinking about having it on 30,000 acres with 1 million residents, but we're explicitly targeting an income level of $1500 annually, which is a little under, I think, the per capita income of Nigeria. It's comparable to the per capita income of Zambia, of Kenya. We're explicitly trying to develop a model where it's accessible to this broad income segment, but we're not saying these are the types of houses that people would already build, we're just kind of thinking about okay, where is the infrastructure going to be? How do we attract an anchor tenant? How do we attract residents? How do we make it dynamic such that people's incomes increase over time? It's possible to build a sort of exclusive gated community where high-income people go and live and work and they end up being quite comfortable there, and I encourage people to do that. That's just not the model that we are particularly interested in. And I think it might be a good business venture but it has limited implications for [the] broader society and what we're interested in is how we can help effect social change to generate economic development and to lift people out of poverty, and I think to do that, it's important to help make sure charter cities are inclusive, allow for all segments of society experience the benefits of living in a fast-growing and dynamic city. TL: A bit of a curveball, so to speak, here. There's a lot of planning involved in charter cities. Do you think that that's a challenge to a free-market model of development?If you look in a lot of sub-Saharan Africa, for example, what's occurring now is called urbanization without industrialization. - MLML: In a way, I mean, I'm sure some market-oriented economist might not like what we are doing. I remember when I was doing my PhD at George Mason I was chatting about this with some people, they were like: well, how do you plan? But if we remember the Keynes versus Hayek rap video, the question is 'who plans for who?' So there always need to be some level of planning, right? We do it on an individual level. We do it on a corporate level, even government does it on some level. If you're just planning for, how many police, how many courts? What should the military do? Things like that. And so we might be taking a slightly more active role in planning than some free markets economists might advocate for in terms of thinking about what the anchor tenant should be, how to attract them, how to create these sort of supply linkages. In the draft master plan that we're developing, we are thinking about basically how to create a type of industrial policy because what we want is, okay, when it starts, maybe you focus on textile manufacturing or some relatively low skilled type of employment, but how do we make sure there is skill transfer over time such that the city can move its way up the value chain, can create more jobs and can have this positive dynamic to help lift people out of poverty rather than just being stuck at textile manufacturing now and then 30 years from now? TL: That's interesting. I spoke with Garett Jones, and one of the things he proposed that developing countries [should] try to do is to become an attractive destination for high skilled labour, you know, a labour quality argument of sorts. Do you think charter cities can be a channel for such attraction of high quality, high skilled labour to developing countries which obviously has benefits?ML: Yeah, I think it can. A charter city if developed correctly will probably be more safe than the host country because the place will be more effective. The charter city will be more dynamic. There will be more opportunities and so if there is a high skilled worker who are in their early career and want to do it abroad. Or maybe their ancestors are from a country and want to sort of return and kind of give back or maybe they are first-generation immigrant and want to give back, then I think a charter city would be a probably more attractive place to live than the rest of the host country because it would be more dynamic. There will be more opportunities. It would be a more exciting place to live. That being said, I think I disagree slightly with Garett Jones on the premise...you definitely want the higher-skilled workers for the knowledge transfer. It depends on exactly what he means by this, but Dubai, for example, was able to attract a lot of high skilled workers primarily from Europe, while Shenzhen developed without that many highly skilled workers. They had a lot of investment from Hong Kong. And they had a lot of managerial talent that could come from Hong Kong. So I think it's quite important to, I guess, create these linkages with different areas, different cities that can help the skills transfer process, and then you probably also want to help high skilled workers come in to fill senior administrative positions. But I think to make sure charter cities are scalable, the vast majority of the new urban residents over the next 30 years are not going to be highly skilled. They're going to be relatively impoverished coming from rural areas. We're not going to have sort of the skills that we typically associate with the modern economy, and I think what is important is to realize that and to create systems and processes to allow them to improve their skills, to allow them to get better, to allow them to, sort of, transform the city into somewhere that they would be proud to call home. TL: I'm curious. What exactly made you, Mark Lutter, interested in this problem? Why did you choose to work on this other than teaching at GMU or writing papers and other things you could have done as an academic?ML: Sure. Well, I'm not sure I could have done that much as an academic. I'm a pretty mediocre academic, I like getting my hands dirty a little bit more. LaughsWhat initially got me interested? I heard a talk where the speaker mentioned Michael [indistinct] and who tried to start a Freeport in Somaliland. And in fact, there is now a Freeport being built in Somaliland by Dubai Ports World in Berbera. And basically, what got me interested was I saw it as an Idea that has massive potential that not that many people were paying attention to and talking about and it got me really excited and so I stayed interested in it and sort of realized that I could have a meaningful contribution to making this, I think, really exciting idea take place. And that's why I've stayed interested in it. I like things that can have a big impact and to me, charter cities are one of the things that might be able to have the biggest impact in the 21st century and so it's quite exciting to be involved. TL: So how important is geography in the development of charter cities? I know proximity to ports is very important to facilitate trade. So, but how does it really feature in your own model?ML: Sure, so geography is obviously quite important because - are you on a trading route? Is there an urbanising population that you can draw from? What are the industries that in the area that you can sort of help supplement? We typically think about locating a charter city has being independent on several factors. You probably want to be within about 2 hours of an urban centre so you can piggyback back off their infrastructure because building an airport or a port is very expensive, but if you are within two hours of them you can acquire a large enough chunk of land to build the city because one of the challenges of building a charter city is actually getting enough land to build the city itself. But if you're 2 hours away, you might be able to acquire enough land but you're still close enough that you can access their airport, that you can kind of access their labour market, that you'll allow for a bit more trade than would take place if you were in the middle of nowhere.Like, you want to be on emerging trade routes. So for example, there's a lot of activities going on in East Africa right now. A lot of people are building ports there. That might be an opportunity for a charter city there. Thinking about how new technology might change sort of migration patterns. Maybe the Hyperloop comes, or maybe supersonic jets come, how does that change human sort of spatial organization? And then can you identify opportunities to locate cities because of that? There might be [an] opportunity for a charter city, for example, in Canada or maybe in Central Asia because Siberia and Northern Canada, with global warming, are going to open up and allow for more agriculture, for more natural resource extraction, things like that. So there will be a demand for people to live there and a new city might allow for it to become sort of a gateway to those respective regions. So basically looking at how human sort of trade and human migration patterns are occurring and then trying to identify those long-term trends and then build in a place that can take advantage of those trends to become a regional hub and provide services to the broader area.TL: The reason I asked that question is this. Someone like Paul Romer I think in his paper with Brandon Fuller would say - you need to build X amount of cities to take the addition we're going to see to the number urban dwellers by the middle of the century. I think their own calculation added about 3 billion additional people living in cities. But someone like Alain Bertaud will say you may not really have that much quality location to do what you want to do, at least, to have the kind of effect that you have in mind. So does geography, giving that land is fixed...does geography limit the potential of [a] charter city in a way? ML: Yeah it could, but this is a question that I think is dependent on data. Alain says that most of the good ports have already been taken. He's probably true (right) about that too a certain extent, because humans being, sort of, social, commerce-oriented mammals will tend to live in areas that are advantageous for that. So a lot of the natural ports already, probably have some degree of human settlement there. And so many of the good locations for cities have probably or even taken, have all of them been taken? Probably not. History is weird and people make decisions based on, sort of, contextual circumstances that might have left some potential city locations just untouched because of this weird set of historical events. So this is something that I'm certainly interested in exploring more. It's a project that I would like to undertake. It's basically hire some people, and identify 50 potential locations for charter cities. Just like lookout where trade is happening, where urbanization is happening, where it is possible to acquire large chunks of land and identify basically 50 of these potential charter city locations to see, okay is the land available? Is it good? How easy is it to acquire? To answer questions like that, if any of your listeners are interested in helping out, with some donations, we can actually start getting this sort of concrete answer to that question.TL: For the audience, I’m going to put up links to the reference guides from the Charter Cities Institute on the website and every other available resource. You wrote an article recently about America's foreign policy and how charter city can play a role in its geopolitical competition with China, specifically the belt and road initiative. Do you care to expatiate on that point?ML: Sure, so I think if we look at, um... the US in some way still has a positive image even with the recent sort of killing/murder of George Floyd. We saw a global outcry of that because I think people rightly hold America to a higher standard versus the outcry that we saw of the sort of Uighur, basically, a genocide in China where people have kind of ignored that because I guess they expected [the] Chinese to do it to a certain extent. But American engagement with the rest of the world has, I think, left a little something to be desired over the last 40 years. Iraq was a disaster, Afghanistan is a disaster, Libya is a disaster, so I think there's a need for rethinking American engagement. Combined with the fact that China is pretty aggressively now pursuing their image on the global stage in terms of building infrastructure with belt and road, in terms of wooing foreign politicians, foreign leaders, to get them to be China's friend. So my article was aimed at… particularly people in the, for example, the Development Finance Corporation in The United States to hopefully get them to see charter cities as a potential way to offer a positive influence on the world. And while specifically, I think what American engagement could look like is having Americans who can help with governance, having Americans who can provide financing options if you use American contractors to help build the city, to help develop governance norms, to basically provide the supporting infrastructure for charter cities which I think are important because right now when developing countries are looking around the world, they think 'okay, what policies do we adopt? Who do we want to be like?' All of them are thinking like let's be like China. China has had tremendous economic growth over the last 40 years. They've lifted tens of millions of people out of poverty which is a great thing. Unfortunately, at the same time that's been coupled with a sort of lack of respect of human rights, with no democracy, with no freedom of speech, these things that are inimical to human flourishing, and they think because America has developed so long ago, the possibility of following a similar pattern to America's development is just outside of people's minds. And so I think what charter cities can hopefully help demonstrate is this sort of we call them American values, but I think they are universal values of things like freedom of toleration of markets really can work for everybody and can provide an alternative development model to the one that China is currently claiming. TL: Sticking with the US, I know you write about it, others write about it, are the institutional (I want to say rot. I don't know maybe that's the right word), you know, are they as bad as some analysts say it is, especially in the light of COVID-19?ML: Yeah, I think it rot is probably an appropriate word. We basically have coasted the last kind of 40 years off of existing institutions. We haven't really been challenged. We haven't updated any of our systems. Everybody is complacent. If you think about it, part of the reason is that nobody has actually helped build an institution in the US. Rather, the most dynamic part of the economy is Silicon Valley because there are people there who are building new things. So people are required, to a certain extent, to have this like very broad set of managerial competencies that you don't need to have if you grow up... and I'm not just saying in government, in government you just develop these very specific set of skills, but also in a lot of large private corporations. How many new national banks have been invested in the last 30, 40 years? And so because of that, you grow up learning a very specific set of competencies which is OK in terms of like keeping the system going, but it means that anytime you're presented with an external shock, you just don't know how to react. And COVID was that shock, which I think exposed a lot of the existing inadequacies in the American system that people were unsure of, like unable to think outside the box. Our bureaucrats were quite skilled at figuring out how to pass the buck, how to not take responsibility for things. But they had no idea how to actually take responsibility and then how to actually enact change that will be beneficial. And we're seeing that continue today, you still can't buy N95 masks on Amazon, it's 3 months after the fact. This is a very solvable problem but our institutions are fundamentally broken and I think you can add that to the growing culture war where you have red states where a lot of people are refusing to wear masks because it's not a pandemic, it's a dempanic, this is a fake disease, really idiotic stuff like that. And then in blue states, you're seeing some of the elite institutions basically begin to eat themselves. The New York Times has basically been taken over by Social Justice Warriors staffers who sort of opposed an op-ed by Tom Cotton, the senator from, I think, Arkansas. And I didn't like that op-ed, it was a bad op-ed but he's a senator for goodness sakes. I mean, if you are the paper of record you should allow senators to publish sometimes even if you don't like their arguments. And so we're seeing this, sort of, I think deeply dysfunctional institutions combined with this deeply dysfunctional culture that will probably take decades or generation to really sort themselves out. There isn't a lot of sort of, I don't know, capacity left at the seams. Even the late 60s, '68 when we saw a similar social unrest, there was something solid. There was a core underneath and I think that core it's quite atrophied. I'm a little bit nervous about the future of the US. TL: And I mean it's interesting to me that you talked about Silicon Valley because, at least, from an outsider's perspective here, it amazes me how little political influence Silicon Valley has. LaughsAnd I have one analogy and I think I tweeted this though I got a lot of pushback here and there that I don't think, and I may be wrong about this... I don't think that the Koch Brothers, for example, would have struggled to build more housing in Silicon Valley. And we have people that are vastly richer than the Koch brothers in the Valley. I mean, what is going on? Why do they have so little political influence? They get railroaded even by the local government. ML: Yeah, I mean, I think that's a good question. One of my friends likes to joke that Silicon Valley thinks they're above politics, but in fact, they are below it. You've seen, I think, Apple pledged 2.5 billion dollars to affordable housing in the Bay Area. Microsoft, I think a billion to affordable housing in San Francisco, Mark Zuckerberg, I think, 500 million to affordable housing in the Bay Area. And like the problem is just that, okay, if you're spending half a billion dollars to put it crassly. Like just buy off the entire City Council and just tell them to legalise housing. And I think it's a sort of combination of historical circumstances. One is that because most of Silicon Valley is in the world of bits and not in atoms, they just haven't interacted with the government that much. So because of that, there was no need to really figure out how to work with government, it was like you ignore us, we ignore you. To use this sort of Chinese proverb - the emperor is far away, I'm on the other side of the country, and so they didn't really interact with the government that much, and because of that just saw it as kind of part of the ecosystem, not something that to pay attention to. I believe that is changing now.I think Mark Zuckerberg's congressional hearing like a year ago was a wake-up call where the congressmen were asking Mark Zuckerberg, how do you turn on the iPhone? And it's like, OK, well, when you have the political leaders who are that disconnected with what is actually going on, there is a serious challenge. That being said, it will take a number of years for Silicon Valley to actually figure or politics out. There is, I think, several challenges involved in that. One, I think Silicon Valley has a bias towards nonprofits, they figure if something is a good idea, you should be able to make money off it. But nonprofits are a kind of integral parts of influencing government. Second is Silicon Valley likes things that scale. Government necessarily doesn't really scale. At least it doesn't scale in the same manner that a technology startup does and so because of that you have to put all of these resources in, to help mobilize people, to help create a network, to help influence things and you're unable to tell whether it's actually working for a long period of time. So the technology startup, right, okay, you work for a year, you get product-market fit. After product-market fit, you grow at 10 per cent month over month for a period of like three years or something. So if you're growing 10 per cent month over month, you can see it's working, you can see something is happening. While with politics, you might pay activists on the ground, you might pay lobbyists, but it might take years before you actually see legislation that's even proposed, much less implemented. And most of Silicon Valley just doesn't really operate on those...they're not used to those time horizons and so they're unwilling to sort of put the resources necessary to actually engage them. Now I think a third reason is that Silicon Valley is very, I don't know...it has a very universal mindset. So New York, if you look at New York, all the high net worth people in New York, When they donate to charity, they typically donate to New York charities. So they donate to the Met, they donate to Central Park. They get status by paying for things in New York City, so you have all of these goods supported by basically the billionaire class in New York. In San Francisco, people get status by doing universal things. So the effect of altruist movement, for example, is quite popular in San Francisco. But these universal things, while I think they have a great impact on humanity because you don't get status by helping to improve housing in the city, there just isn't as much focus on the city itself, it's a little bit neglected and so there hasn't been this (the) same mobilization of Silicon Valley elite to coordinate to help fix the city as with New York where the elite do spend a lot more money on improving the city's quality of life. TL: That's interesting. I hope they wake up and they get it right.ML: Me too.TL: Final question, Mark. Ten years from now, if you're looking back at all these things you're working on, particularly charter cities, what do you hope to have achieved? ML: Yeah, in ten years I figure we probably [indistinct words] three dozens or so charter cities that are either up and running or are like in advanced planning stages. In ten years, probably a few million people living in charter cities and with the potential population to reach 10s of millions. I want charter cities to be sort of understood and discussed at every world forum, like the World Economic Forum. All these, like, sort of highfalutin events. I want them to be part of the language, like right now, for example, if we think about International Development there are some themes that come up all the time. I think gender equality and global warming kind of pervade every discussion, as well as randomized control trials, they all pervade every discussion about development, I want to charter cities to help pervade those discussions and not just pervade those discussions but actually be improving people's lives on the ground. TL. Yeah. That's a goal I can get behind. Thank you very much, Mark, and I wish you all the best. ML: Thank you for having me. This is a public episode. Get access to private episodes at www.ideasuntrapped.com/subscribe

I spoke to economists Omotola Abimbola and Adedayo Bakare on the Unemployment Report released last week by the National Bureau of Statistics. The conversation started with the various trends in the data, and the methodology of the report. Omotola and Adedayo are two of the smartest minds on the economy I know - and I thank them for speaking to me. This is a public episode. Get access to private episodes at www.ideasuntrapped.com/subscribe

I spoke to Ayisha Osori about our political structures and the various ways it is unaccountable to the electorates. She is the current Executive Director of the non-profit Open Society Initiative for West Africa (OSIWA). She also contested for a seat on the House of Representatives for Abuja in 2015 and has documented her experience in an eloquently written book. I enjoyed this conversation, and it was a pleasure to learn from Ayisha’s experience and knowledge.You can listen and download on any of your preferred platform here or the player above. You can also rate us here. This helps other people find the show.TranscriptTL: Welcome to Ideas Untrapped and today I am speaking with Ayisha Osori. Ayisha is a lawyer and she is the former CEO of [the] Nigerian Women's Trust Fund. She has consulted for various international development organisations, and she is currently the Executive Director of Open Society Initiative for West Africa. You're welcome, Ayisha.AO: Thank you, Tobi. It's a pleasure to be here.TL: I read your book... very very fascinating. And one thing that jumped at me straight away is the tension or the balance between political agents and systemic governance in Nigeria. In your experience, and of course from your analytical perspective in observation, where do you think the true power lies in our system? Is it with individual actors or with the structure that they've built around them via the party or their various networks?AO: That's a very fascinating question. And it will be hard to say that it's one or the other. It's both. It's the individuals and it is the structures and I can explain. When I say structures I would be referring to something including the culture of what politics means and what political parties are designed to do or have been doing in Nigeria, some might say, from the 60s. So that DNA, the hard wiring of what a political party should be, the understanding of how it should be structured, how it should work, how it should be manipulated, all those things are part of the structures. The structures are beyond the internal mechanisms of the party, whether it's the National Working Committee or the National Executive Council, it's beyond those structures. So, when I refer to structures, I will be referring to, as I said, the DNA, the history, the hard wiring in our consciousness (both the public and the politicians) of our political parties should behave, what's expected of political parties...all those things help determine how power is obtained and our power is used in Nigeria. And then the individuals come in in that they are the ones who know how to manipulate and manage (depending on how you want to look at it manipulate is one way, manage is another) these structures for their benefit largely, the benefit of their close associates and a handful of hangers-on. And then maybe, you would argue, their communities where there's a trickle-down effect. I'll explain why the individuals are important. We don't have to go too far, we can just start with 1999. In a way you would actually even argue that our parties have deteriorated in terms of structure - AOIf you look at some of the most powerful individuals in any of the parties whether it was PDP, whether it was ANPP, whether it was AC or AD, you'll find a pattern in the names and faces and where they go, who they align with and how the party sort of evolves. So AD moved to ACN, ACN did a merger with CPC to become the ruling party now, APC. So you find the individuals who are powerful within these structures. They're the ones who understand this hardwiring of how political parties should be. They're the ones who have been in the system for a long time and understand it. That's why I'd say it's both of them. And when these individuals decide to leave parties, they typically go home with almost everyone and the party doesn't survive after they leave which shows how powerful they are. It's also a reason why you see the same actors in the different parties because the individuals who know how to, let's just say, be politicians have the same ethos. Regardless of what the name of the party is, they have the same outlook toward how political parties should be run, how power should be gained and how power should be used.TL: One thing you talked about quite early in the book is the role of ideology in politics and how it is missing (it's almost non-existent). One good example is a case of Kogi State where you have two senators, running against each other, four years apart, in different parties. There's the case of Edo where the upcoming elections would actually have, basically, the same people on the ticket of the two main parties, but now they've more or less switched sides. Cross-carpeting is the colloquial word we use for it, would ideology really help bring some stability and, hopefully, sanity to our politics? Because it feels like our politicians do not stand for anything.AO: They would argue with you that they do stand for something and I'm sure many of the politicians that are in APC today will tell you that they consider themselves progressives (maybe left-of-center). I don't think PDP as described itself as center or right-of-center. Right being more conservative, Left being more progressive, but I've heard APC politicians describe themselves as more progressives anyway. Some of them would argue with you that they do have ideologies, but of course we know that it doesn't seem that way because of how easy it is for them to move between parties which I mentioned earlier. So if, as you point out, once upon a time, Ize-Iyamu didn't have the characteristics and values of what an APC person should be, you would have to ask what has changed in four years that suddenly he's able to be the ideal candidate for the APC despite everything they had said about him four years ago. You would like to think that as they present Ize-Iyamu now as a brand for APC that there will be some sense of how he has been rehabilitated from his prior point of views, his prior values that make him now aligned to APC. But there's no pretence in doing that because they know that, in a way, nobody cares, so to speak. And it could be that, is it that nobody cares (that us the public)? Or are we apathetic? Do we no longer care, did we care once upon a time? Did we never care? For me, those are the more interesting questions, because this idea that you have parties where you don't know who your members are, that's been something that's been going on for years and years. It wasn't this bad in the run-up to the 60s when we had the old parties that were led Awolowo, Ahmadu Bello and Nnamdi Azikiwe NCNC or [the] inheritors of those parties, the National People's Congress (NPC) that started as the Northern People's Congress...so, in a way, you would actually even argue that our parties have deteriorated in terms of structure, but those parties had some modicum of membership, they had some modicum of order. But as time went on where the lines between public and private or the lines between, let's say, governance and the treasury (public officials and the treasury) became more blurred, the more being in government became a route to access to fantastic riches... the more important it was to be in politics, the more important it became to capture power because that was your route to fantastic riches.So, the point I'm trying to make in a roundabout way is that the parties right now have no incentive to change their DNA or to change the way they've always done things. The formula has worked for them so far they would say. They win power, they might be out of it for one or two election cycles. PDP had said they would rule for 60 years, thankfully, they were out in 16. Now, APC probably has the same feeling that they will rule for 60 years but it's quite likely that they will not. The faces don't change, and even when the faces change, the behaviour and the values don't change. The culture of what politics is doesn't change. So would it not be up to Nigerians to say why do we keep voting for these parties that have no ideology? My point is, the parties will not change until we, the people, say they should change, and how many Nigerians care whether the parties have ideologies or not? So the truth is there's a disconnect - one, the people in the parties have been winning elections this way, nobody has challenged them, they're doing fine, they have no reason to change the formula. And two, Nigerians are not demanding that they should have ideologies or that they should speak on those ideologies.I remember when in the run-up to the 2015 elections and even 2019 elections, there was this conversation about a debate (presidential debate) and Buhari, of course, wouldn't want to debate. He didn't want to debate in 2019, in fact, he had zero incentive to because he was the incumbent. He had nothing to prove, so to speak. But Nigerians still voted for him knowing that. Lately, people are saying things like: this is a man who has never written a book. This is a man that doesn't have even a pamphlet to show what his ideas are, what his thoughts are, what he even thinks about anything. Literally, people have just spent decades projecting their own feelings onto this man. He's never said anything. He's never put anything on paper, which is why it was also easy for him to deny some of the election campaign promises that supposedly he now says his party has made on his behalf [which] he didn't make himself in 2015. But Nigerians still voted for him in 2019. So, if I was a Buhari, why would I care about having an ideology if I can win elections without having any? if I can get millions of votes without having any?TL: Let's unpack the history here a bit. Do you think that the stunting of our political evolution, particularly, by the number of coups we've had and military intervention played a role in this particular problem? Because we know that order than the rule by force and fear which is the method of the military, they also spent quite a lot of time and money buying allegiances from civilian elites which gave them some form of legitimacy, and which I think is now being replicated in civilian rule. What do you think of that?AO: I would think it's valid, in a way - half and half. There definitely was a truncation of our political evolution and political growth and development. And not even only a truncation, a poisoning - there was a poisoning of our sense of what it means to be a citizen, a poisoning of our sense of responsibility and accountability. Some people would argue that we are all even suffering from PTSD because there was a lot of violence as well and it's hard for ideology to thrive where there is high poverty and where there is violence as well. So I would agree that, yes, to a certain extent the coups, the military rule definitely, in my mind, as impacted on our political development.But we cannot blame them entirely because you know that we did have intellectuals. We had the radical ABU academics, we had [them] thriving even in Ibadan, Ife... there was a culture of resistance even during the military rule. But oddly enough, somehow this radicalism, this pushback on authority, it doesn't seem to have survived going back to a democracy in 1999. And some would argue that we are not even in a democracy right now, we're just practising civil rule but we're not quite democratic in the sense of our structures and the accountability between government and citizens. So I'll say, again, like, a lot of my answers will be that 'it's half and half.' I don't like us to shirk responsibility completely. Has there not been enough time between 1999 and today, that's 20 years, we celebrated 20 years of democracy last year of uninterrupted democracy which is the longest we've ever had Democracy in Nigeria uninterrupted. We celebrated 20 years. Is 20 years is not long enough to have developed this culture - if there was a deliberate sense not only from the politicians but also from the academics and the think tanks and civil society that it was important to develop our political culture and political theory? What you find though is that everybody seems extremely comfortable with the way our parties have evolved since 1999, built on some of the interference of the Babangida transition program which took a long time. So that's what I talk about in the poisoning of the well. The years of military rule had helped us to compromise our academics, compromise our sense of values almost entirely and that's still lingering. The damage that was done to our unions, the damage that was done to student associations which could have also helped develop this thriving political culture, all those things were decimated during the military era and nobody has deliberately rebuilt it. You go to our universities today, you find that many student unions are not actually even democratic either. You find that in many cases the vice-chancellor or the ruling council of the university, if there's going to be [an] election, they want to want to be able to determine who wins those elections. That culture of manipulating who gets into a position has poisoned everything - the Nigerian Bar Association, I'm sure it's the same with the Nigerian Medical Association, I'm sure it's the same with either on the women's side. So, it's poisoned everything but as I said, where is the deliberate effort? You know, we're having a conversation where would you say over the last twenty years you have seen deliberate effort from politicians, one; two, academics; three, civil societies; four, even just concerned citizens to build an alternative model for what a political party should be?TL: Why do you think that is? I'm curious. Is it ignorance, is it education, is it apathy? Why? Why has there not been that, at least on a scale that is enough to push the boundaries a little bit from the status quo, why has there been stasis in that regard?AO: Ah... that one, eh. To be honest, I would say that [it's] beyond my pay grade or my understanding grade, to be honest. Because I am as baffled as anyone else about why this hasn't happened and the truth [is] I'm not a student of politics or political science, it's just interest that has made me do a bit of reading over the last couple of years. But, as you pointed out, I studied Law in school, maybe did political science for one or two electives before I entered year two in UNILAG. So I don't know but I would say, picking up from just observing, that it is a mix of apathy, which is odd. We didn't think that being under military rule was inevitable, but somehow we think that how things are done now are inevitable. As time went on where the lines between public and private or the lines between, let's say, governance and the treasury (of public officials and the treasury) became more blurred, the more being in government became a route to access to fantastic riches - AOI don't know what has happened to our sense of struggle and maybe that's it. Maybe there was no collective 'our.' I'm saying 'our' but the truth is it was a handful of people who pushed out the military. It was a handful of people who won independence from the British, and of course, that winning of independence from the British was not unrelated to what was happening across the rest of the world. The world war had ended about 15 years before, the idea of colonialism was sort of dying, so the time was right. Some people would argue that in the way that South Africans struggled to end apartheid, we as a nation, Nigeria... we've actually never struggled collectively for anything. Maybe the biggest struggle we've had was to get rid of the military but as I said even then, you'll be hard-pressed to feel that it was a collective effort as opposed to civil liberties organisations and a handful of people, the Beko Ransome-kutis and co. and co., when you hear those stories. And maybe the stories are not complete. So, framing an answer, why is it this way? It's a mix of ignorance, it's a mix of not being taught our history, the danger of the single-story that Chimamanda has warned us about. But we've only seen one side of our history, we're not sort of prepped to be citizens who are active, and I think this speaks to some element of decolonizing our education. Because when you're learning in school, whether it's primary school, secondary school, university... I did social studies, I did history for SSCE and I took some courses in university, you find that your history just raises you to be accepting of what there is as opposed to questioning. And I think a lot of the colonial countries, whether it's francophone West Africa or anglophone West Africa suffer from this educational system that was designed to just breed civil servants who would just do what they're told and protect the status quo. So, that's one. Two, I think we like quick fixes. And I am understanding of this. I have empathy for this feeling of wanting a quick fix, but,0 we need to invest long-term. Part of the reasons why we're not thinking about the investments that need to be made in changing political culture is because we want a quick fix. Over the last couple of, maybe, like the year-and-a-half, the last year-and-a-half, I would say, there's been this romanticization of the NURTW. I've seen people on Twitter say 'oh, we should go and copy their model,' and I laughed, I smiled. And I'm like, 'what is their model designed to do?' I'm not saying it's an unworthy exercise to study them, you study every model if you want to dismantle it. In fact, you should know even more than the people who follow the model what the model is based on if you want to replace it with something better. But the idea that "well-meaning people"... because these days when people say they are 'well-meaning,' when people say they want to change things, we've learnt from the APC that we should be suspicious and ask questions 'what does change mean?' Because it might mean that you just want to capture power. You don't necessarily want anything to change. So back to NURTW, you want to use NURTW's model to do what? Because their model is designed to be exploitative, is that a model that you want to copy and use? For what? I mean, you have to think about these processes and ideologies and structures almost like a factory, a sausage making factory. Anything you put in will come out looking like a sausage. But we don't want to take the long-term view, we are always looking for the quick fixes.TL: I mean, it's baffling. Maybe I should take a peek at your Twitter feed that anybody would even suggest NURTW as a viable model for political organisation.AO: Whoa! Are you saying you've not seen that?TL: No, I haven't, actually.AO: Ah. No o. In fact, if not that I'm bad with names, so I don't want to, sort of, pick names, but I'm quite sure people like maybe, Alabi, the guy who, I think, is like a business entrepreneur who's gone to the House of Reps in 2019, is that his name? Alabi?TL: Oh, Akin Alabi.AO: Alabi. As I said please, maybe not him, but I just feel somebody with that type of name or maybe it might be...umm, I'm trying to open my Twitter feed now as we're talking, so this is an interactive conversation.TL: Yeah.AO: So, I've seen that from more than one person (say 'oh, you know'... ) maybe even Rinsola Abiola. I think she might be a fan of that school of thought and to be honest it's framed in a way to say 'oh, you elite people, you're sneering at the NURTW because they don't speak English,' it's not that. At least it's not that for me. It is, what is the structure designed to do?TL: Exactly. If I may ask, sorry I'm interrupting. Do they have specifics, I mean, what about that model are we supposed to learn from?AO: It's funny you said that because I remember that some other people pushed back now sharing stories of the kind of havoc that NURTW members have wrecked on their communities, or in [the] markets, and things like that. So, people were like, 'look, stop romanticizing these people.' But you're right, you know. There's this whole thing of 'oh, but they have spread, they're all over the place.' Yeah, they didn't wake up in the morning and suddenly had spread. So you now want to adopt a model but you don't want to interrogate what the model was designed for? In fact, I talked about decolonizing education, we should actually even decolonise our government.Because the truth is our government was inherited from the British who were here to strictly exploit us for their benefit. It's not far-fetched to say that that's what our politicians are still doing today. And they're not alone. We keep pointing fingers at the politicians but the civil servants are also exploiting us on the structures that the British had left for us which we inherited and we haven't really changed since then. You see all sorts of things in our civil service like leave allowance - this was for the British who had to go home for the summer. We still have those things in our system. So when we even talk about decolonizing education, we even need to decolonise our governance and what governance is supposed to do.So it comes back to the thinking that needs to be done but to be honest there's this sense of 'no, no, no, no, we'll enter government and then we'll change it from there.' And my theory, from the little that I experienced, again, I admit that I only experienced a little because all I did was primaries. But even the primaries showed me that what it takes to win an election in Nigeria, I doubt if when you finish you'll still... even if when you were entering you had lofty ideas of what you wanted to do, what you wanted to achieve, I can bet that by the time you win, at least fifty percent of those ideals would have been sheltered. You will no longer be the person you were when you started that process for you to succeed. And in the first place, for you to succeed, there are some traits that the party owners would have seen in you that will make you a good candidate. So I guess that's part of the dilemma that we’re in [which] is that we romanticize things, we're not thorough, we're not detailed... it could be a whole national malaise. We don't have high standards, we don't want to be held to high standards so that we don't have to hold anybody else to high standards. So, yeah, largely, we're just a collective of people who just want quick wins, easy way, we don't seem to see that the suffering that we are going through doesn't have to be that way, that there could be a better way of living. Now, everybody's gaze is on Canada. It's like a joke now but within the jokes and the banter, it's just the sense that nobody wants to build Nigeria, you now want to move to Canada where they have struggled to build their own country and they're still struggling. I've had the privilege of being in Germany for the last year and I've been saying to people 'I'm like Germany, they have light, they have water.' In the one year that I've been here I have not had cause, even once, to even wonder that if I touch the switch, it's just... it's not even in me. Whereas in Nigeria, every single day, it's as dominating as breathing or as air for you to wonder whether there is light. TL: Yeah.AO: So but here where they have light and they have water, they are on the streets every day. I'm not saying the whole city is on the streets but pockets of people who care about one thing or the other are marching and complaining and lobbying... because Berlin is the capital for Germany, sometimes farmers would come from across the country in their trucks, you know how big tractors are?TL: Yeah. AO: You'll find tractors all over the city, blocking roads, constituting a nuisance, they are protesting something to do with agricultural policy. So these are people whose lives you would say are fairly okay, but they're not resting on their laurels. They are not saying 'ah, everything is good,' they're still fighting, demanding, pushing, lobbying. Whereas we that have so much that's wrong, we're not even doing anything. So, it comes back to the ideology question - the people in power, they're looking at us and they're like, it's hard to tell that we want more. If you're Buhari would you think that the nation wants more? I don't know the governor of your state but if you're in Lagos State, does Sanwoolu feel like Lagosians want more?We romanticize things, we're not thorough, we're not detailed... it could be a whole national malaise - AOTL: It's interesting you talk about this demand for good governance which we don't have. I'm just wondering if you are a civil society Czar which you are, in a way...AO: I am.TL: And you want to take a stab at this problem, where do you start? Is it bottom-up, is it top-down? if you want to triage resources, where should we focus on first?AO: I would say it's the middle. My argument is very simple, I say the middle because my knowledge of history, the limited knowledge I have of history and of struggles, is that it's the people in the middle. And I know that there is this argument that we don't have a middle class in Nigeria but I guess, for me, I will just say the middle is: me and you, who have enough to eat every day. We might not eat everything we want to eat every day but we have enough to eat every day. We have a steady income, whether it's every month or whether it's from a business that comes quarterly. We aspire, maybe some of us travel a couple of times a year [or] every couple of years; that class, that middle, the people who can afford data, the people that can afford the luxury of being on Twitter for a few hours every day, on Facebook every day, that's the middle. For me, most movements come from the middle. They would obviously trigger something with the lower class, the working-class people, the people who live on daily wages, at a point the struggle will tip over to them and they too will adopt it. But as you said the triage, my energy will go on the middle, my energy will go on the middle who are young if I'm also going to prioritize within that middle. Because those are the people who should have the luxury of thinking. Me and you, who are not bogged down by hunger... and poverty is real. Poverty is really real in Nigeria. Are we expecting the people who are struggling for a daily meal to be the ones who are going to do the thinking, the planning and heavy lifting? I don't think so. So I would focus on the middle and what would I be focusing on the middle for? I'll be saying to the middle, 'how do we organise?' And you see, when I say "organise", I'm using that word in a technical sense. When we heard that Barack Obama was a community organiser I don't know how many Nigerians understand what that means? There are schools of thought around organising - there is the snowflake model, there is [the] Alinsky model, there's the LCN (Leading Change Network) model. These are models that I know are used in America and I ask myself what are the models for organising that we use Nigeria? What are the models of organising that we use in West Africa? So far I have come up with very little. For me in civil society, the new opportunity that I see is teaching organising in a structured manner. Creating a model for organising. And the truth is we have things in our history that we could build that model of organising around. We've had the Aba women's movement, I will put that as a classic case of organising. How did those women do it? What triggered it? What happened? It's not a footnote in history 'oh, there was the Aba women's...' which was how we learnt about it...the Aba women's movement, they did this, this, this. They put a tax on their salt and they were not happy. No. It is to go beyond that to see how they did it. How did they organise? How did the women get other women to buy into this? In today's day and age where when to organise they're saying 'ah, how many people from Kogi State? How many people from Nasarawa?' Which is not, for me, the key thing. The key thing is, how many people who feel this pain? How many people who have this value? It's not about the geography. But even in terms of putting together movements in Nigeria you find that we're still looking at federal character. I'm not saying that that's a bad thing but I'm saying it cannot be the predominant thing because that's our politicians organise. We cannot keep using their models. There's a reason why they use their model. We cannot use their model when we want to organise to push them out. So that's where I would start - teasing out a framework for organising for us in Nigeria based on our own stories. What did them Beko do? How did they do it? What did they learn? What were the mistakes? What drove them [in] pushing out the military? Where did they go wrong, where did they go right? And then using our own 21st-century experiences from Sudan, from Egypt, from Algeria, Tunisia, from Black Lives Matter. People are looking like at Black Lives Matter as if... I don't know how to explain it, as if somebody just shoots a gun and out came Black Lives Matter. They've been doing Black Lives Matter for years. This is where preparation meets opportunity. The longest movement or, at least, advocacy campaign we've had is Bring Back Our Girls. Maybe also in terms of thinking about a model for organising we'd look at some of the things they did right, learn from some of the things they didn't do well. But, for me, that would be the start. So you'd have that organising model and then you'll now democratise that organising model so that everybody can use it if they want. Whether it's the hairdressers on a street or in a community [or] local government who are tired of being taxed, how do they use that model to organise? But on a larger scale, then it would be how do me, you and other people that think like me and you who want to use that model to build the power that is needed to demand for the structural changes we need. It will take time. It will take research, it will take knowledge, it will take mobilizing, it will take organising to get to that point. But what should sustain us is that in the last decade, decade and a half, most of the real fundamental changes that have happened around the world have happened not through elections and have also not happened because of coups, and have also not happened because people that were oppressing suddenly woke up and said we're tired of oppressing. They've happened because of nonviolent movement, which requires between 3.5 percent or 5 percent of your population to want that change bad enough. I think we can do that in Nigeria but nobody is doing it.TL: Listening to you, I tried to look at some of the potholes, so to speak, in this model. You talked about Bring Back Our Girls, I was at the Abuja sit-in in 2014 and I think... was it the second day or the third day and Dino Melaye came for whatever reason and said (I don't know how true that is) that 'oh, I hear that 150 million naira has been released by the NNPC to start a rival movement.' Now, that seems outrageous but by the very next day there was a rival gathering at Unity Fountain chanting 'Release Our Girls.'AO: [Laughs out loud]TL: Yeah. And by the next day of that rival organisation, it descended into violence. I believe so much in the middle class and changing the demand for good governance, but I keep looking at the threats, especially around poverty and how quickly the political class (the ruling class) can easily use money and influence to mobilize for violence. And I think that may drive apathy on its own. On the path of people that are willing and even able.The key thing is, how many people who feel this pain? How many people who have these values? It's not about the geography but even in terms of putting together movements in Nigeria you find that we're still looking at federal character - AOAO: I hear you completely. And to be honest, yes. In fact, it's now become a fad. As a member of civil society will know, for example, that Amnesty International is constantly picketed every time they come up with a report or a press statement that indicts the government and the military and soldiers for extrajudicial killings or overstepping their bounds especially in terms of loss of civilian lives, we find paid protesters coming out with their posters. To be honest we've seen this across board. We've seen people protesting for Diezani. The funny one was the 'leave Diezani' where it was spelt L I V E, "live our Diezani alone" which is like 'live'. It's now an industry, so we can expect it. But should that deter us? I don't think so. To me, it doesn't deter. And this is another mistake that we make. This is another mistake that "the people that want to change" always make that mistake because they want to keep following the models of the politicians. Now, the average politician thinks 'okay, he can outspend you.' He probably can. But you know these protesters, we find that at the end of the day, they'll be fighting in one corner, maybe they were promised 1000 [naira] but he can only give them 500 [naira], it's not sustainable on their part. Yes, they can bring out their 'release our girls' people, day one, day two, if we were still going for day hundred, who's going to be bringing that money? Who's the politician will keep saying 'let's keep giving these fake protesters money to come out?' They will now have to change track, that's maybe is where they will now try to use violence or the tactic of Abuja now is to seal off the area where the bring back our girls used to sit in the name of construction or they might try and start infiltrating the movement to pay people off to be disruptive. We can expect these things because these are tactics that we know will be used. How do we prepare against it? That's all part of what the organising and the struggle is about. I'm not going to tell you that it's not going to happen, but because we know it's going to happen, then we can mitigate against it. We can expect it and we can work around it. But the truth is, of course, anybody that benefits from the status quo is not going to let go of that status quo easily. We can, again, link this conversation to Black Lives Matter. What is so hard about saying 'stop killing innocent people?' Why is there such pushback? Why are we seeing such pushback from the police, about not arresting people indiscriminately, not shooting and killing people indiscriminately, not using indiscriminate force on people? Because, as I mentioned, the DNA of our political party, it's in the DNA of the United States police force. Because the United States police force is also tied to the legacy of slavery and dehumanizing black people. But does that mean we shouldn't struggle? TL: Absolutely not. AO: Exactly. So we see the pothole, we acknowledge the potholes and just as we do with our cars, we swerve and avoid the potholes. But the key thing that would help us avoid these potholes, Tobi, is the values that we used to organise. So as soon as me and you think that for our movement to a powerful, we need Dino Melaye, we need Adams Oshiomole we need Ghali Na'abba, that's our downfall.TL: Let's move away a bit from that. We'll come back to some of that issue. Let's talk about gender-based violence which is something I noticed you've written about recently. If Twitter is a reflection of reality, there's been an incredible surge in such violent incidents over the last couple of months and like everybody else, I wonder what's going on? Has it always been like this or there is an underlying psychological reason behind the current wave we are seeing?AO: Now, that's a fantastic question and I have the answer. One, this violence is worldwide. The violence against women and children that we're experiencing right now during covid is worldwide. It's been given a name - The Shadow Pandemic. As the covid pandemic is ravaging the world, there's a shadow pandemic that is also ravaging the world and the pandemic is waging war on women and children mostly. So is this a new thing? No, it's not a new thing. What covid has done more than anything is put a magnifying glass to problems we already had and two, it has sped up the rot. So, we already had rotten structures, rotten cultures, rotten response to social issues, deep injustices and inequalities in our system, what covid has done is exacerbate these things. They've made them worse overnight. Why? Because with covid we've also seen restrictions on movement, we've seen people's livelihoods being affected negatively, we know that more people are going through hardship. And when there's stress, and there's oppression, it's not to justify it but this is just the reality, when people are under pressure, they lash out. When I'm under pressure, I'm more likely to snap at my children than when I'm not for the same thing. So, if I'm just chilling, I'm not particularly stressed out at work or nobody has bashed my car or I'm not frustrated at the diesel bill or they've not just come to cut our line, and my child breaks something... my reaction at that moment depends on just how stressed I am. So, likewise, with people's livelihoods being affected, a sense of oppression, a sense of uncertainty, all these things are boiling over as a war against the most vulnerable which is women and children. People feel like they need to take out their stress on somebody else whether it's beating them or raping them, and this is how some of it's manifesting. I'm quite sure that also domestic violence is high, but we're not seeing the stories in the news same way we're seeing the stories of sexual gender-based violence. But in Sierra Leone, a five-year-old was just raped to death. We've seen stories in Nigeria of three-year-olds, four-year-olds. It's across the continent, it's across West Africa, it's across the world. Then come back to Nigeria on sexual gender-based violence, we ordinarily... we've had a really horrible culture of sexual gender-based violence against women. There was the report, I think 2012, called women in Nigeria report that was a joint research done by the British Council and I think the Ministry of Women Affairs and Ministry of Finance because I think we had Okonjo-Iweala then. Yeah, this is around 2012, yes. That was a time when we were making a lot of strides in terms of saying let's do gender budgeting and things like that. Anyway, the report showed that I think 1 is 6 or 1 in 5 women have experienced sexual gender-based violence, separate from domestic violence and just violence in general. So when you now look at the numbers in terms of prosecution, you'll see that very few people are prosecuted for it. We have patriarchy that sort of places men above women and children, then you have an ageist society where we believe older people over younger people, then you have a society where you have no law and order, where your police is ([for] lack of a better way of describing it) largely exploitative and designed to protect the regime as opposed to protecting the people, you have a judiciary that is weakened and not independent and likely doesn't care. Oh, let's not forget sex for grades...you saw the documentary that came out last year that the BBC did on UNILAG and in [the] other school in Ghana?TL: I did.AO: So it's in our culture. I hear that [the] National Assembly, when they do their budgeting for conferences and meetings, if you look at the items there is "conference materials." They say conference materials apparently include women. That conference material is a cover for women. I've heard stories of men in meetings (government meetings) where a good part of the government meeting is spent on whether they are going to travel with blankets, blankets being a code for women, so this is our culture. You have stories of people who are abused and then the whole family will be on the neck of the mother or the child who wants justice. The family. So, we have a real, real, deep societal issue. I agree that a state of emergency should be declared but the truth is a state of emergency was declared around sexual gender-based violence in Sierra Leone last year. Despite that, poor Khadijah was raped to death. A five-year-old. By her Uncle. With the knowledge of the Uncle's mother and the girl's Aunty.So, declaring a state of emergency for me is rhetoric. What is going to be done? What needs to be done? How do you have somebody who alleges that she was raped (we've seen it not once, we've seen it not twice) harassed by the police? The truth is, again, like demanding good governance, do we want to see an end to sexual gender-based violence in Nigeria? It's almost, in a way, also, up to us. Do we want to have zero tolerance? Because if as a society we excuse it, if even on a family level we can find it in our hearts to excuse the people we know who are molesting young girls, when we refuse to believe young girls, when we refuse to believe adults who come forward, then as a society we're saying this is not important to us and the government will take their cue from there.TL: I have a two-part question. And please indulge, maybe, some of my own ignorance here. Now, I look at history and there is some form of correlation, maybe not necessarily causal, that as societies get richer, they also improve in gender equality. So do you think some of these problems are economic? Is it so knotty as a problem right now because we are still largely a poor society?AO: Is that the two-part question [or] should I wait for the other one?TL: Yeah. Wait for the other one.AO: Well, it's a good question and the truth is I don't have the research to say yay or nay. I do know though that in a few countries (I know Brazil is definitely one) where this sense that 'let's empower women economically' (I said I want to stop using that word: empower)... where women have been given or are supported to be more economically independent, we've actually seen violence rise in their homes. As the men find it extremely uncomfortable that the women are earning. Maybe not even earning more than they are, but just that the women are earning. They don't like the confidence it gives them and you see an increase in violence. That has been documented. When I think of women, let's just say like me, who are abused at home or who are abused in the workplace, we're not poor and the people abusing us are not poor either, so I would wonder where that comes in. Unless it is the entire society, even when you have pockets of wealth, there's some sort of mental impoverishment. I mean, that could be the only explanation. That's one explanation anyway, that you'll say that 'okay, so how do you account for sexual gender-based violence and domestic violence within rich or middle-class communities?' And this is not special to Nigeria either, it's something that happens everywhere. So I still bring it back to patriarchy and culture. I still think that it's not enough to say it's because we're poor. Because then the argument will be, but your state is not poor. Why does my police not care? How much is the police budget? I'm sorry I wish I had that number at my fingertips. When a mother comes in with a child and says that child has been raped, why is our police too poor to be able to treat them humanely, question them humanely, capture their stories humanely, instead of reporting the mother or brutalising the girl by asking stupid questions about how she caused what happened to her even if she's under five years old? So where does poverty fit in where our judges who get a huge chunk of money... You can even excuse the judges maybe you'd say because if cases are not prosecuted by the state, this is a crime. So ideally, in these types of cases, it's not supposed to be the mother of a child or me who is a rape victim who is prosecuting the case, the state should be prosecuting the case. Is the state too poor to prosecute these cases? When we vote for these people, what are we voting for? What do they do for us? What do they do for us that makes us have every four years go out and vote for these same people? - AOIs the state too poor to hire public defenders for people who are too poor to hire lawyers for themselves? Is that what we're saying? The state is the one that's going to determine what kind of society that we want to live in. I'm afraid I don't really buy the poverty one, I think that it is a cultural one. Our problem is cultural, it's not poverty. It's not economic. Because even rich people exploit women and girls. Even educated people do, so it's now a culture, this is our culture. Pastors do it, Imams do it, governors do it, ministers do it, people in civil society do it, bankers do it, teachers do it, policemen do it, everybody is doing it. It's not about poverty, it's about culture, it's about what we accept.TL: I love that answer, I wish we had hours to unpack all the various details and nuances. So the second part is, again, to be honest, I never tweet or speak publicly about this stuff because some of these platforms are not really optimized for a nuanced conversation and...AO: Yeah.TL: So I noticed that there is a pattern. I mean, when people pushback or advocate or complain or protest sexual violence against women and children, particularly against women now, there’s a pattern which is 'oh, stop raping women.' And, yeah, I have no problem with that message. But then, you have a certain group of people who say 'oh well, not all men are rapists' and then the conversation devolves into a lot of anger, name-calling. What are the nuances? I mean, in sexual violence there's biology, mental health and other things other than being a male or a female, do those other things not count or explain some of the cases?AO: Hmm. I’m not sure I understand this last part, you might have to unpack that part. I understood up to when you said 'does biology not play a role?' Until that point I was understanding where you're coming from and where you’re trying to go. But this last part...TL: Okay, for example, we know that, and when I say 'we know' I’m talking about, maybe, consensus in the psychological science that paedophiles, for example, have a certain psychological profile. They might not have a normal brain like an average person. And there is also some evidence that people who rape (there are serial rapists, of course, just like serial killers) they are also of a certain psychological profile. I take the cultural arguments. Absolutely. True. There's an ingrained problem with our culture with how we see women, how we treat women, how we talk about women and it reflects. But specifically about the violence which is quite troubling, which bothers me a great deal, which I would like to see a lot more movement in terms of change and not argument, and not controversy and all the things that poison that conversation. So should we start looking into mental illness and not just the gender of the accused or the perpetrator?AO: Okay, now I understand and it’s perfect. Wow! This is very loaded and I’m really not sure I can do justice to it. Maybe after our interview, you'll have another session with people who are psychologists but I’ll try and unpack them one by one and in the different issues that I’ve seen in this last question or comment or reflection. The ‘not all men are rapists,' of course, it’s understood where that is coming from. But if we compare it as someone has done recently to... when we say 'Black Lives Matter,' and then people say 'All Lives Matter, there's also a reaction because in saying Black Lives Matter, we're not saying All Lives don't matter. We're saying black lives are in danger because the numbers tell us that more Black people are being killed by the police. So nobody’s saying white people don’t get killed by the police but what is saying is that there's a systemic structural racism in the US police force that targets Black people. Some people would argue that there's, I know that's hard to think of, but they there are fate worse than death, what the African-Americans go through in terms of being used as a feeder for America's prison complex you could argue that, for some people, that fate is worse than death. It’s like a living death and it’s not unconnected to the fact that the thirteenth amendment they abolished slavery somehow left an exception for prisoners still be treated as slaves, creating an incentive to have slaves and to be able to capture a good part of your population as slaves.So going back to not all men, it angers women and men when some men say that because in saying men are rapists, we’re talking about the data. Nobody is saying women don't rape and it’s actually quite useful that many men are also now sharing very troubling stories of how their first sexual encounter was rape, literally. Which brings us now down to this mental issue - there’s evidence, non of it Nigerian based, but there's evidence to show that people who are abused go on to abuse. So if you were raped as a child, if you were molested as a child, some people would become molesters. If you were raised in a violent household where you were hit as a child, you watch your mother being hit (or let's just say, to be fair, your father being hit), you will most likely grow up into an adult will hit their child, who hit their spouse. This is documented. So you’re right. Sometimes when I hear these stories, I do think 'oh my god, we're a nation of [the] abused' and we're all going on to transfer our abuse to other people. You hear horrifying stories, [see] videos of women abusing househelp in very degrading, sadistic ways. And you’re like 'ah-ah.'So this comes to the trauma that, it will be fair to say, maybe a good section of Nigerians are going through but we don’t invest in mental health. We don’t recognize it. And literally mental health is tied to health where, as a country, we've not put health as a priority - that’s also one of the things that have become glaring from the pandemic. We’ve known that our healthcare is inadequate, I mean, constantly we're Go-Gunding people who need to travel abroad, it seems that there’s no serious illness that we can treat in Nigeria. We just don’t have the capacity. Where we have the capacity, it is very limited. So, if we can’t even do basic public health right and basic public health is literally maternal mortality, infant mortality, just making sure pregnant women don’t die, making sure babies don't die, toddlers below the age of five don’t die. If we can’t treat accidents, gunshot wounds, basic things, how will we get to mental health? Where will the investment come from but the truth is we need investment in public health. To be honest, we can actually tie sexual gender-based violence going on against young boys and young girls and women, we can make it an economic issue because we can say 'what is the impact of all these people who are emotionally stunted in one way or the other (I’m not saying everybody who is raped or who has been abused has mental issues)... but in one way or the other, how are these things affecting our productivity as a society? How many man-hours are lost in dealing with these issues? How many man-hours, women-hours are lost in terms of productivity for women who are running, hiding, trying to dodge abusive husband, abusive uncles who feel entitled to the bodies of your daughters? How many man-hours and women-hours are spent on avoiding all these? What will it take for 3.5 percent of Nigerians to say enough is enough? - AOIf we were really to treat all these cases the way we would, then you'd now be asking, what is the financial burden on our healthcare system? If we had a serious government, then the government will be saying 'this is a pandemic that we must stop because it is draining our people and draining our resources.' So I agree with you that the conversation could be expanded, I am hopeful that it will be because I think we’re getting there. I know that the conversations are quite painful, they can get quite heated, I personally welcome them as painful as they are. Because I think we're sort of undergoing the psychological therapy that we need to first to discuss these things. And you know they say there are stages to grief? I can't remember all the stages but anger is one of them. Maybe we're going through the anger stage. We will get through the anger stage and get to the solution part. Maybe the solutions will be home driven because we would now have had these conversations, had these revelations, had these stories told and told and retold. So people will get to where me and you are now, say, 'okay, how do we move forward?' Which is why in my first answer I said 'it's the lack of seriousness that the states treat this issue of sexual gender-based violence. It's in part a reflection of your society where women have been so objectified as sexual objects. There's a strong sense, in Nigeria, that any woman who has anything is because she's sleeping with somebody. So sex has been seen as a commodity which in a way is almost as if the women are the sellers and the buyers, which is madness. We cannot be the sellers and the buyers.TL: Men are the buyers, obviously. AO: Well, some of them are selling too, so I'm just saying this accusation that 'oh, sex, sex. Women use sex to get what they want. Women use sex to manipulate.' In fact, that narrative is now spilling down to small girls, innocent children. What are they trying to get? What do they want to get? So all these angry conversations should lead to us saying 'enough is enough.' I spend an in ordinate amount of time on WhatsApp platforms and groups where we’re constantly asking 'who can shelter one three-year-old? Who can shelter a four-year-old? There's a 16-year-old who is being by her stepfather, where can she go? And you're saying 'where is the state?' In the 21st-century, how is it impossible...I think only Lagos that I know of, forgive me if there are other states, Lagos is the only state I know that has a shelter for women as per it is a state shelter. And I'm quite sure that even what they can afford and what they can do and who they can cover is limited. But [in] most states, you do not have a place where a woman and her children who are being abused and being a terrorized can go to. Which makes it even harder for you to get the support that you need. So if, for example, your family is not with you in terms of trying to avoid the abuse of your daughter or your son in the hands of a relation, which is often the case. Where do you go? Do you now go under a bridge with these same children who are traumatized? Your state doesn't even provide for this, so again, it comes back to governance and politics.When we vote for these people, what are we voting for? What do they do for us? What do they do for us that makes us every four years go out and vote for these same people? Which one thing? Which one thing are Nigerians passionate about? Which one thing, Tobi, are you passionate about that you're saying this issue is so important to me that if it is not addressed, I want some serious reform? I'm sure every single Nigerian has one of those such issues, yet we do not make it campaign issues, yet we allowed these people to just tell us lies. We cannot hold them accountable. Then the next four years comes again and we all troop out? Are we all mad? TL: Pertinent questions. Thank you very much.AO: Thank you so much. It's been really interesting. This is a public episode. Get access to private episodes at www.ideasuntrapped.com/subscribe

Abubakar Suleiman, who is the Chief Executive Officer and Managing Director of Sterling Bank, is certainly the most interesting banker in Nigeria. In this conversation, we explored the nature of the relationship between business and government - with focus on regulation and the cost of compliance - and the thing that needs to change in that relationship.TranscriptTobi: You're listening to Ideas Untrapped and today I am honoured to be speaking with Abubakar Suleiman who is the MD and CEO of Sterling Bank. He's a man I respect so much and a very interesting thinker. You're welcome.Abubakar: Thank you.Tobi: I'll start with a basic curiosity which is if we go back, say, about a decade ago from the banking crisis that we had where it started globally, but it changed the financial landscape of our economy, so to speak. In your view, what are the most enduring legacies of that experience? Because, for me, one thing that I see (and I'm open to being wrong about this) is that it expanded the regulatory role and the oversight of the Central Bank in a way... because it had to step in, do a clean-up of the system, provide liquidity and I believe there are costs to that which are kind of feeding into the system now...what are your views on that?Abubakar: Sometimes it's difficult to argue that the lesson from a decade ago where was really learnt. You'll see behaviours that suggest that we may have gone back to business as usual. But in one area where we have not reversed completely the changes that were imposed on the system is actually in the cost of doing business and the cost of compliance. So, from a business perspective, I think of it as the cost of compliance. The most obvious one is that the scale of capital that you need now to play in financial services has suddenly been ramped up. And so if you were here in 2004 or 2005 before the consolidation, you could very easily start a banking business with 2 billion naira. Today, it would be risky to start it with 10 billion even though that is the minimum requirement because you will immediately understand that that would be operating on the edge, so those are [the] fundamental policy changes that have happened. And when we moved into the crisis, those then became even more central to how regulators operate.The other thing that then happened is on the back of the AMCON intervention, the cost of remaining in business was also immediately ramped up. So, if you understand that the minimum target return for a financial service starts at 1 percent, but you pay close to 0.5 percent in charges for the AMCON resolution, for instance. You then begin to see that the cost of remaining in business for banks never reverted back to what it used to be. And this is particularly interesting because the deposit insurance is still there and it's still being paid for and unfortunately it's not one or other, it is actually both. So you're right, there has been, from a commercial perspective, a significant increase in the cost of doing business and the cost of compliance. But from a regulatory purview, I don't think the regulators in financial service as ever been as powerful as they are now and it's across the world. Sometimes you might say is justifiable given the circumstances we've gone through, but you're right, there are economic consequences for such power. And where they are properly used it could save the day. So, for instance, in the United States, the TAP intervention literally saved the American economy and we have similar intervention in Nigeria too. But at the same time, it also, sort of, created risk-taking appetite that was not consistent with the returns in the market. So you have so much liquidity in the market that people then effectively started to take far more risk. So, it is not without consequences.Tobi: This got me thinking about the relationship between big businesses because, obviously, the capital required to be in the business of banking is quite high, there are no SMEs in banking, as they say. So, the relationship between big businesses and regulators, the government, generally. It seems to be a one-way relationship, like, regulators always have the bully pulpit, they always have the power to change the game. Whereas I think, in a way, big businesses should have some leverage in that relationship to have some kind of balance between risk and social protection. So, what's wrong with business lobby being progressive in Nigeria? We seem to always be faced in one direction. Abubakar: I think the way to understand this problem is to look at the regulator and the DNA of the regulator. The average regulatory institution today was reconstituted under the military era and despite the fact that we've now become democratic, the thinking and the leaning of most regulators is that of absolute power. And because the opportunity for redress through the legal process is not quite as straightforward, businesses are forced to avoid confrontation. So primarily leveraging on the power that they accumulated for themselves under military rule and the existing relationship between the public and the private sector which, sadly, is certainly not one of two parts of a pair, but more of [a] father-son relationship. That kind of relationship does not allow for the kind of engagement that would lead to collaboration. So what we see are, the government that is more of a lawgiver and we are takers. The average small business is either a vendor to a much larger business or a supplier. Very rarely is a small business whose customers are other small businesses or just the consumer. There's some level of dependency on big business. - ASNow, is that justified? Absolutely, in some cases it is. We've seen instances where private sectors have abused the opportunities and they've created problems, often with the collaboration of people in government, but that's true. And that then empowers the government to sort of push the frontier of regulation further. But, is that positive? My sense is that it is not. I keep saying this that over 80 percent of the resources in this country is still in the private sector. There has to be an understanding that programming the private sector to solve social problems is the fastest way to get resources into the economy, and I don't think that is happening enough. I think, today, we have a situation where we still believe that the 10 to 15 percent of GDP that passes through government is how we solve the big problems and it is not.Tobi: That's an interesting angle - [the] private sector and problem-solving. One thing I don't hear very often especially when it comes to business regulation or we are talking about driving investment, there's a lot of SME talk and that is justifiable, everybody starts small at some point. But there is a lot less emphasis on the role of big businesses which I think matters - they are large employers, they certainly have the capacity to invest in a meaningful way. It seems like something that when properly incentivized can have an immediate and even a big impact. So why is policy (at least publicly) so focused on SMEs? Whereas I think you've also expressed that same view at some point that even most small businesses depend on big businesses to survive. So, is it about signalling or is it about social justice? I don't know, why is big business not on the agenda? Abubakar: You're absolutely right. The average small business is either a vendor to a much larger business or a supplier. Very rarely is a small business whose customers are other small businesses or just the consumer. There's some level of dependency on big business. And it's difficult to say with certainty why the discuss and the engagement with big business is so antagonistic. And I think it is antagonistic. But I think a part of it is that we've equated big businesses with rich people, with the elite, and they are not in high demand right now. From the political space, those who are successful are somehow deemed responsible for the state of the economy. It is believed in some circle that their businesses do not lead to social progress. And it may be true in certain cases, especially for people who are rent-seekers and a lot of Nigerian big businesses are rent-seekers. But it's not always true. There are lots of big businesses that create real employment and enable other people to succeed. So if you ask me, I think, there is a part of it that has to be [that] the businesses themselves must reconfigure to be more impactful so that people start to see big businesses as sources of growth and progress for the country, I think that's important; and this is not about some CSR communication gimmick, this is about actually running your business in a way that creates real impact in a society, I think we need to do that. I have a rule of thumb. I believe that for every big business, there are a hundred small businesses that survive because of you at the minimum. If that rule of thumb is true and it's probably even more than that, then the way to get small businesses to grow is to ensure that the big businesses function properly. And what do big business[es], what do they really need? What are they asking for? They're not asking for money from government. All this idea of throwing money at them is not the solution to the problem, it is just another opportunity for the market to be distorted. What they need is for the government to create a seamless process for them to remain in business, to start and remain in business. Seamless process means - reduce the point of contact between people who are tax collectors, fee collectors, rent-seekers, all kinds of people that don't create any economic value but are supposed to somehow monitor those who do.I'm not saying they shouldn't do the job but reduce the point of engagement to the minimum possible, reduce the cost of that engagement to the minimum possible, create transparency around that process. If you do that, big businesses don't need you to give them discounted financing. Discounted financing because it can never be given to everybody fairly and equally, is a way to distort the playing field. What can be given equally and fairly is good policies, simpler policies and to some extent where infrastructure is required that can benefit every producer equally, then do that. Let's put all of this money that we are putting into trying to solve private-sector problem which is access to capital, let's use it to solve public-sector problem which is access to infrastructure. So, that is how the government can start that relationship while the big businesses themselves must commit to running their business in a manner that is socially impactful and contributes to economic progress. Tobi: Thinking about that I see a sort of chicken and egg problem. Looking at the classic dilemma of a political economy which is the knowledge and the incentive problem - if you're trying to solve a problem, do you have the knowledge to solve it? Are you properly incentivized to solve that problem? Right now, currently, and this is my opinion, is that we have a policy regime that actually believes it can allocate capital more efficiently than the private sector. I think that's false, that's my view. Now, who has to move first to really...Abubakar: To get started.Tobi: Move the needle? Do big businesses have to demonstrate that 'oh, yeah, we're better at this' or is it still about government understanding that, oh yeah, there are actually people who are properly incentivized and who have the knowledge, who are on the front lines to solve this problem?Abubakar: Well, if you think of the question in terms of government versus private capital, which is what it really is, then you'll understand that the government is in a disadvantaged position, especially when you think of private capital in its global form. Because the government has so little of it and doesn't have a lot of time and has a lot of pressure point and therefore their need for private capital is far more pressing than the need of private capital to operate in Nigeria. Because, again, private capital as other alternative destinations where the circumstances are being improved for them. So if you go to Ethiopia today you'll see what has happened in Ethiopia in a very limited amount of time or you go to Ghana too and you see what has happened with private capital coming into Ghana. So the government sadly may not accept this but they need to move first, and in moving, what we are asking for in moving is just give people predictability. Give people predictability, give them a sense that the rules by which they start an engagement would remain in place for a reasonable period of time, so it's not a huge move that we are asking of government. The question as to whether it's a chicken-and-egg thing is that it is a chicken-and-egg thing to the extent that Nigeria is 200 million people and therefore a potentially vibrant market. But it's not very attractive if the terms of engagement are not improved very very quickly. So I'm not sure that the pressure is on private capital to come into Nigeria at all cost, I think the pressure is on [the] government to attract private capital. Now going to incentive, the government needs to understand that their number one incentive is to create employment above all else. Without creating employment they don't even have a viable country to run. All the security conversations we're having are economic conversations, so therefore if the government understand that they are incentivized to create employment and they recognise that even in the best of countries at least 80 percent of the workforce, most likely 90 percent, work for the private sector. Therefore, they must then incentivize [the] private sector. And the way to incentivize [the] private sector is to attract private capital. And it's not just about foreign capital, it's also about local capital. It's about Nigerians that own real estate out of this country because they don't think that [it] can retain value by staying in, giving them a reason to come back because they can see a profit opportunity. And a way to then use private capital to create employment is to create ecosystems where you take the big business within an ecosystem and then you create [an] opportunity for the small businesses within that ecosystem to support the big business. So for instance, if you take the Dangote business model where the Dangote cement is a big successful business but it has thousands and thousands of distributors who are then small businesses. Right? And that model can be replicated. If you take a banking franchise like Sterling Bank, our agent banking business as over 15,000 people who are deemed small businesses who were operating as a result of what we do. This can be replicated over and over again and we need to understand that as the basis for creating employment. Unlock value through infrastructure, through policy and through the big capital and then allow the small businesses to take off from there.All this idea of throwing money at them [big businesses] is not the solution to the problem, it is just another opportunity for the market to be distorted. - ASTobi: But do we have the right systemic balance for that? Because I think about this a lot and we have this phrase "patient capital" and all that. So it makes me think about the investment game in emerging markets generally...is there a tension between social impact and long-term returns and immediate gains? Like, if I own a bank, what's stopping me from lending to an oil firm that has an exploratory licence than to put it in a business that has a twenty, 25-year return timeline but possibly with a bigger impact, because the total number of jobs that are created in the oil sector cannot even move the needle on the scale of the employment need of the country. So is there a tension between instant returns and long-term impact especially in the emerging markets, developing country context?Abubakar: I have two perspectives on this. The more obvious one is the conversation around incentives and what people respond to. But the one that is often ignored is the conversation around information because what we deal with in finance is really information. And the quality of the information improves as you get closer to [a] specific point in time. As you move further away from now into the future, as you gain duration information is impaired and so there's less clarity. For instance, if I have a 90-day transaction, the quality of information that I have, the quality of forecasting, the quality of control that can exist in a 90-day transaction is far more superior than if I had a three-year transaction where a lot of the parameters can change. So that information quality is one of the things that drive people to invest in trade, import-export, rather than, for instance, in a start-up (where your information quality is disperse). If I'm making an investment in a company that already exists, that has a CEO with a history and I can evaluate that is different from making an investment or funding someone who does not have a history as a CEO. So it's that formation quality. One of the things we must do therefore to make a 25-year impact organisation as attractive as a short-term asset-heavy organisation is to close the gap in the quality of information.Interestingly, one of the ways to close that gap is to have policy certainty. So if I'm making an investment that is 5 years and I don't know what the government is going to be after 2023 and I don't know what is sacrosanct, which of the policies are sacrosanct that will not be altered by a new government, if I don't know that, how do I make that investment? How do I confidently, as a lender, tell my depositors that I'm going to make a bet on the company based on a policy that has been put in place by the government of today knowing that there will be a change in government and I don't know if the new government will uphold that policy? So it's down to how do we reduce uncertainty in our systems? And it's not done by a lender, it is done by the government, it is also done luckily for us because we have technology now, we must invest in data. We must invest in collecting data, we must invest in digitising existing data, but more importantly, we must invest in integrating data. Because what that data does is it removes uncertainty or reduces uncertainty and makes it possible for whether it's an equity investor or a lender to put money behind impact long-term business. It is generally believed that those impactful long-term businesses actually generate better economic returns, but you cannot make those bets without higher-quality information. That's the one side of it. This issue of incentive is actually rather mundane, if you'd ask me, it is what do you pay for? So you ask me to publish my performance every quarter, that's the law if I'm a listed company today, every quarter I have to put out my numbers. So I wake up in the morning thinking the quarter is coming, what is going to give me the best return for that quarter? I'm not going to go to my shareholders and say 'I've got something that's going to do really well in two years time, so please ignore this quarter performance.' Shareholders are not listening to that. So we have created a system that actually encourages us to stay focused on the short-term. The same is also true of the way employees are rewarded, the way management is rewarded. So most management reward is a monthly salary plus an annual bonus scheme, and so your focus is how do I ensure that we meet the monthly numbers so that we get the monthly salary and then how do I ensure that at the end of the year we deliver a profit? Some of the most impactful investment long-term do not give you that especially when you've got a tenure and you want to make as much for yourself as you can within the period in which you are in play. Whereas, if you had long-term reward system that says that you can build on to this but this is your equity in it, you cannot take it out, you'll get 20-year period to earn on the equity or you'll earn part of the profits of the future, those are the kind of conversations that are not normal in boardrooms today. Can I have a conversation that says 'look, I'm going to work on this company, I'm going to give up part of my immediate compensation but I want a share of profit for five years after I have left the system?' That kind of conversation would mean that I would take decisions today, that doesn't yield profits today, but has [a] much more higher return in the future.So the conversation is real, incentives are real. And finally on incentive, we have not incentivized regulators in any way. They are incentivized for zero error. Right? Essentially, they are the exact opposite of risk-taking. So what they're doing is they're limiting risk-taking as much as possible because as long as there are no risks taken, they then have done their job. And at the end of the day, their return or their salary is not tied in any way to the performance of the sectors that they regulate. So incentives are also sorely missing in the regulatory space.Tobi: You hit upon a very interesting perspective in my view which is regulation reducing information asymmetry. Because I've long thought that part of the problem with the way our economy is regulated and which obviously affected the evolution of our political economy is that the business space is not permissionless enough. So, like, if you want to invest, if you want to take risks or you want to start a business, you first (especially if you want to do it formally)... you have to think about what does the environmental allow? And that lets you control for a lot of things. You adjust for a lot of things. You cross out a lot of things and at the end of the day, it reduces the feedback that comes into the entire system because there's a lot of things that you should be doing that you're not doing because you're thinking of what does the environment allow? How do I not lose money? How do I not lose my skin? How do I confidently, as a lender, tell my depositors that I'm going to make a bet on the company based on a policy that has been put in place by the government of today knowing that there will be a change in government and I don't know if the new government will uphold that policy? - ASBut, the irony is that in the informal sector, it's not like that, except in the case of outright coercion. I mean, I can fry my chin-chin or take my buns and just put it on the side of the road and, yeah, maybe a few guys come and extract some rent, but there's a lot of forbearance in that area. Whereas in the formal sector where government actually can get some revenue, we've killed almost the appetite for risk because there's so much permission. You have to worry about a lot. You have to worry about taxes, even though you might not even have a properly documented book yet and it's an interesting...Abubakar: I mean, If I were to sum it up, the reward for formalization is very weak.Tobi: Absolutely.Abubakar: And the penalty for remaining informal is non-existent. So you are absolutely right. If you want to see businesses become formal, you have to insert reward into that process, not just cost. And some of the rewards might be access to capital, it might be access to a market, it might be access to support from [the] government, none of this is there. If you think about registering a business today, all you have is just a whole line of cost and as you become bigger the cost just scales up. We need to ask ourself ‘what is our relationship with our businesses, with the private sector?’ That relationship is broken. In some cases, it's almost disdainful how owners of private capital are treated by the people who should actually be supporting them, and we have to be frank about it. If you are not influential enough like a Dangote business, for instance...(again, I keep using that example because it's just a perfect example) where you can influence the process, where you can lobby for changes for your industry. If you're not like that, if you're smaller than that, what then happens is that you have no input into the process, you have to be again, a law taker and in many cases, these laws are clearly disruptive to your business. And for me, that's not how you're going to get the formal sector to grow. It's the reason why people stay informal. My final comment on this issue is that, if you want to solve a problem, make it profitable solving that problem. If you want businesses to become formalized, let it be more profitable to be a formal business than to be an informal business. The way it is structured today, unless your business becomes so big that you're almost compelled to formalize, there is very little motivation or incentive for people to build formal businesses.Tobi: It's an interesting point you made. The Economist Lant Pritchett had a very interesting paper on this problem. Like, we focus so much on the World Bank Doing Business Report, after a while, the World Bank itself came out with its Enterprise Survey and he sort of exploited the balancing of that data and it was an interesting finding that in developing countries, businesses survive by dealing. The rules appear the same on paper, but in practice, the environment still favour who can deal the most, and like you said, who has the biggest influence. Like, if you and I apply for the same construction permit, there is a variance in the amount of time it takes...Abubakar: Absolutely.Tobi: To get it. But the Doing Business Report just averages that and say 'oh, yeah, we've made progress because we've cut it from 15 days to 5 days.' Whereas in practice, the cut might be due entirely to the most influential businesses.Abubakar: Absolutely, and the average person is still no better off.Tobi: Yeah, yeah. It's interesting. I keep asking a silly question and I'm going to ask you again. One sector that seems to be doing really well (I don't have the numbers) is the tech sector in Nigeria and some parts of Africa. So here's the silly question - why is, at least openly, (why is) our financial industry missing entirely from that space?Abubakar: Interesting question. First of all, I don't believe there is a sector called a tech sector. I think when we start to think of tech as a sector we miss the point. Tech is just a tool that is being applied in many sectors, and obviously finance is one of the big places where it's being applied.Tech, again, must understand that they cannot build technology on nothing. It has to be something and in some cases they have to walk back and fix those things... You have to have those people building machines and basic stuff on which technology can then leverage. - ASTobi: Yeah.Abubakar: So once we have that understanding, then we can appraise tech in how it has functioned in agriculture, how has it functioned in telemedicine and in [the] health sector. And then we can say what is the ratio, for instance, of the tech-enabled output in [the] health sector relative to the traditional doctor and offices? That's when we start to evaluate how well it is doing. And when it comes into banking, financial services, I think that the tech companies in financial services are the banks, the others are the SMEs of banking. So the other tech enablers are just SMEs in banking. You just have to take a look at the data, not in terms of a what the customer transaction or deposit [is], look at the data in terms of tech investment, how much capital are the banks putting into technology today in one form or the other? And it starts with hard investment in data centre or operating investment in connectivity to soft investment in, not just the softwares that runs the core banking, but also to the locally developed softwares that are then customer interfaces and optimisation tools. When you think about the investment coming into technology in financial spaces, the banks are still dominant. And I mean this without [a] doubt. Are they cutting edge? The reality is that they are far more cutting-edge than it looks. Because if you think about it, there are four major aspects to technology in banking the way I look at it...the first one is payment and there's a lot of conversations around payment. The truth is that what we have is a few support technology for payments that have a larger than life coverage, so they look big. The biggest would be Interswitch today which is really to a large extent a bank-led investment. Maybe the next one is NIPSS which is not just bank-led, but bank-owned. These are two massive tech companies in payments and they're not without the bank input.Of course, you've seen a few others that have come on like flutterwave and they are doing a good job. But then you now need to move away from payments, right? Move into lending, and then you really look around, how much investment has gone into lending in the tech space? There's not a lot. There's been a few, quite loud, but when you look at it as a share of the lending space is very insignificant. For instance, we made a tech investment in lending, and in the first full year of operation we were able to receive 500,000 applications. Successfully processed over 200,000 and we lend to over 50,000 and the value involved was over fifty billion. You're not going to hear this conversation in the tech space. I don't know that there is any tech lender that has achieved this sort of volume. So it kind of tend to go under the radar because the bank is doing it. We've done it and it was the same level of efficiency, target turnaround time. So I think tech in banking, I don't know if banks are missing out... I think banks may not necessarily be well-positioned to benefit from the halo that comes from a startup or a bunch of young kids doing great stuff. And the reason why the rest of the tech outside banking seems so cutting edge is that it is a tiny slice of a really big pie. So they are able to really give their best to that tiny slice and it looks really good. But I'm doing payments, I'm doing lending, I'm doing investing. So I've built tech for investing either in collaboration for people that I invest in or internally like a double. Looking at wealth-tech, we're building wealth-tech that would also come into the market. And then when you move from investing, you now move into advisory where, really, there's not been any major tech breakthrough in advisory in financial services in Nigeria, and hopefully it will come up. But I would take a bet that it's more likely to come from a bank than it would come from a startup. Because it's all about data, it's all about how much information you have historically and how you can then translate that information into advice. So, I don't think banks are missing out. I think banks are actually the real tech in fintech, it's just that there is this desire to somehow discount the banking tech as if, for some reason, it doesn't count. But it does. Tobi: Okay, I'll be a lot more specific now. So I go to a pitch event or any of these startup things that they do. And you see VCs, you see people seated, stakeholders at the table, you don't see a lot of the banking sector represented. I mean, if the impact is as big as you say, I feel there should be a lot more visibility. Like, why can't Sterling Bank, for example, have a VC fund? You can call it whatever fancy name [cos] you want to make it media compliant. So I'm wondering, is it a demography thing or is banking just not sexy enough?Abubakar: I actually think that every serious bank in Nigeria as the equivalent of a VC fund internally. And I think all those events that you go to, we have the equivalent in our boardrooms every other month or every month. Those conversations are happening. I probably have more than two hundred people in engineering, in tech engineering working for me. I have maybe a dozen product managers. I've got all of those internally but I don't need capital from the external source because I've already got the vehicle called the bank that is able to attract equity capital. So when you see me go to market to raise capital, that's a fundraising for a VC right there. Or a PE firm doing fundraising right there. Whenever we take a decision on our budgeting to say we're going to spend half a million dollars in a particular aspect of our tech in our business, that is actually capital allocation going on right there. It's just not as sexy and it doesn't go with the same media coverage. But I'm making the argument that those tech investments are happening, so I'll give you a couple of examples. We are focused on education, it's one of the hard sectors, and we realise that being able to get affordable literature to people on an e-reader was an important part of our progress. We put the money down, made an investment and we've now built an e-book reader and we then have relationship to then deliver content to it to our customers, that is a tech investment right there. We took an opportunity to back Tremendoc , which is the telemedicine solution way before Covid-19, and we did that because we believe that telemedicine was the way to go. That is a tech investment right there. We are part of a consortium that formed AFEX which is the digital commodity exchange targeting their agricultural value-chain essentially the tokenizing both agricultural commodity as well as the input so that we can have [a] free and direct exchange between the producers and the final users, that is a tech investment right there. Obviously, we've built a digital bank from scratch that today, I would insist, is if not the only, is one of the few digital banks that can claim the status of a bank. We have a lot of digital payment systems, we have a lot of wealth-tech but we've been able to combine the payment system, we've combined the online credit or the digital credit process and we've combined it with an investment process, so on that, you actually get the different component of banking which is not just payment but intermediation. We built that and it's out there in the market. And in the first month or so of pushing it out, over fifty thousand people are on it. So, maybe twenty, thirty thousand are actively using it already. That's a tech investment right there.It is generally believed that those impactful long-term businesses actually generate better economic returns, but you cannot make those bets without higher quality information. - ASSo these tech investments are ongoing and in many cases, they're just owned by the banks, they sit in the banks. We hope that at a future date some of this investment will then be taken out for white labelling and as a support. I believe that at every point in time there are at least a dozen startup tech operations going on within the bank. And I don't think this is only about Sterling Bank, I think any serious bank is making this investment today because buying... not only is it not going to be customised to solve the local problem that we have, it's also very expensive to essentially grow with the market when you buy technology because every improvement is an expensive dollar-denominated cost. So I do believe that what you've described is happening, it's just happening in a more conventional, less exotic way. Because, again, banks still remain a highly regulated entity and therefore have to operate within the regulations.Tobi: I mean, from what you said, I thought something about the allocation of talent as well. So if you have 200 engineers working on your various technology products and platforms and you have product managers and of course being a bank, capital raise is quite easy, I'm not saying it's that easy, but... I'm building a startup, I'm not a bank, I'm struggling to raise capital and at the same time I'm struggling to find engineers, I'm struggling to find product managers and other forms of talent. Wouldn't a more open space between what the bank is doing in tech and what a lot of all these smaller startups today [are doing]... wouldn't a lot more synergy be more beneficial to the eco-system, generally? A situation where talents flow freely because, of course, if we go to the same labour market you'll be able to attract a lot more engineers and product managers than an uncertain startup. But I'm looking at a situation where not just capital but talent can flow freely between these sectors.Abubakar: You're right about the ability of the bank to offer a much longer runway because when it comes to startups, the most critical thing is your runway.Tobi: Yeah.Abubakar: No matter how great your idea is, if you haven't got the funding for the runway to take off, your not going to take off. So, banks offer that. Unfortunately, I don't think it is necessarily a positive thing when it comes to talent. The reason is that the banking environment has struggled to offer the sort of work environment that the tech ecosystem is used to. We have pushed the envelope and part of what we did was to set up a product organisation within the bank that operates with its own complete subculture different from the bank. Started with zero staffing and within a year, I think in a year-and-a-half, we're well over 40 people now working in the product organisation and they operate, obviously, remotely now. But even when they were operating from within the bank, they had their own space and their own subculture and we encouraged that. So that's one. I guess the challenge has always been banking is traditionally reluctant to embrace change. Some of the reluctance comes from the fact that a lot of people have spent decades in their lives doing things in a particular way and it's very difficult for them to see a different reality. The rest of it comes from the fact that we're highly regulated and every move we make requires multiple layers of approvals and understanding and so you cannot move fast. So to some extent, it's actually better for the tech ecosystem to operate at arm's length so that we don't weigh them down with some of our limitations. What they need to do more, however, is that they need to be selective in the problem they solve in a way that the problem [solution] enables the whole ecosystem. In many cases, I think they're trying to solve problems that, to my mind, are not priority problems. And you can only figure out what the priority problems are if you kind of engage with the existing operators as well as the consumers. So for instance, a bulk of the investment going into tech continues to go into payments. And yet in Nigeria, we have instant payment that is significantly secured, the losses to customers when using our payment system is next to zero. It's very limited. It is cheap. Payment in Nigeria is actually one of the cheapest around the world for an instant payment and to my mind is increasingly accessible which means that if you have over 40 million people with BVN, for an adult population that is just trending around 100 million. In fact around 80 million to be honest, we are further down the road and we realise. So when you're investing in payment, I have to question, where is the monetization strategy for that? Because eventually, the cost of payment or the reward for payment is going to tend towards zero. So they must choose fights that are, in my view, more targeted to value creation than value extraction. And the last leg is that tech, for me, needs to be built on something that exists. There has to be a real process, then you can then bring the tech to optimise that. We've seen instances where those real assets are lacking and people have decided to bring in tech, it doesn't end well. The best example, for me, remains those that went into ride-hailing, whether it is bike hailing or the Bolt and Uber. They assumed that there was an existing process on ground for moving people around and that they were going to use technology to optimise it. They suddenly realise that there were not enough bikes, not enough trained bike riders, not enough decent vehicles, the drivers that are available to be on Uber systems are themselves not service-oriented. So all of these real-life complications suddenly start to pull back the tech. Tech, again, must understand that they cannot build technology on nothing. It has to be something and in some cases, they have to walk back and fix those things. Which is why we have so many software engineers and very few hardware engineers and almost no real sector engineers...Tobi: Hmm.Abubakar: And they can't build on nothing. You have to have those people building machines and basic stuff on which technology can then leverage.Tobi: Thank you very much, Mr Suleiman.Abubakar: It's a pleasure. This is a public episode. Get access to private episodes at www.ideasuntrapped.com/subscribe