In this episode of Ideas Untrapped we discussed the challenges and complexities of education, economic growth, and public health systems in developing countries with two brilliant guests James Habyarimana and Jishnu Das. We started off with an example on the rapid expansion of tertiary education in India and its unmet promise of better jobs, which led to discussions on similar dynamics in African contexts. The conversation explored the balance between market-driven growth and government intervention, emphasizing the need for robust processes and inclusive dialogues to address inequality, improve infrastructure, and shape a collective vision for the future. James Habyarimana is the Provost Distinguished Associate Professor at the McCourt School of Public Policy. His research is focused on identifying low-cost strategies to address barriers to better health and education outcomes in developing countries. Jishnu Das is a distinguished professor of public policy at the McCourt School of Public Policy and the Walsh School of Foreign Service at Georgetown University. Jishnu’s work focuses on health and education in low and middle-income countries.

Transcript

Tobi: Welcome to both of you. This is actually the first time on the podcast that i'll be hosting two guests at the same time and i feel so lucky that it's both of you, so welcome to Ideas Untrapped it's fantastic talking to you.

Jishnu: Great to be here, Tobi. Glad we're doing this.

James: I feel privileged to be sharing this time with both of you.

Tobi: Okay, thank you. You can take turn to answer as you choose. What inspired me to do this episode primarily was a very powerful article by Jishnu talking about

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college education and how young people may have been shortchanged by the promises

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and what the evidence suggests.

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So briefly,

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if you can just summarise for us,

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Jishnu,

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what inspired you to write that piece and what were the major findings?

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Jishnu: Yeah, sure, Tobi.

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And I'll ask James to talk about the African context.

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I mean, I know India fairly well.

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And one of the things that's so surprising and, you know, when people in the U.S.

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or people elsewhere hear it,

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they don't realise just how fast college education and college enrolment has

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increased in the country.

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Right.

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So one of the statistics that I got wrong because I couldn't believe it is between 2003 and 2016,

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India was building a new college every eight hours, right?

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And you think about a number like that and you say, what happened here, right?

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It's completely out of the experience that any of us has ever seen.

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There's a real, real thirst for education among young people.

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And it's not just a certain group.

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We are seeing it in all kinds of socioeconomic status, girls, boys, men, women.

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And it's interesting,

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like in a country like Pakistan,

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which is traditionally thought to be very patriarchal than it is,

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there are more women in college now than men.

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So there's this huge upsurge,

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maybe a huge demand for college education that's being met by all kinds of places.

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And, you know, education is a bit like looking at the stars.

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You're going to see what happened in the past in terms of, OK, all these guys came into college.

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What's going to happen to their lives after that?

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And that part is not clear.

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So India has grown a lot.

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It's a huge success story on some fronts, kind of.

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But really, more than 90 percent of the jobs are still informal.

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And we keep thinking BPO, you know, business process outsourcing.

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They're taking a lot of outsourcing jobs.

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You know,

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there's so little of that in actual numbers that it supports less than a percent of

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the population.

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So the question,

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the big question that comes is,

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OK,

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all these guys who are going into college,

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they're going in with the expectation that their lives are going to be a lot better.

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And are we going to be able to meet that expectation?

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And the phrase that people use is, you know, we have the so-called demographic dividend.

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where we have lots of young people and fewer older people.

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And the right way to think about it is how do we make sure that that demographic

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fraction which we call a low dependency ratio is a dividend and doesn't turn into a

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nightmare when you suddenly have these tons of people who are like,

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look,

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you sold us a dream.

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You told us that if we make it through the schools,

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which are not great,

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and we go to college and we finish our college,

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We'll get a decent job.

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Where is that job?

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That's why I called my blog a coming of rage story, because our college education has come of age.

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And the big question now is whether it's going to come of rage as well.

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And that's kind of, you know, where I left it.

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But I don't know.

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I mean,

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James,

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do you find kind of similar patterns in Uganda or in Tanzania where you work or

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other countries?

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James: Right.

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I guess I want to start by saying, yes, I mean, Africa is in some ways pretty, pretty diverse place.

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And so I'm going to focus a lot of my comments on the places that I'm familiar with,

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which would be East and Southern Africa.

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Tobi: Yeah.

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James: But I fully expect,

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as I was saying to Tobi,

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I've done some work both in Lagos and in northern Nigeria on education.

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So even though this is a little bit a while ago,

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so I don't quite understand the long run trends and,

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say,

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demand for college.

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But, you know, Africa is a very young continent.

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In many parts of Africa, the share of the population is under 30, you know, is close to two thirds.

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And so, yes, there is the same dynamics in terms of expectations of a better life.

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And of course, I think this is the challenge for politicians.

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So

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So earlier when Tobi was saying maybe,

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you know,

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infrastructure projects get more attention than,

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say,

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education,

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I actually think in the places where I work that,

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in fact,

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education gets much more attention because politicians are concerned about this rage,

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right?

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They're concerned about this gap between people's aspirations and essentially kind

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of the opportunities that are available when they finish school.

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I think that is a huge problem.

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Even in places,

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actually,

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the northeastern Nigeria,

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where I started to do some work on kind of apprenticeship programs,

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there's a lot of attention being paid to addressing essentially kind of this gap.

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Because I think ultimately,

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and I think most political scientists have suggested that essentially kind of the

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share of males between the age of 15 to 29 who are not engaged in school or active work,

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in some ways can be a major source of instability.

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And so I do see the same concerns.

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There's certainly been an explosion in

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in terms of tertiary institutions outside of government.

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And so there are many more private institutions in East Africa than exist,

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say,

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you know,

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20 or 30 years ago.

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I don't think people are building universities or colleges at the same rate as they are in India.

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But there's certainly kind of an attempt to respond to the exploding demand

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And I think ultimately the question for whether there's a demographic dividend or not,

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I mean,

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I've certainly made the case in other fora where I've said,

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look,

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we need to essentially kind of take advantage of this opportunity and we need to

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give these young people the skills to be effective in the world.

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But I think ultimately there is kind of a bigger question about sort of can these

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places produce the jobs and find the markets to really deploy these people?

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Yeah,

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so I hope we won't start the conversation by essentially kind of talking about rage

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as opposed to the high hopes.

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But yeah,

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I think many places where I work are facing the similar sort of challenge of,

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you know,

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how do we convert this opportunity into prosperity as opposed to civil conflict?

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Tobi: So I think for me, the rage...

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question is sort of unavoidable.

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Perhaps the evidence might tell us differently, but at least on some level of perception.

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Certainly, it's a story that resonates with me.

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I mean,

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I live in Lagos,

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Nigeria,

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and I can certainly tell from my observation that you see an army of young men from,

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say,

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18 to 25 with

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absolutely nothing to do, you know, just walking the streets, standing on the corner.

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So what I want to tease out with my next question is the intersection of skills and jobs, you know.

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So on the one hand, there's been this great expansion.

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I think it's certainly true, also of Nigeria, the expansion in tertiary education is crazy.

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Like private schools must be

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Now,

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I don't have the data immediately,

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but I think private universities must now outnumber public universities in Nigeria.

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You can certainly see the same trend in secondary schools.

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But at the same time,

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when you speak to employers,

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the story they tell is that,

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yes,

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there's a lot of schooling,

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but these folks are not really skilled.

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And then recently,

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the National Bureau of Statistics did a labour market survey and what they found is

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like 97% of jobs in Nigeria are still in the informal sector,

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right?

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So is it that we are not creating enough formal sector jobs or the inadequate

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formal sector job is itself a consequence of the quality of education?

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James: That's a great question.

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Let me try and take a stab at it.

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So my view is that clearly causation is running in both directions.

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But I actually would say that,

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in fact,

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I think it's the absence of better jobs that is possibly keeping down the quality

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of education more than essentially kind of the other way around.

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You know, we've written about the demographic dividend in, say, Southeast Asia.

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I think those were places where, in fact, the export markets essentially kind of provided lots of jobs.

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And it wasn't that the people first got education and then got the jobs.

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I mean, you know, in some ways, the question is, why do people get educated?

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There's a nice paper that talks about,

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ultimately,

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should we worry about education policy and improving quality of schools?

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Or should we worry about how to essentially kind of grow the economy, expand opportunities?

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And then in some ways, people will then respond

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to those opportunities by getting the education that essentially maximises those opportunities.

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One way we can generate lots of opportunities is to come up with great new ideas.

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Great new ideas create new markets,

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and you could argue that innovation requires a high-quality education system.

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But I think for many countries that are growing from the levels where Nigeria,

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Kenya,

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Zimbabwe are at the moment,

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My sense is I don't know that the kind of innovation that we're talking about is

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essentially kind of the most important thing.

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I think the lowest cost path is to find manufacturing related markets where,

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in fact,

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you can employ lots of people, where you don't need people to have PhDs and be

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creating patents to get the economy started.

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I suspect Jishnu might have a very different take on this.

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But I think my view is it's the opportunities first that shape the education system

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rather than output of the education system in some ways failing the country.

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Even though I should say I think both of these directions are important,

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I think, I certainly would put much more weight on the former.

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Jishnu: So, Tobi, your podcast is Ideas Untrapped?

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And the second part you didn't tell us, it's like Speakers Trapped.

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I mean, that's one of the deepest questions I've heard in a long time.

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And I'm going to push it back as a question to you and James, but it's a question that worries me.

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And just to quickly summarise,

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you probably already know this,

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but just to summarise kind of three big thought pieces that are out there.

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So Dan Rodrik,

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Kennedy School's been arguing that countries that are not already doing a lot of

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manufacturing have basically missed the manufacturing bus.

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And he's arguing that unlike, say, the U.S.

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or U.K.,

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which deindustrialised much later down the employment chain,

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a lot of countries,

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including Brazil,

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including other places,

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are deindustrialising prematurely,

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right?

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So he's saying, look, the manufacturing bus is lost.

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I mean, if you think you're going to generate those jobs through manufacturing, it's gone.

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I don't know how right these are, but let's just put these out there.

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And then interestingly, Rohit Lamba, who is an economics professor, has this

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very interesting book with Raghu Rajan,

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who was earlier our central bank governor and professor at Chicago,

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basically arguing that if India has to grow…

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So this is similar to Dani and they're saying,

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you know,

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it has to kind of give up on this idea of manufacturing and move to really high

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scale services and patents.

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Right.

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And for that, a whole host of changes are necessary.

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So then it kind of comes back to this big question of if you are able to create

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these really high skilled people coming out of the schooling system and the

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university system,

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will you be able to transition to a great service economy?

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And I'm going to put that question back to you,

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but kind of argue two pieces there,

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which,

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you know,

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I didn't find in Rohit and Raghu Rajan's book or in Dani's thinking.

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One is,

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look,

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if you ask people,

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and I think this is definitely true for India,

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I think this is true for many countries in Africa,

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what do you want from the government,

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right?

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They don't get upset.

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Like, I've never talked to a parent, and I've talked to many parents, but

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they don't get upset at the schooling system.

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You ask them, hey, why is your kid not doing great?

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They'll blame the kid.

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It's like, oh, she doesn't study enough or he doesn't study enough.

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They will almost never say, look, the teacher is a disaster.

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They'll never say, oh, the schooling is a disaster.

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They'll say, it's my kid, right?

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Because they see some kids do well and they see some kids not do well and they're like,

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oh,

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that's the kid.

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On the other hand, so when you ask them, what do you want from the government?

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The number one priority is we need jobs.

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Now, I don't know, and I'd love to hear from you and James on two things.

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One is,

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do you think we can shift or do you think it's even worth saying,

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you know,

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how does the government shift expectations from we want a job to we want our

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schools and universities to function at a totally different level,

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right?

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Do you think politicians are willing to take the risk of saying,

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hey,

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if we give you really good schools,

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but you don't get the jobs,

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you will still re-elect us.

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I don't know.

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And I want to hear what you guys have to say about that.

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And the second one,

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Tobi,

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that people are underestimating,

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and I'm more and more sure in 20 years is going to become a major dynamic,

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is that Europe is running out of people,

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right?

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I mean, the fertility rates are really low now.

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At some stage, they're going to have to get over their racism and bring people in.

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I don't know who these people coming in are, right?

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A big proportion of them are going to be nurses, right?

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nurses who are comfortable working with old people, right?

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So we used to think exactly, as James said, export-led.

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Now, Nigeria already exports a lot of doctors, right?

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I mean, we know exactly how big that export industry has been.

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But are we also thinking about a totally different scale of migration into Europe?

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And what do those skills look like?

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Because I think in 20 years,

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this conversation we're going to have is going to take on a completely different tone.

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Migration is going to be a big part of it.

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You know, how our countries are sending people to other countries is going to be a big part of it.

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And I don't know where that leads.

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So let me put those two questions back to you and James.

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I mean,

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this one about are we willing to transition to politicians saying jobs are really

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the private sector and you guys,

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we are going to give you the skills.

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And second,

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Are we thinking hard about the fact that given how much European fertility is

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declining and other countries' fertility is declining,

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that they're going to need people for all kinds of jobs?

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And is that something on the political horizon?

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And I don't know the answers to these two things.

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So let me tee that back to you as a question.

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Tobi: I think James should go first.

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James: You know, this is the trouble with having Jishnu on.

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He's supposed to be answering the questions, but now he's asking a lot of the questions.

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No, these are the most important questions I think facing certainly our field of development economics.

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And so I think on the second question about

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Does the government, is the government willing to change the offer, right?

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The social contract, change the terms of the contract to say, look, you're on your own.

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We'll give you the tools you need.

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You know, I don't know.

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But let me just say that from what I've observed in a number of places,

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including even in northeastern Nigeria,

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in Adamawa State,

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where we started some work,

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but then it got caught up in essentially kind of the impeachment of a governor

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there a few years ago.

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No, I think that it's extremely hard to change the terms of the contract.

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I think that voters are thinking about their bottom lines.

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They're not thinking about,

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you know,

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give me the tools and I will do the work myself to put food on my table.

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So I'm not sure that's an easy thing to do.

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And if I think about sort of

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what a number of governments in East Africa essentially kind of doing,

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at least in this domain,

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you know,

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I think they find themselves having to come up with all sorts of cash transfer and

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other labor market support programs because ultimately it's not enough for them to say,

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hey,

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you know,

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schooling is free because ultimately,

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as Tobi said,

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when you see those guys walking the streets,

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it's not like they stop asking,

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where is the job that I was promised?

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I think this deep implicit promise is very, very hard to shift.

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But to your second question, I'm curious what Tobi will have to say to this.

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The second question on the global demographic structures and maybe the future of jobs,

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and yes,

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the Rodrik and Raghu and Rohit kind of claim that the manufacturing bus has left

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the station.

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First of all, I'm not entirely sure that I completely buy it, but of course, we're also in the age of

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AI and more powerful machines that are essentially kind of around the corner.

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So it is possible that maybe that bus has left the station.

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And so maybe the future of,

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you know,

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the kinds of jobs that will create opportunities for this large group of young

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people in Africa and in India is essentially kind of in the service sector.

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And,

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you know,

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I already see some of that,

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you know,

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so in East Africa,

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they're big migrant worker,

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essentially kind of programs with the Middle East.

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They are straddled with lots of problems around abuse and exploitation.

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But I can tell you that if you get on a plane to Dubai or Qatar,

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that in some ways many of the people that will be surrounding me will be a lot of

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very young people going to work

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Either essentially kind of inside people's homes or in some cases as baristas and construction workers.

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So I think that's already started.

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And in the places where it's politically, I guess, feasible to do.

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I mean,

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I think,

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yes,

(00:17:37):

Europe,

(00:17:37):

Japan,

(00:17:38):

North America,

(00:17:39):

you know,

(00:17:39):

yeah,

(00:17:40):

I think those are places where in some ways the political barriers remain

(00:17:42):

quite strong.

(00:17:43):

But I do think that politicians are certainly looking at a lot of these programs.

(00:17:48):

I believe in Kenya just recently signed an agreement with Germany along these lines

(00:17:52):

of basically being able to essentially kind of having some guest worker programs.

(00:17:55):

So I think this is top of mind and it in some ways reflects perhaps the difficulty

(00:17:59):

of kind of changing this contract between voters and their governments.

(00:18:03):

Jishnu: Ah, super.

(00:18:03):

And I just wanted to add one more thing to this,

(00:18:05):

Tobi,

(00:18:06):

for your next question,

(00:18:07):

which is,

(00:18:08):

you know,

(00:18:08):

if you look at Kenyans,

(00:18:09):

Nigerians,

(00:18:10):

I suspect,

(00:18:11):

Indians,

(00:18:11):

I mean,

(00:18:12):

we are ingenious people,

(00:18:14):

right?

(00:18:15):

When I came to the US for my PhD, you know, they would teach that the US is a free market.

(00:18:19):

I was like, you guys have no idea what a free market is.

(00:18:22):

A free market is when,

(00:18:24):

you know,

(00:18:24):

there's a traffic jam and the bus breaks down and you have 30 vendors come to your

(00:18:28):

spot in five minutes.

(00:18:30):

Tobi: Yep,

Jishnu: right?

(00:18:31):

Selling everything under the sun.

(00:18:33):

That's a free market.

(00:18:35):

A free market is not having any clue what your tax is going to charge because

(00:18:38):

everyone's going to negotiate depending on whether it's raining,

(00:18:41):

where you're going,

(00:18:42):

what time of day it is,

(00:18:43):

right?

(00:18:44):

That's a free market.

(00:18:45):

And very fascinating,

(00:18:46):

you know,

(00:18:47):

Rem Koolhaas,

(00:18:48):

the architect,

(00:18:50):

he worked in Lagos for like eight years and they have this wonderful book called Lagos: How it Works.

(00:18:55):

And recently, well, not, I don't know, recently, a while back, I think, his co-author, Kunle Adeyemi

(00:19:01):

I hope I'm pronouncing it right.

(00:19:04):

And it's fascinating what they said.

(00:19:05):

They have a Guardian interview where they said,

(00:19:07):

look,

(00:19:07):

Lagos in 1997 was this fascinating city where the government wasn't there,

(00:19:12):

but still people created a lot of structures that allowed that city to function at

(00:19:17):

a fairly high level.

(00:19:18):

I don't know whether you agree with that.

(00:19:20):

I don't know Lagos at all.

(00:19:21):

And in that interview, you know, at that point, the state had really withdrawn from Lagos.

(00:19:26):

The city was left to its own devices, both in terms of money and services.

(00:19:31):

That, by definition, created an unbelievable proliferation of independent agency.

(00:19:36):

Each citizen needed to take in any day maybe 400 or 500 independent decisions on

(00:19:42):

how to survive in an extremely complex system.

(00:19:47):

That was why the title of the book became Lagos: How it Works,

(00:19:49):

because it was the ultimate dysfunctional city.

(00:19:52):

But actually, in terms of all the initiatives and ingenuities,

(00:19:56):

It mobilised an incredibly beautiful, almost utopian landscape of independence and agency.

(00:20:02):

At this point,

(00:20:03):

you know,

(00:20:04):

and James,

(00:20:04):

I don't know whether that social contract will be able to change it,

(00:20:07):

but the ingenuity of our populations is just through the roof.

(00:20:13):

So we have a sense of how to move it forward and thinking about what are the

(00:20:17):

guardrails we need,

(00:20:19):

right,

(00:20:19):

in this kind of new world that's coming up is,

(00:20:23):

I think,

(00:20:23):

the key question.

(00:20:24):

Tobi: Hmm.

(00:20:25):

Before I jump to my next question, I'm certainly not as skilled as you guys.

(00:20:31):

So my observations are just going to be a layman's observation, basically.

(00:20:37):

On Jishnu's point, first of all, Rodrik has to at least I’ve extended an invitation to him.

(00:20:46):

He has to clarify a lot of things with that new paper.

(00:20:49):

Because for years, he has been arguing the opposite.

(00:20:55):

When people point out that,

(00:20:58):

yeah,

(00:20:59):

a lot of low income countries are stuck in low productivity,

(00:21:03):

informal services jobs.

(00:21:04):

And, you know, perhaps the question should be how to make those productive.

(00:21:11):

I think Rodrik is one of the people that has been arguing that,

(00:21:14):

no,

(00:21:14):

you need manufacturing to really,

(00:21:16):

really,

(00:21:16):

you know,

(00:21:17):

do the structural transformation.

(00:21:19):

So I don't know why or if the evidence that he has now is sufficiently robust to

(00:21:25):

like shift really,

(00:21:27):

really big.

(00:21:28):

But I mean, for Rajan and… Rajan, for example, has been like pushing that view for a while.

(00:21:37):

I think I've heard a few speeches before that book.

(00:21:41):

especially on the construction question.

(00:21:43):

So I'll give you an example.

(00:21:44):

In Nigeria,

(00:21:45):

for example,

(00:21:46):

the two largest private employers are construction firms,

(00:21:52):

Julius Berger and the other Chinese company.

(00:21:55):

The third largest is a microcredit bank, right?

(00:21:59):

So I agree with Rajan that construction is something that might

(00:22:07):

provide that sort of soft landing in terms of large-scale employment creation that

(00:22:13):

manufacturing is for some countries.

(00:22:17):

But as for manufacturing bus leaving the station,

(00:22:22):

again,

(00:22:22):

I'm skeptical because if you look at what Bangladesh has been able to do,

(00:22:27):

yes,

(00:22:27):

they are struggling with diversification away from textile.

(00:22:32):

If you look at what Vietnam has been able to do,

(00:22:36):

on manufacturing, then you see that, okay, well, maybe there's still some hope there.

(00:22:44):

In my own view,

(00:22:45):

I think the challenge would be how democracies manage to create… low income

(00:22:54):

democracies manage to create a highly productive industrial sectors.

(00:23:00):

So, and I think all eyes will be on India for the next decade.

(00:23:05):

you know, how the attention, the investment and everything coming in now can create that

(00:23:13):

China-like story.

(00:23:15):

All eyes will be on India.

(00:23:16):

And if India manages to make that a success story,

(00:23:20):

I think it provides a good example for how other democracies will… where the social

(00:23:26):

contract provides a bit of tension,

(00:23:29):

like you said.

(00:23:30):

And I agree with James.

(00:23:31):

It's difficult.

(00:23:33):

Again, if I want to use Nigeria as an example, electoral politics right now is largely redistributive.

(00:23:42):

You know,

(00:23:42):

if you want to shift spending and public investment towards something with,

(00:23:48):

you know,

(00:23:49):

a little more delayed gratification,

(00:23:52):

I'm not sure that politicians are willing to take that risk.

(00:23:58):

And secondly,

(00:24:00):

I would say that even if you find a government that is willing to take that leap,

(00:24:05):

you're going to run into some serious fiscal challenges that you need to figure out.

(00:24:12):

Macroeconomically, a lot of our economies in Africa are challenged.

(00:24:17):

The debt burden is a huge, huge topic.

(00:24:21):

So the kind of financing necessary to improve your education sector,

(00:24:28):

I think a lot of governments look at that and they would rather spend a fraction of

(00:24:34):

that on cash transfer schemes and expanding

(00:24:39):

public employment, public sector jobs.

(00:24:43):

So if we are able to figure out the finance and the level of fiscal investment that

(00:24:51):

that is going to take,

(00:24:52):

that is a question mark that would need to be resolved,

(00:24:55):

which,

(00:24:56):

I don't know,

(00:24:57):

then leads me to my next question.

(00:24:59):

Again, on the quality of education, what are the low-hanging fruits that

(00:25:09):

are available.

(00:25:10):

If we are trying to, say, improve the quality.

(00:25:14):

You know,

(00:25:14):

like I said earlier,

(00:25:15):

you speak to a lot of employers,

(00:25:17):

they tell you that a lot of graduates,

(00:25:19):

yes,

(00:25:20):

they are schooled,

(00:25:21):

but they are not skilled enough.

(00:25:23):

They are poorly matched to the job they are applying for.

(00:25:28):

For example,

(00:25:29):

most of the people you find in the financial sector in Nigeria are people who

(00:25:35):

graduated from STEM subjects.

(00:25:39):

Mathematics students,

(00:25:40):

engineering students,

(00:25:42):

physics students,

(00:25:43):

chemistry students,

(00:25:44):

they come out of school and they go straight to the financial sector,

(00:25:48):

to the banking jobs,

(00:25:49):

investment banking,

(00:25:50):

advisory consulting.

(00:25:52):

And to be honest,

(00:25:55):

you can say that if you have a thriving STEM sector,

(00:25:59):

they will be poorly matched because they did not actually get that STEM education.

(00:26:06):

You know, I went through the Nigerian schooling system.

(00:26:09):

I can tell you how much practical, laboratory or experimental work I did.

(00:26:16):

Very little, you know.

(00:26:18):

So what are the low hanging fruits to improve the quality of education?

(00:26:25):

Because we seem to have gotten ourselves into,

(00:26:29):

to use a phrase I first learned from Lant,

(00:26:32):

isomorphic mimicry,

(00:26:34):

you know.

(00:26:34):

We have graduates,

(00:26:36):

we have tertiary institutions,

(00:26:37):

but the quality is certainly not the same across the world.

(00:26:43):

James: Let me give this a crack and then I'll let Jishnu polish up my response.

(00:26:46):

So I don't know that there are necessarily low-hanging fruit.

(00:26:49):

I mean,

(00:26:50):

in some ways,

(00:26:51):

I think the way to think about an education system is that the people who are

(00:26:54):

producing the outputs are also essentially kind of products of that education system.

(00:26:58):

And so,

(00:26:58):

yes,

(00:26:58):

I certainly think that if you want to improve the education system,

(00:27:01):

you have to start with the teachers.

(00:27:03):

And then you have to make it easy for the teachers to essentially kind of do their job.

(00:27:06):

And in a context of a historical and,

(00:27:08):

you know,

(00:27:09):

pretty unprecedented expansion of schooling,

(00:27:12):

you know,

(00:27:12):

over the last 50 years,

(00:27:13):

you know,

(00:27:13):

these school systems have expanded very,

(00:27:15):

very rapidly.

(00:27:16):

The curriculum that essentially kind of is being taught,

(00:27:18):

I mean,

(00:27:19):

you know,

(00:27:19):

when you were talking Tobi,

(00:27:20):

I thought,

(00:27:20):

OK,

(00:27:21):

you probably had the same curriculum that I went through,

(00:27:23):

which was,

(00:27:23):

I think,

(00:27:24):

in some ways quite challenging.

(00:27:25):

And if you went to a good school,

(00:27:27):

you had good teachers and you were surrounded by students who actually were well

(00:27:31):

prepared to learn.

(00:27:32):

But my sense is an expanding kind of school system cannot maintain the same degree

(00:27:37):

of difficulty of the curriculum.

(00:27:38):

Or even these things like,

(00:27:39):

you know,

(00:27:40):

the language of instruction is a language that nobody speaks at home.

(00:27:43):

And so the teachers might be struggling to teach in English or French or whatever language,

(00:27:48):

you know,

(00:27:48):

in many places.

(00:27:49):

Tanzania and Kenya may be in some ways a little bit different.

(00:27:52):

So I do think making it easy for teachers requires changing the curriculum and

(00:27:56):

making it easy for students to learn.

(00:27:57):

But,

(00:27:58):

you know,

(00:27:58):

also realising that teachers now deal with,

(00:28:01):

you know,

(00:28:01):

in Tanzania where I work,

(00:28:03):

the average class size for a first grader is on an order of 80 to 100 kids.

(00:28:07):

And teaching in that environment is not easy.

(00:28:10):

And so the low-hanging fruit, I think the low-hanging fruit, in fact, is not that low-hanging in my view.

(00:28:15):

It's really essentially kind of to have to invest a good deal more in early childhood

(00:28:19):

education and to really try and make it easy for that first grade teacher to

(00:28:23):

actually be able to give kids the skills they need.

(00:28:26):

There's a really nice paper,

(00:28:27):

and Jishnu can say a bit more about this,

(00:28:29):

that sort of looks at a panel of kids from four countries,

(00:28:32):

I think is Young Lives Data,

(00:28:33):

and compares Vietnam,

(00:28:35):

Chile,

(00:28:35):

and I believe India and Ethiopia.

(00:28:37):

And of course, you know, Vietnam is a high-performing education system.

(00:28:41):

But it suggests,

(00:28:41):

at least to some extent,

(00:28:43):

that much of that great performance actually comes from the fact that the kids at

(00:28:47):

age five are doing much,

(00:28:48):

much better in Vietnam than they are in the other countries.

(00:28:51):

And that if you condition essentially kind of where they start,

(00:28:54):

you know,

(00:28:54):

the trajectories don't look so,

(00:28:55):

so different but if you focus their starting at a much better level.

(00:28:58):

that in fact, they're going to learn much more.

(00:29:00):

That I don't consider a low-hanging fruit.

(00:29:02):

I actually think that's a pretty significant investment.

(00:29:05):

And I think a number of countries are starting to take this seriously,

(00:29:08):

which is to say,

(00:29:09):

should we expand the age range for which we publicly fund education,

(00:29:14):

say from age six,

(00:29:15):

and maybe even think about starting to fund education from age four?

(00:29:19):

Because I think it makes it much,

(00:29:20):

much easier to give kids the foundational skills that then make them,

(00:29:23):

I think,

(00:29:24):

much more productive workers.

(00:29:26):

So I don't think it's low-hanging fruit, but in fact, I think of these two things.

(00:29:29):

Start young and make it easy for the teachers to teach,

(00:29:32):

whether that includes changing the language of instruction,

(00:29:35):

whether it makes it easy for teachers to spend more time teaching kids the

(00:29:39):

foundational skills.

(00:29:40):

So don't make kids at age six learn five or six different subjects.

(00:29:44):

Maybe focus it on two or three.

(00:29:46):

I think all of those things for me are ways to make it easy to really give kids the

(00:29:50):

skills that they need to learn when they're 10,

(00:29:52):

12,

(00:29:52):

and 16.

(00:29:54):

Jishnu: I guess I'm confused about things a little bit, but I'll tell you where my confusion is.

(00:29:59):

So I've heard people say, you know, our education systems are not actually designed to build skills.

(00:30:05):

They're selection systems, you know, by which they mean.

(00:30:09):

We are remnants of the British systems.

(00:30:11):

And the idea was,

(00:30:13):

can we squeeze and squeeze and squeeze and see who's going to be a good person for

(00:30:17):

the British to take on or something?

(00:30:20):

I don't think they're a selection system at all,

(00:30:21):

because if they're a selection system,

(00:30:23):

then we should see that in every grade as we go up and up and up,

(00:30:28):

only certain kids are making it forward who are the best kids with the best test scores.

(00:30:32):

And that's not happening.

(00:30:34):

[No] Data showing that, you know.

(00:30:35):

There's just no evidence that the kids who are very smart are invested in a lot more in our system.

(00:30:43):

So I think one thing that I think is or not is actually sitting down and chatting

(00:30:49):

about what the hell do we want our education systems to look like.

(00:30:53):

And a good starting point is to say what kind of budgets are reasonable.

(00:30:57):

So, you know, I think this is right, right?

(00:30:59):

But the Nigerian education budget 2024 was what, about $2.2 billion or something?

(00:31:05):

Is that right?

(00:31:06):

Tobi: Yeah, something like that.

(00:31:07):

Yeah.

(00:31:08):

Jishnu: And I think Nigeria should have, what, about 35 million students.

(00:31:12):

You know, that's like $60 a student.

(00:31:15):

The place where I live in the U.S.,

(00:31:17):

which is called Montgomery County,

(00:31:20):

the public school system has about 160,000 students and a budget of 3 billion.

(00:31:27):

We might be just off the mark.

(00:31:30):

by hundreds and thousands of dollars in how much we're leaving on the table by not

(00:31:36):

investing in the education system.

(00:31:38):

So I think the biggest low-hanging fruit is the mistake that we have made.

(00:31:43):

I mean,

(00:31:43):

I think it's incumbent on us as researchers and profs and scholars to say,

(00:31:49):

give the politicians the damn numbers,

(00:31:52):

right?

(00:31:52):

We need to give them very clear numbers on if you manage to invest and improve the quality of schools,

(00:32:00):

then 15 years later, these are the wage returns you're going to see.

(00:32:05):

The mistake is ours.

(00:32:07):

The deficiency is ours because I am sure that if we were able to give them the

(00:32:12):

right numbers,

(00:32:12):

there would be a groundswell,

(00:32:15):

both among the politicians and among people to say we should be increasing our

(00:32:20):

education budgets not by 1,

(00:32:21):

2,

(00:32:21):

20%,

(00:32:21):

30%,

(00:32:21):

but by 6,000%,

(00:32:21):

right?

(00:32:26):

And hopefully,

(00:32:27):

you know,

(00:32:27):

in a couple of years,

(00:32:28):

at least from a few countries like these Young Lives or other places,

(00:32:30):

we'll have some of those numbers.

(00:32:32):

And I think we'll all be shocked at how big the returns could really be.

(00:32:38):

So I think the big low hanging fruit is to actually put the evidence and have that

(00:32:44):

discussion on what is it that we want our education system to do,

(00:32:48):

right?

(00:32:48):

And how much should we be investing in it?

(00:32:50):

And at what point?

(00:32:51):

And I think that discussion, including James's idea of how much should we invest in early childhood?

(00:32:56):

Do we want it to be a selection system or not?

(00:32:58):

Given our money, where can we go?

(00:33:01):

You know, how do we invest in the teachers, given that so many teachers are tenured?

(00:33:05):

Should we park some older teachers?

(00:33:07):

Getting some young guys who are teched up, know how to use the technology, the AI may change things.

(00:33:12):

You know,

(00:33:13):

all of these,

(00:33:14):

I think we need to have a forum where we are discussing it in our countries on a

(00:33:19):

regular monthly basis.

(00:33:21):

I think that's going to make a huge change moving forward.

(00:33:24):

And our big job is to give you the evidence to take that forward.

(00:33:28):

Great point.

(00:33:29):

I fully agree that there are high returns.

(00:33:31):

I'm not sure that I agree necessarily that people are not sharing this evidence.

(00:33:35):

You're right that in some ways I think the kind of evidence that is shared perhaps

(00:33:38):

is more short-term in nature,

(00:33:40):

right?

(00:33:40):

But I wonder whether in fact, and this is a question for you, Tobi.

(00:33:43):

Whether,

(00:33:44):

in fact,

(00:33:44):

the political system as it is and essentially kind of this,

(00:33:47):

you know,

(00:33:48):

electoral competition makes it very,

(00:33:50):

very difficult for any sort of policymaker to say,

(00:33:53):

I'm going to make this deep investment that pays off in 10 or 15 years.

(00:33:58):

And, you know, we will all be better off because of it.

(00:34:01):

And I hope to persuade the voters that they should essentially kind of,

(00:34:04):

you know,

(00:34:04):

carry this burden with me.

(00:34:06):

And, you know, things might not be great in the short run when I'm up for re-election.

(00:34:10):

But this is something we need to do.

(00:34:12):

I don't know the Nigeria numbers as well as I know the numbers in East Africa.

(00:34:16):

You know,

(00:34:16):

Nigeria's education still accounts for,

(00:34:18):

you know,

(00:34:19):

20 to 25 percent of the budget in many places.

(00:34:22):

And it's coming down because,

(00:34:24):

in fact,

(00:34:24):

there's actually now pressure from other sectors to say we need roads and we need

(00:34:28):

other kinds of investments.

(00:34:29):

But I get the sense that teacher,

(00:34:31):

you know,

(00:34:31):

enrolments are essentially kind of the largest category of worker they pay.

(00:34:35):

They spend a lot of their government resources on remunerating teachers.

(00:34:39):

I don't know that there is actually a lot of additional money around to really make

(00:34:44):

these big investments.

(00:34:45):

Sure,

(00:34:45):

they could go to the World Bank and other bilateral donors and say,

(00:34:49):

you know,

(00:34:49):

give us the billions we need to buy ed tech or do this big teacher training program.

(00:34:54):

I think they are in some ways, you know, quite constrained.

(00:34:57):

And I don't know that it's the evidence that's lacking as kind of the most binding constraint.

(00:35:02):

I think that the politics and the budget are more important, but I could be wrong.

(00:35:06):

Tobi: That's fantastic.

(00:35:09):

I still partially think that Jisnu is right.

(00:35:12):

And from my experience, so one example I'll give is I was at a conference two years ago.

(00:35:18):

And an outgoing state governor was on the panel.

(00:35:23):

And one of the things he said, which actually kind of resonated with me, was that we are politicians.

(00:35:32):

We don't know everything.

(00:35:34):

As a matter of fact,

(00:35:35):

he said that their knowledge is pretty limited and that the way the political

(00:35:40):

system… now,

(00:35:41):

it may as well just be describing Nigeria,

(00:35:43):

possibly.

(00:35:44):

The way the political system is,

(00:35:46):

is that when there is a knowledge vacuum,

(00:35:50):

other things tend to fill that,

(00:35:53):

which is a lot of political sycophants surround them.

(00:35:58):

And of course, lots of interests.

(00:36:00):

You know, I want you to give my cousin a job.

(00:36:03):

And these are political connections.

(00:36:06):

He basically said that within a short period of time,

(00:36:09):

they are surrounded in this bubble where almost no real actual knowledge about the

(00:36:16):

society they are making policy for penetrates that bubble.

(00:36:22):

For me, it certainly rings true.

(00:36:24):

And I'll tell you,

(00:36:25):

part of the reason why I started this podcast is to sort of create a connection

(00:36:30):

between policy and research,

(00:36:34):

you know,

(00:36:35):

with the politicians and the citizens as well.

(00:36:38):

Because if citizens are also quite well informed, they can ask the right questions.

(00:36:44):

So I think that while we are focused on

(00:36:47):

a lot on the incentive problem for our political system.

(00:36:51):

The knowledge problem is there, but it's not getting all the attention.

(00:36:57):

So you can have a senator or a House of Representatives member in Nigeria with as much as 50 to 70 aides.

(00:37:07):

And they are all media people.

(00:37:10):

There are no technical people on their staff.

(00:37:13):

People that can actually pass them briefing notes on

(00:37:17):

what policy is,

(00:37:19):

what the current evidence is,

(00:37:21):

what is the latest research on the particular committee that that rep member or

(00:37:28):

senator is chairing in the National Assembly.

(00:37:32):

So there's a disconnect

(00:37:34):

in how knowledge penetrates the political system, certainly.

(00:37:39):

And I don't know if it is researchers that can make a lot of difference here.

(00:37:43):

There are certainly a lot of other players,

(00:37:45):

stakeholders,

(00:37:46):

people in the non-governmental sector,

(00:37:47):

people like me,

(00:37:49):

media,

(00:37:49):

that can make a lot of contribution here to make sure that the evidence,

(00:37:54):

the numbers,

(00:37:55):

the knowledge really,

(00:37:56):

really rings and it's loud enough to get the attention of political players.

(00:38:03):

So that's my view.

(00:38:05):

Jishnu: I appreciate both sides of this debate

(00:38:08):

And I want to know whether,

(00:38:10):

you know,

(00:38:11):

I almost feel,

(00:38:12):

Tobi,

(00:38:12):

that we need to do some experiments like,

(00:38:15):

you know,

(00:38:15):

like if you put in aides who actually know the policy a little bit,

(00:38:20):

if we bring in some students and work with the governors and this kind of stuff on this,

(00:38:25):

will things start changing?

(00:38:27):

I'd love to get some answers to that because, frankly, you're right.

(00:38:32):

We need to get these answers down.

(00:38:34):

Tobi: Yeah.

(00:38:35):

James: So Tobi, a lot of these senators and governors, they are pretty sophisticated actors.

(00:38:40):

There's no shortage of very technical and experienced folks in Nigeria and outside

(00:38:45):

of Nigeria that these guys could talk to,

(00:38:47):

right?

(00:38:47):

And by the way,

(00:38:48):

I do agree with you that your podcast is a really powerful vehicle for connecting

(00:38:53):

ideas and policy and implementations.

(00:38:56):

This is an important avenue,

(00:38:57):

also because in some ways,

(00:38:58):

I think sometimes the ideas that researchers produce and other technical folks are

(00:39:02):

locked away in formats that are just generally not readily available to the kinds

(00:39:07):

of people who actually need them.

(00:39:08):

And so I think a conversation is a good way to essentially kind of get that started.

(00:39:11):

And I think even the pressure that will come from voters who listen to your podcast

(00:39:16):

is powerful.

(00:39:17):

Stefan Dercon has a book called,

(00:39:19):

you know,

(00:39:19):

I think,

(00:39:20):

Gambling on Development,

(00:39:21):

which is to say,

(00:39:22):

you know,

(00:39:22):

ideas in the abstract can be powerful ways of transforming systems.

(00:39:27):

But the actual work of actually translating ideas and implementing them is risky.

(00:39:33):

And so for a politician to take on these risks,

(00:39:35):

I don't think many are going to be willing to say,

(00:39:37):

I'm going to sink all my political capital in this big program.

(00:39:40):

It takes a long time, is uncertain, is subject to all sorts of other essential kind of shocks.

(00:39:45):

and fiscal risks and reversals and so on.

(00:39:48):

You know,

(00:39:48):

so that for me weighs a bit more heavily than he's a guy who wants to do great

(00:39:53):

things and is just casting around for ideas and they're just nothing to be found.

(00:39:57):

I think they meet with lots of technocrats and other people who tell them this and that,

(00:40:02):

but ultimately they have to think,

(00:40:04):

can I pull this off?

(00:40:05):

Can I do good and still essentially be successful as a politician?

(00:40:08):

And I think that calculus is still maybe as important as the landscape of ideas that they're exposed to.

(00:40:14):

Jishnu: Yeah, I mean, I don't know that much about politics and politicians.

(00:40:18):

I always have a hopeful view of the future and of our compatriots.

(00:40:23):

And I feel politicians should be creatures of our own creation.

(00:40:28):

And I've seen the democracy work,

(00:40:31):

you know,

(00:40:31):

and when we put democratic pressure and bring a coalition together,

(00:40:34):

it matters.

(00:40:35):

So I'm going to be the hopeful guy here.

(00:40:38):

Look, I think, Tobi, what you're doing is super important.

(00:40:41):

And I think as it starts to deepen and these kind of engagements deepen,

(00:40:45):

you know,

(00:40:45):

as long as we on our side are providing reasonable data,

(00:40:49):

evidence that you can have good discussions on the basis of,

(00:40:53):

maybe things will start evolving.

(00:40:56):

Tobi: So along the line of this conversation, I was thinking one curious question about health.

(00:41:03):

of generally what we call healthcare here.

(00:41:06):

Again, this might just be my imagination going wild.

(00:41:11):

So from an incentive point of view,

(00:41:15):

how much do you think that global public health interventions interferes with the

(00:41:23):

incentive to invest in healthcare locally?

(00:41:27):

So I'll give you an example.

(00:41:29):

Recently,

(00:41:30):

Bill Gates was in Nigeria a couple of weeks ago to talk about malnutrition,

(00:41:35):

which is now a very big problem,

(00:41:38):

particularly in northern Nigeria,

(00:41:40):

because in the last decade or so,

(00:41:43):

consistent with even previous years,

(00:41:46):

it's been one region of the country that is most ravaged by poverty,

(00:41:51):

lack of education,

(00:41:53):

a lot of violence and political instability,

(00:41:57):

and

(00:41:58):

Essentially, it's created this crisis.

(00:42:02):

The latest being malnutrition about one in four kids in northern Nigeria are now

(00:42:09):

chronically malnourished.

(00:42:12):

So recently,

(00:42:13):

Bill Gates was in the country to promote micronutrients and some form of technical

(00:42:20):

intervention that is supposed to make all the difference.

(00:42:23):

And

(00:42:24):

Yeah, of course, it's giving some money, about $600,000 for that initiative.

(00:42:30):

And,

(00:42:30):

I mean,

(00:42:31):

low-income countries like Nigeria are never short of such global public health interventions.

(00:42:38):

But at the same time,

(00:42:39):

I kind of worry how it interferes with the incentive,

(00:42:45):

again,

(00:42:45):

talking about politicians here,

(00:42:47):

to invest locally,

(00:42:50):

whether it is in primary health care or whatever.

(00:42:53):

So...

(00:42:54):

How does global public health interventions interfere with the incentive to invest locally?

(00:43:01):

Because there's always state neglect on some level when it comes to healthcare investment.

(00:43:07):

Jishnu: I think James will be a perfect person to answer that.

(00:43:13):

James: Let me take a crack.

(00:43:15):

I do think that the interaction of external actors in health can sometimes do more harm than good.

(00:43:23):

I've seen both sides of essentially kind of this,

(00:43:25):

where in some ways an external intervention doesn't really improve outcomes and in

(00:43:30):

some ways distorts a lot of the decisions that people are making.

(00:43:33):

But I've also seen it in many ways actually sort of bring attention to populations

(00:43:37):

that perhaps don't have the political clout to get the services they need,

(00:43:40):

right?

(00:43:40):

So I don't know that,

(00:43:42):

you know,

(00:43:42):

in some ways that we could conclude comfortably that in fact,

(00:43:45):

if these guys sort of stayed out of our business and

(00:43:48):

that, in fact, would make better decisions in the health sector.

(00:43:51):

In some ways,

(00:43:52):

I go back to environment where these systems are essentially kind of cash strapped

(00:43:56):

and they can't provide a lot of services to most of their populations.

(00:44:01):

And I think Jishnu has done quite a lot of work on this,

(00:44:02):

where in some ways,

(00:44:03):

a lot of these health systems in some ways have a big urban bias.

(00:44:06):

We spend more on hospitals and less on public health or primary health care.

(00:44:12):

In some ways,

(00:44:13):

I do think that sometimes the arrival of,

(00:44:15):

you know,

(00:44:16):

not Bill Gates per se,

(00:44:17):

but,

(00:44:17):

you know,

(00:44:17):

if I think about the other actors,

(00:44:19):

the WHO and other international actors,

(00:44:22):

I think they sometimes actually try and rebalance these programs to some extent.

(00:44:26):

But yeah, I think they can certainly do more harm than good.

(00:44:28):

I mean,

(00:44:28):

despite their maybe good intentions,

(00:44:31):

I certainly don't want to start any rumours that they don't have good intentions

(00:44:34):

because I think there's also a lot of discussions out on social media that suggest that,

(00:44:38):

in fact,

(00:44:38):

they are malevolent forces.

(00:44:40):

They actually don't mean well.

(00:44:42):

I think many times they mean well,

(00:44:43):

but there are sometimes unintended consequences of those interventions.

(00:44:46):

Jishnu: So, Tobi, here I'm going to go all Shakespearean on you.

(00:44:49):

And, you know,

the fault, Brutus, lies not in the stars, but in us.

(00:44:56):

In this case, at least, you know, in the following sense, right?

(00:44:59):

I mean,

(00:44:59):

I know that Bill Gates was in Africa and there's been a bunch of articles,

(00:45:03):

including in the Mail and Guardian and in other places,

(00:45:07):

talking about farmer Gates and what he's getting wrong.

(00:45:10):

And in Zambia,

(00:45:10):

for instance,

(00:45:11):

there's been this big concern that,

(00:45:12):

look,

(00:45:13):

Bill Gates really,

(00:45:14):

according to the Mail and Guardian,

(00:45:16):

Simon Allison writes that he really pushed monoculture.

(00:45:20):

And now the country's been in a massive drought and people are suffering.

(00:45:23):

And earlier, people used to plant many crops.

(00:45:26):

And that's been a standard problem ever since the British tried to introduce indigo

(00:45:30):

in West Bengal,

(00:45:31):

right,

(00:45:32):

from a long time ago.

(00:45:33):

Now, my point is the following, which is we are a democracy.

(00:45:38):

So Zambia,

(00:45:39):

Nigeria,

(00:45:40):

India,

(00:45:40):

you know,

(00:45:41):

we may argue about how effective we are,

(00:45:43):

but frankly,

(00:45:44):

we gave universal suffrage to our citizens long before we got rich.

(00:45:48):

And it has mattered.

(00:45:49):

It has made a difference.

(00:45:51):

So my question is the following.

(00:45:52):

We absolutely should not go down the line of saying,

(00:45:56):

oh,

(00:45:56):

we can do everything indigenously and we'll do everything in country.

(00:46:00):

And who are these foreigners to come?

(00:46:02):

No.

(00:46:02):

I mean,

(00:46:03):

if somebody has a good idea,

(00:46:04):

somebody has something interesting to say,

(00:46:06):

absolutely listen to them.

(00:46:07):

It sounds to me completely bizarre to say,

(00:46:10):

oh,

(00:46:10):

we'll not take penicillin,

(00:46:12):

even though it's been invented because it came from a foreigner.

(00:46:14):

No, ideas belong to humanity.

(00:46:16):

And we should celebrate ideas.

(00:46:18):

It doesn't matter to me where the idea came from.

(00:46:20):

If it's a good idea, let's use it.

(00:46:22):

Where I think we run into problems is when we say and when we allow rich people to

(00:46:30):

have privileged access to our political leaders.

(00:46:34):

I think that's the big problem, right?

(00:46:37):

And it's not just rich people.

(00:46:39):

You know, these guys are like super rich.

(00:46:40):

But frankly, we allow all kinds of people access to our political leaders outside the democratic system.

(00:46:46):

So Bill Gates wants to come and say,

(00:46:48):

you guys should be growing monocultural maize or whatever he's saying.

(00:46:50):

I'm not an agriculturist.

(00:46:51):

And I do know that,

(00:46:52):

you know,

(00:46:53):

there are huge differences in productivity between African farms and American farms.

(00:46:58):

You know, whatever he's saying, put it in a damn newspaper.

(00:47:01):

Get on your podcast.

(00:47:04):

Make the case to the public.

(00:47:06):

Tobi: Yep.

(00:47:07):

Jishnu: That I'm totally fine with.

(00:47:09):

And if you want to put your money behind your case, great, right?

(00:47:14):

Don't go and try and sell it to the cabinet or to a particular minister without

(00:47:20):

going through our democratic processes.

(00:47:22):

And we are the people who have to go to our politicians and say,

(00:47:25):

look,

(00:47:25):

what the hell are you doing while listening to this guy without going through our processes?

(00:47:29):

So I don't find it a question of

(00:47:33):

foreigner, foreign money, not foreign money.

(00:47:35):

I find it a problem when it becomes this idea that somebody can come in and whisper

(00:47:41):

in the ears of the finance minister.

(00:47:42):

I think that's totally anti-democratic.

(00:47:45):

And we have to fight tooth and nail to make sure that that's not happening.

(00:47:49):

James: But Tobi,

(00:47:50):

I guess to this point,

(00:47:52):

I fully agree that there should be a very transparent process of adjudicating ideas

(00:47:57):

and offers of support from outside.

(00:47:59):

But I guess in this case,

(00:48:00):

what is your concern with saying here's a very short term urgent intervention to

(00:48:06):

address malnutrition in the context?

(00:48:09):

And I don't know the context very well.

(00:48:10):

So please inform me where,

(00:48:12):

in fact,

(00:48:12):

you know,

(00:48:12):

states in northern Nigeria are really struggling to really intervene.

(00:48:16):

Like what is the distortion that is being created by the arrival of this idea and support?

(00:48:21):

Tobi: I do not really have a strong objection.

(00:48:25):

I don't even have a strong view.

(00:48:27):

It's just a question of curiosity because prior to some of these issues,

(00:48:34):

intervention or when the problems become serious enough to get some form of

(00:48:39):

international attention,

(00:48:42):

almost often,

(00:48:44):

at least I can speak for Nigeria to a certain degree,

(00:48:47):

there have been a long neglected advocacy or

(00:48:52):

noise that politicians or whoever makes decisions ignore, usually for years.

(00:49:01):

So malnutrition in Northern Nigeria,

(00:49:03):

I know so many local activists who are actively involved in Northern Nigeria who

(00:49:08):

have been making noise about this problem for a long time.

(00:49:12):

In some cases,

(00:49:13):

four or five years ago,

(00:49:14):

that this is what we are seeing on the ground and this will become a problem

(00:49:20):

Down the line, this is a disaster we tend to happen, you know.

(00:49:24):

And all of a sudden,

(00:49:25):

Bill Gates can fly in,

(00:49:26):

talk about micronutrients,

(00:49:28):

meet the president,

(00:49:29):

put some money,

(00:49:31):

you know,

(00:49:31):

and then it becomes a problem that commands urgency.

(00:49:35):

And,

(00:49:36):

you know,

(00:49:37):

again,

(00:49:37):

James,

(00:49:37):

I hear you on the question of resources,

(00:49:40):

but at the same time,

(00:49:42):

for example,

(00:49:43):

if you go to northern Nigeria and you see the way the political class,

(00:49:46):

state governors live,

(00:49:48):

Of course,

(00:49:49):

there is resource constraint,

(00:49:50):

but you can also say with some level of confidence that there is misallocation

(00:49:56):

going on.

(00:49:57):

If you don't even want to lean too hard on the corruption question,

(00:50:00):

which is,

(00:50:00):

you know,

(00:50:01):

perennial,

(00:50:02):

you know,

(00:50:02):

there is some form of misallocation going on.

(00:50:05):

So I just wonder, it's more of a curiosity for me.

(00:50:09):

I don't have a strong view, particularly.

(00:50:12):

James: But I think my response to this would be to say that in some ways that the

(00:50:15):

political process is not tuned to really reallocate resources in the way that you

(00:50:21):

and I think it should.

(00:50:22):

So ultimately, these activists who are organising and making a lot of noise, they're not being heard.

(00:50:28):

So one interpretation would be to say,

(00:50:29):

well,

(00:50:29):

Bill Gates comes in and has this idea and suddenly everybody thinks,

(00:50:32):

you know,

(00:50:32):

this is something you should be paying attention to.

(00:50:34):

That's one interpretation.

(00:50:35):

And yes, going back to Jishnu's point, I mean, you know, I think the power belongs to the people.

(00:50:40):

in Nigeria and not to wealthy and influential outsiders.

(00:50:43):

But I think another view is that the activists have actually sort of broken through

(00:50:47):

and that sometimes you might need this assist.

(00:50:50):

As much as,

(00:50:50):

you know,

(00:50:51):

it's undesirable,

(00:50:52):

I think we all wanted a system where we don't need outsiders to advocate on behalf

(00:50:56):

of the people on the ground.

(00:50:57):

But that's another view too,

(00:50:58):

which is to say that suddenly these people now have a champion who can actually get

(00:51:03):

the attention of the political class.

(00:51:05):

Tobi: Yeah.

(00:51:06):

Jishnu: Can I add one more thing?

(00:51:08):

Tobi: Yes, please.

(00:51:09):

Yes.

(00:51:09):

Jishnu: So it's worth going back and saying, OK, what was maybe it's worth going back.

(00:51:14):

I won't claim that it is,

(00:51:15):

but it might be worth going back and saying,

(00:51:18):

OK,

(00:51:18):

what did people write about,

(00:51:20):

say,

(00:51:20):

colonial medicine?

(00:51:21):

Right.

(00:51:22):

Which we know is a big, big part of what anthropologists and historians have looked at.

(00:51:26):

Right.

(00:51:27):

The person whose work I found most interesting in this is David Arnold,

(00:51:31):

and he has this book called Colonizing the Body on British medicine in India.

(00:51:35):

And he basically argues that,

(00:51:37):

look,

(00:51:37):

I mean,

(00:51:38):

there was a huge give and take happening between both systems that gradually got

(00:51:42):

transformed into kind of British ideas becoming,

(00:51:47):

you know,

(00:51:47):

the British starting to think that their idea should be widely used and whatnot.

(00:51:52):

And it met with massive resistance.

(00:51:54):

But the very interesting point he makes in the last chapter of his book is because

(00:51:59):

of various missteps they took,

(00:52:02):

the Indian group started mistrusting any advice that they gave,

(00:52:08):

thinking that all of their advice was coloured by,

(00:52:10):

you know,

(00:52:11):

colonial,

(00:52:12):

how do I get the labour kind of ideas,

(00:52:15):

right?

(00:52:16):

And as a result,

(00:52:17):

you know,

(00:52:17):

one of the most troubling things for me has been there were all these sanitation

(00:52:21):

commissions that were set up in India.

(00:52:23):

And there's very nice work that Guha has done,

(00:52:26):

that Harrison has done,

(00:52:28):

showing that when these sanitation systems were put into cantonments,

(00:52:32):

the mortality went down dramatically.

(00:52:33):

Right.

(00:52:34):

What's really interesting is they didn't make it out of the cantonments.

(00:52:38):

And part of the reason seems to me and David Arnold's book kind of talks about this,

(00:52:43):

is people really started mistrusting the Brits and saying,

(00:52:46):

look,

(00:52:46):

you're just doing this because of X,

(00:52:48):

which is self-serving.

(00:52:49):

And that's,

(00:52:50):

I think,

(00:52:51):

one big piece that we need to avoid,

(00:52:52):

which is we don't want to end up in a system where we are saying no to good ideas

(00:52:57):

coming from outside.

(00:52:59):

Because we think they are corrupt.

(00:53:01):

No, I think that's the big risk that we need to avoid.

(00:53:04):

And then on the flip side is how do we actually make sure that bad ideas don't come

(00:53:10):

through because they are actually being supported by money that is outside the system.

(00:53:15):

You know,

(00:53:16):

the World Trade Organisation has this idea of anti-dumping,

(00:53:18):

which is you can't just put products at highly subsidised prices in other countries.

(00:53:23):

It's this anti-dumping law.

(00:53:25):

I think we would have an anti-dumping law for bad ideas.

(00:53:28):

Tobi: That sounds interesting.

(00:53:31):

James: But as Tobi said earlier,

(00:53:32):

we need essentially kind of a pretty good constellation of actors to make judgments

(00:53:37):

on what's a good and bad idea.

(00:53:39):

Jishnu: Yep.

(00:53:39):

And I think that given how he described essentially kind of the people around a lot

(00:53:43):

of these decision makers,

(00:53:45):

I worry that that's actually sort of not trivial.

(00:53:48):

Jishnu: Yeah, and I think part of that, James, is we have to do it, right?

(00:53:51):

I mean,

(00:53:52):

yes,

(00:53:52):

we have to suck up to the fact that our funding gets in danger,

(00:53:55):

that we run into all kinds of issues when we take on these things.

(00:53:59):

But, you know, part of our job is all to say, sorry, man, that's a really bad idea. Like,

(00:54:04):

Gabriel Demombynes did that for,

(00:54:06):

you know,

(00:54:06):

Sachs when they had this article on their big push, millenium covering…

(00:54:10):

he said,

(00:54:10):

look,

(00:54:10):

the data is not there.

(00:54:11):

And they had a big fight and it turned out the data was not there.

(00:54:14):

So I think part of what we should be doing is taking that forward and saying when

(00:54:19):

it's a bad idea,

(00:54:20):

giving people the ammunition,

(00:54:21):

giving Tobi the ammunition,

(00:54:22):

giving others the ammunition to say,

(00:54:24):

sorry,

(00:54:24):

this is a bad idea.

(00:54:26):

Tobi: So, I mean, this has been a wonderful conversation beyond my expectations.

(00:54:31):

I just have a couple of questions left.

(00:54:33):

So I'll go back again to another piece you wrote, Jishnu,

(00:54:39):

which also quite literally lit a fire in my belly,

(00:54:43):

where you basically challenged your colleagues in the development economics subfield,

(00:54:50):

you know,

(00:54:51):

about some moral questions that they should be asking and are not.

(00:54:58):

I don't know why you chose to write that piece or what you saw,

(00:55:02):

but the way I'm going to phrase the question to both of you is like this.

(00:55:07):

I know that economics generally is going through some sort of empirical phase.

(00:55:15):

Do you think that that has been traded up for asking the big questions that I

(00:55:23):

certainly believe are still relevant,

(00:55:25):

which is

(00:55:27):

Essentially, for me, how does Nigeria double its average income in the next 10 years?

(00:55:35):

How does places essentially get out of poverty?

(00:55:41):

Do you think we've abandoned trying to find answers to those kinds of questions for

(00:55:48):

maybe what Lant has militantly called “kinky stuff?’

(00:55:55):

Jishnu: James has been going first, so.

(00:55:57):

James: No, no, no.

(00:55:58):

This is a question posed and motivated by your writing, Jishnu.

(00:56:03):

So you should go first.

(00:56:04):

Jishnu: I'm happy to take a first glance at this.

(00:56:06):

But, Tobi, you have to warn us even to, you know, completely put us over the wringer.

(00:56:11):

I mean, these are very difficult.

(00:56:13):

So two things, I think two things.

(00:56:15):

I was at the World Bank when there was this whole Spence report on what causes growth.

(00:56:19):

And they had this line,

(00:56:21):

if you go back to that,

(00:56:22):

they had this line saying,

(00:56:23):

if there was a magic bullet or if there was a specific set of policy recommendations,

(00:56:28):

we would have come up with it.

(00:56:29):

We spent a lot of time on this and there isn't, right?

(00:56:32):

And I think if you look at what Abhijit writes,

(00:56:34):

if you look at Esther's idea of the plumber,

(00:56:38):

the economist as plumber,

(00:56:39):

it's saying,

(00:56:40):

hey,

(00:56:41):

can we be modest and humble about where we are and what we know?

(00:56:45):

And the fact of the matter is we don't have a really good set of prescriptions for

(00:56:50):

what growth should look like.

(00:56:52):

But

(00:56:53):

By working on all these different issues, we do start to make progress on people's lives.

(00:57:01):

So if you think about the Millennium Development Goals,

(00:57:03):

I feel the biggest thing the MDGs did was it created a deliberative process to say

(00:57:09):

it's not only about growth.

(00:57:11):

We should care about the fact that fewer children are going to die.

(00:57:14):

We should care about infant mortality regardless of whether it affects growth.

(00:57:18):

And I completely agree with that viewpoint.

(00:57:21):

Then what our discipline does or is doing, look, it's always the case that there's a seesaw.

(00:57:28):

You know, we are always on a seesaw.

(00:57:31):

Right.

(00:57:32):

And one part of that seesaw is what's going on in the world.

(00:57:37):

And the second part of that seesaw is let's close off a lot of things,

(00:57:43):

otherwise we cannot make progress,

(00:57:45):

right?

(00:57:45):

Every discipline needs to build walls around itself because if you let too many

(00:57:50):

things in,

(00:57:51):

then you don't make progress,

(00:57:53):

right?

(00:57:54):

So around the early 2000s,

(00:57:56):

we really had a lot of work that said what's going on around the world,

(00:58:00):

right?

(00:58:00):

So we had, oh, lots of kids are in school, but they're not learning.

(00:58:03):

Look, people go to doctors and they don't get the right diagnosis.

(00:58:06):

Look, the teachers are absent.

(00:58:07):

Lots of stuff, right?

(00:58:09):

On a lot of different things.

(00:58:10):

And we've made,

(00:58:11):

I think,

(00:58:12):

tremendous progress over the last 15 years in saying,

(00:58:16):

hey,

(00:58:17):

on some things and less on others,

(00:58:18):

saying,

(00:58:18):

hey,

(00:58:19):

these were great pieces on what's going on around the world.

(00:58:22):

Let's now put that wall around it and make progress on these issues.

(00:58:26):

And some places we've made a lot of progress, others less so.

(00:58:31):

I feel that now that we had the seesaw that said the real world, make progress by building walls,

(00:58:38):

Now I think we need to push that seesaw back.

(00:58:41):

So it's not necessarily the type of work that we're doing.

(00:58:45):

It's more within the disciplinary core because you always need both types of work.

(00:58:51):

It's within the disciplinary core.

(00:58:53):

Which one do you privilege?

(00:58:55):

So I think it's time to go back to saying we need to privilege the basic work that

(00:59:01):

starts re-examining the world and saying 20,

(00:59:04):

25 years later,

(00:59:06):

what are people's lives like?

(00:59:08):

And I'll give you one example.

(00:59:09):

Right.

(00:59:09):

I was in Delhi over the summer and it struck me,

(00:59:12):

you know,

(00:59:13):

so many of our cities because of climate change are now on the verge of being unlivable.

(00:59:20):

Right.

(00:59:20):

If you look at a place like Delhi,

(00:59:22):

you know,

(00:59:23):

January pollution levels that are at 500,

(00:59:26):

600 on the P2 at 2.5.

(00:59:27):

Right.

(00:59:27):

It's unlivable.

(00:59:31):

February, same thing.

(00:59:32):

March is kind of OK.

(00:59:34):

April starting to get hot.

(00:59:35):

May, 52 degrees.

(00:59:37):

June, 50 degrees.

(00:59:38):

Heat stroke through the roof.

(00:59:40):

July, humidity, wet bulb thermometers above what is livable.

(00:59:44):

August, same thing.

(00:59:45):

October, kind of livable.

(00:59:47):

November, the pollution is back.

(00:59:48):

You put it together and you say, how is a poor person going to live in this damn city?

(00:59:54):

And somebody who can put that together,

(00:59:56):

somebody who can start to say,

(00:59:58):

OK,

(00:59:59):

here's how I want you to think about the year and climate change.

(01:00:02):

That kind of stuff we solely need now.

(01:00:05):

And I think we are almost there.

(01:00:07):

So it's not a question of fighting the discipline.

(01:00:09):

It's saying what part of the discipline should at this point get the emphasis?

(01:00:15):

And I think that, you know, it's going to move.

(01:00:17):

It has to move.

(01:00:18):

It has to move.

(01:00:19):

There's just no two ways around it.

(01:00:21):

James: So let me just add a few comments on,

(01:00:23):

you know,

(01:00:23):

maybe going back to Tobi's question,

(01:00:25):

like where is the advice about how can we get Nigeria to double its income over the

(01:00:30):

next 10 years or so?

(01:00:31):

And there's a really nice characterisation of the two kinds of development economists.

(01:00:36):

And I will not name the person who has shared this characterisation.

(01:00:40):

But there's a small ‘d’ development economist and there's the big ‘D’ development economist.

(01:00:45):

And I think historically,

(01:00:46):

if you think about the big push ideas of the 60s and 70s,

(01:00:49):

or even essentially kind of the Washington consensus in the 90s,

(01:00:53):

I think much of that advice was really about the big D development economists.

(01:00:57):

And maybe the conclusion there, you know, at least it has been going back to sort of the Spence report.

(01:01:03):

Maybe we just don't really have, you know, a very clear set of guidelines.

(01:01:07):

We thought we did, right?

(01:01:09):

We thought we did, you know, reduce your fertility, make markets work.

(01:01:13):

It doesn't seem to kind of produce the benefits, I think, that we would like to think.

(01:01:17):

And, you know, Dani Rodrik has a book, I think, I wish it were more accessible to the general public.

(01:01:22):

You know,

(01:01:22):

we have one economics,

(01:01:23):

but many recipes,

(01:01:25):

which is to say the solution for Nigeria might be very Nigeria specific.

(01:01:29):

It might require essentially kind of a very untraditional path,

(01:01:33):

which is not coming out of a 10 point or 20 point economic plan.

(01:01:37):

But my sense is that, you know, what's happened perhaps to the field is

(01:01:41):

is maybe being honest with ourselves that we don't have all of the answers,

(01:01:47):

at least for essentially kind of the big question that you asked,

(01:01:49):

Tobi,

(01:01:49):

that that answer is not going to come in a nice big report.

(01:01:53):

That that answer,

(01:01:53):

in fact,

(01:01:54):

is a process of,

(01:01:56):

you know,

(01:01:56):

trying a bunch of things,

(01:01:58):

establishing,

(01:01:59):

you know,

(01:01:59):

maybe let's go back to Dani's idea.

(01:02:01):

Like, let's do industrial policy, but let's try and do it well.

(01:02:04):

And we're going to fail.

(01:02:05):

And maybe we might discover one or two great ideas where Nigeria can be quite successful, right?

(01:02:11):

But that's in some ways kind of saying,

(01:02:13):

rather than,

(01:02:14):

you know,

(01:02:14):

do this and this will happen,

(01:02:16):

this is basically,

(01:02:16):

you know,

(01:02:17):

establish,

(01:02:18):

and this is… Jishnu will like this,

(01:02:19):

establish a process for discovering essentially kind of good and bad ideas.

(01:02:24):

And maybe that's essentially kind of the way forward.

(01:02:26):

I'm not going to give you a guarantee that you'll be successful.

(01:02:29):

But in fact, this process will essentially kind of at least help you shut down bad ideas.

(01:02:33):

There's nothing wrong with actually sort of disinvesting in essentially kind of

(01:02:36):

things that are not working in general.

(01:02:38):

And then I think the other part of this,

(01:02:39):

for the small ‘d’ development economists,

(01:02:42):

I certainly sort of think I'm in that category,

(01:02:44):

is what can you do today,

(01:02:46):

right?

(01:02:46):

So maybe there are the big questions about sort of growth over sort of the next 10 years.

(01:02:51):

But I think it's important to also try and improve the outcomes of people today, right?

(01:02:56):

And so I do think that there should be room under the umbrella for both types of economists.

(01:03:01):

But yeah, I certainly think that there's been a shift.

(01:03:03):

Like in order to make space for the small ‘d’ development economists,

(01:03:06):

I think the big ‘D’ development economists in some ways have had to take a backseat.

(01:03:10):

And, you know, it might be a good time, as Jishnu says, to bring them back to the front of the class.

(01:03:14):

Tobi: Final question for both of you.

(01:03:18):

So this is a bit of a tradition on the podcast.

(01:03:21):

What is the one idea?

(01:03:22):

It may be something you're working on, maybe someone else's idea.

(01:03:27):

Can be anything.

(01:03:29):

But what is that one idea that you would like to see spread everywhere,

(01:03:35):

have a lot more influence,

(01:03:37):

have a lot more people believe in?

(01:03:40):

What is that one idea?

(01:03:42):

I'll start with James.

(01:03:44):

James: Put it this way,

(01:03:45):

you ask this question at a really challenging time where in some ways there's more

(01:03:49):

dark clouds on the horizon and maybe,

(01:03:51):

you know,

(01:03:52):

less room to be very optimistic.

(01:03:55):

But let me just say that I think, you know, this might not be a completely original idea.

(01:04:01):

We need to rethink what investment in any infrastructure means today.

(01:04:08):

I certainly think that markets are ultimately at the centre of driving a lot of

(01:04:12):

progress and prosperity and markets work well when people are very well connected.

(01:04:16):

And we are pretty well connected in terms of communications infrastructure,

(01:04:20):

but we're not as well connected on the hard infrastructure.

(01:04:23):

If I think about the prospects that are happening in the parts of the world that I

(01:04:27):

do work in,

(01:04:28):

I worry that,

(01:04:29):

you know,

(01:04:29):

Jishnu was talking about temperature and pollution.

(01:04:33):

I'm worried also about, you know, whether we have

(01:04:36):

roads that are climate proof, whether we'll have schools and hospitals that are climate proof.

(01:04:43):

And while essentially kind of this idea in some ways raises the cost of doing

(01:04:46):

business in general,

(01:04:47):

that I think we really need to start thinking about how we can climate proof the

(01:04:52):

infrastructure we have and what we already have.

(01:04:54):

And so,

(01:04:55):

you know,

(01:04:55):

I don't think this is wildly kind of original,

(01:04:58):

but I just finished doing some work in Rwanda and

(01:05:02):

a big chunk of that work is affected on every rainy season where roads get washed away.

(01:05:08):

And, you know, communities are essentially going to cut off for a long time.

(01:05:11):

And,

(01:05:11):

you know,

(01:05:11):

we're certainly seeing this around the world,

(01:05:12):

not just in East Africa,

(01:05:14):

in Nepal and in North Carolina,

(01:05:16):

you know,

(01:05:16):

not far from here.

(01:05:17):

And so my concern is that we need to start preparing for a world in which life is

(01:05:21):

going to be much more challenging.

(01:05:23):

Tobi: Your turn, Jishnu.

(01:05:25):

Jishnu: You know, so a while back, I had this conversation with this politician, right?

(01:05:29):

And he said,

(01:05:30):

look,

(01:05:30):

around the early 90s,

(01:05:32):

you know,

(01:05:32):

all of you guys said,

(01:05:34):

bring in the market,

(01:05:35):

start to liberalise and everything will improve for everybody.

(01:05:39):

And he said,

(01:05:39):

basically,

(01:05:40):

what I've seen is that things have improved massively for very rich people,

(01:05:44):

but the poor are still where they are.

(01:05:46):

And in fact, they would be much worse off if the government was not doing all kinds of things.

(01:05:49):

And I think that's roughly right, right?

(01:05:52):

So, you know, I want to go back and say, look,

(01:05:55):

I think we are at times, exactly as James said, that are very challenging.

(01:06:01):

And one more thing which is worth emphasising and worth remembering is we are at a

(01:06:07):

time of exceptional,

(01:06:09):

I don't know whether it's exceptional,

(01:06:10):

but we are at a time of massive change,

(01:06:13):

right?

(01:06:14):

And I think what we keep doing as policymakers and economists is we keep saying, do this, do that.

(01:06:21):

And I think we need to start thinking seriously about what kind of robust processes

(01:06:28):

do we need to put in place so that our populations have,

(01:06:32):

you know,

(01:06:33):

serious democratic and deliberative discussion about what they want to do,

(01:06:37):

where they want to go next.

(01:06:39):

Right.

(01:06:41):

So it could well be that our democratic discussions and all of that throws up,

(01:06:47):

hey,

(01:06:47):

we want Nigerian incomes to double over the next 10 years.

(01:06:52):

But it could also be,

(01:06:53):

Tobi,

(01:06:53):

that that conversation throws up,

(01:06:56):

I'm fine with our incomes going,

(01:06:58):

I'm not fine with it doubling,

(01:07:00):

if what it means is that the rich are now 30 times richer and the poor are 5% richer.

(01:07:07):

which is what, you know, we measure it as doubling.

(01:07:09):

But look, I mean, if you look at India, you look at the US, you know, what was the thing?

(01:07:13):

Real wages haven't changed since 1980, 1985 for the poor, right?

(01:07:18):

I mean, that's crazy to me, right?

(01:07:21):

I mean,

(01:07:21):

a lot of the growth in incomes that we're seeing in India is coming from some rich

(01:07:25):

people basically exploiting the environment.

(01:07:27):

So I want to say, how do you, me, how do all of us work on saying

(01:07:33):

What's the process that we need to have robust conversations about who we want to

(01:07:39):

be and where we want to be 20 years,

(01:07:41):

10 years from now?

(01:07:43):

Do we want to be working like crazy and have more money?

(01:07:46):

Great.

(01:07:47):

Or do we want that medicines are available to everyone?

(01:07:50):

That's also great.

(01:07:52):

We should not stick to an ideological position of markets are good regardless of what they do.

(01:07:58):

We have to stick to this is who we want to be.

(01:08:01):

And if the markets are not working or something else is not working, let's change it.

(01:08:05):

So if there's one idea I want people to take away,

(01:08:07):

look,

(01:08:07):

the power really is in us and we need to get together and say,

(01:08:12):

what are the processes that we want to live by that makes at least our kids have a

(01:08:16):

much better lives than we?

(01:08:19):

You know, that's our aspiration as all parents is that our kids have a better lives than we did, right?

(01:08:24):

And I would urge that we start thinking about what processes do we need to put in

(01:08:28):

place to navigate us through these difficult times.

(01:08:32):

Tobi: Thank you very much to both of you. It's been fantastic having this conversation.

James: Thank you so much, Tobi. Thanks for having us on and for grilling us with these really challenging questions.

Jishnu: Oh, my goodness. I feel like we've been put through the ringer on this one. No, Tobi, this was really a pleasure.

In this episode of Ideas Untrapped, I sit down with economist Oliver Kim to explore the complexities of African economic growth and the challenges surrounding industrialisation. We discuss why Africa has struggled to replicate the manufacturing successes of East Asia, touching on issues such as labour costs, political economy, and the global market environment. Oliver also shares his thoughts on the importance of state capacity and regional integration and how to rethink GDP statistics in development research. Oliver Kim is an economic historian and a research fellow at Open Philanthropy. He also writes excellent blog Global Developments.

Transcript

Tobi:Welcome, Oliver, to the show. I've been a fan for a while, and it's fantastic talking to you. So thank you so much for coming on Ideas Untrapped.

My first question to you involves something you wrote a couple of months ago where you talked about African prices, which is always a puzzle that I've been interested in. So, to restate it as simply as possible, we know that manufacturing in Africa has not grown as much, at least relative to other sub-regions in the world. And there are some theories or findings that suggest that it’s because labour cost is too high. And there's a bit of back and forth in the debates about how unique that is to Africa as a continent. So can you shed more light [on that]?

Because you see a lot of comparisons, maybe Ethiopia and Bangladesh…the unit labour cost and how high it is. So, is that really the constraints? What are the nuances based on what you discussed in that blogpost?

Oliver:Yeah. Just to quickly summarise. Africa has kind of missed out on the manufacturing revolution that, for instance, propelled East Asia…so when you think of the East Asian tigers, China, to rapid rates of growth and poverty alleviation. And, i think in some countries, actually, the share of manufacturing value-added or the share of manufacturing employment is the same or lower than where it was in the 1970s immediately after independence. So, from a developmental standpoint, this is a bit of a puzzle and from a poverty alleviation standpoint, it's a tragedy because this is the only sort of way that we know how to lift large numbers of people out of poverty in a rapid sort of fashion. That’s how China did it; that's how earlier, Korea, Taiwan, and Japan did it.

From a prices standpoint, the problem that economists have identified is that labour costs are too high relative to the level of productivity. That's an important qualified statement to make. So most developing countries are poor [and] as a feature of a developing country, one thing that's true is that incomes are relatively low, wages are relatively low, and so labour is relatively cheap. It's also true that if you're a foreign firm deciding where to site a factory, you don't just care about the labour cost. You also care about the productivity of the workforce. And so it works out that what you care about is like the amount of productivity divided by the cost of hiring additional worker.

And on that metric, which is typically measured in something that's called a unit labour cost (the amount that it costs to produce one unit of output), a lot of sub-Saharan African countries turn out looking relatively poor, especially compared to their peers [at] similar sort of income levels.

So there's sort of two dimensions of this problem. One is the productivity side, and then the other is the cost side. On average, it appears basically that African countries have wages that are actually relatively high for their level of development. And so this becomes a further mystery, like why is this the case? One hypothesis that's been put forward in a couple of papers by the folks at the Center for Global Development is that it's because prices are too high. So this is like one step up the causal chain. If prices are high and the goods and services that are to buy cost too much, then you have to pay people a higher wage basically to afford that.

Of course, the sort of factors behind this, I think, are incredibly complex. I think one major, sort of, historical and fundamental feature that I would point to is that historically labour in Africa, sub-Saharan Africa has been relatively scarce. So this is the contrast I guess, with East Asia and potentially South Asia, where population density is incredibly high and labour is constantly in surplus.

So historically, you know, China, East Asia is like one of the most densely populated regions of the world. The opposite is kind of true in Africa. Now the population has grown a lot, but historically you just had actually a lot more land than people. And if you look at the deep history of African sort of polities, a lot of them were trying to economise more on people than on land. So like in East Asia and Western Europe, you know, you had states with very clearly defined boundaries and political control was defined by control over land.

In Africa, there are states, but there are also instances basically where political control was defined more by control over people. And so there was more fluidity in terms of like territorial boundaries. And so control basically of labour, potentially through slavery also, was a way of a political state to assert power. That's a bit of a digression, but historically speaking, you had relatively low population density. I think that's part of the factor into capitalism. why labour was relatively scarce and maybe why wages are low. So in the present day, maybe that's starting to change a little bit. But looking at the sort of deep fundamental factors, it appears that maybe wages are potentially, quote unquote, “too high to enable a sort of African manufacturing revolution.”

Tobi:Yeah, maybe I read that wrong. But one of the things you discussed in that particular essay was the Assam non-linear model or something like that. It was a U-shaped relationship between GDP and price levels, which, again, maybe I'm wrong about this, the conclusion that sort of came out of that, that this might not necessarily be a problem that is unique to Africa. So can you shed more light on that?

Oliver:Yeah. So let me talk about what I talked about in the blog post. So economists have this relationship. It's a purely like empirical one. So if you go out in the world and you observe things, it's called the Balassa-Samuelson relationship, where basically it appears that as countries get richer, prices of things like haircuts and services seem to go up almost more than proportionally, right?

So like, you know, if I go to Switzerland, which is a very rich country, a haircut costs like $30 or something, something ridiculous. Actually, it's probably more than that. It's like $50 or something, 50 Swiss francs versus, you know, if I go to a Kenyosi in Kenya or whatever to go to a barber, that same haircut, which effectively is not that differentiated in terms of quality. Like a haircut is a haircut. Like if I ask for a buzz cut, it's the same thing. It's the same product, but that product in Kenya probably costs a dollar or possibly less. And so this sort of weird differential where richer places seem to have higher prices is known as the Balassa-Samuelson effect. And if you think about like the sort of underlying theoretical mechanism here, basically richer countries have higher productivity. Higher productivity shows up in like higher productivity in let's say like the manufacturing sector or higher tech kind of sectors.

For like service sectors, which everybody needs, right? So everybody needs like barbers, everybody needs janitors, teachers, things that basically don't increase that much in productivity. Even these sectors need to face higher wages in these rich countries in order for them to be able to compete with the manufacturing sector where productivity has gone up a lot, right?

So like people can switch jobs, people can move between different sectors of the economy. And so the price basically of these service sector goods where productivity actually hasn't gone up that much have to sort of keep pace.

And that's how you end up with this phenomenon where - the same haircut, essentially the same quality, costs the same amount across two places with very different incomes. Now, the way that economists typically have thought about this is that there's a linear relationship. So if you drew like a scatterplot of countries by their income levels and their price levels, you'd just get something like a line. That's like the theorised kind of relationship, a linear Balassa-Samuelson relationship. By that logic, if you put African countries on that scatterplot, it looks like basically that their prices are too high.

So they're lying above this line on the scatterplot between GDP and price levels. What I was arguing in this piece is there's some research, in particular a paper from the Journal of International Economics by Hassan, I forget his first name, I think from like 2017 or so, basically arguing that maybe this Balassa-Samuelson relationship is not actually linear. Maybe it's actually nonlinear, right? There's no actually like really strong reason that this thing has to be linear. It's just like it's the easiest model to write down.

And this is like a common flaw amongst economists is that you go with the first thing that's like easiest mathematically to do. And then you forget that it's just a simplification and you start to treat it like a feature of reality. But so he writes out a more complicated model where, you know, as is true in the real world, there's not just like a service sector and a non-service sector, as I laid out just a minute ago. There's agriculture, there's manufacturing, there's services. Countries basically shift between these three things as they vary in their stages of development, right?

Agriculture for a lot of developing countries is actually mostly non-traded. Think of subsistence farmers, people who grow maize or soybeans for their own consumption. And so it's not the same as a big agricultural producer in Europe or whatever that's just trying to sell to the entire world. And so you can think of those agricultural products as more like the services, like those haircuts that I was describing in like a European country. And so it works out if you do the math and you account for basically the movement of labour between these different sectors as an economy develops, you end up with something that looks more like a non-linear Balassa-Samuelson relationship, like a U-shape, right?

So prices may start to go down a little bit as you move from a low level of income to like a medium level of income. And then they start to go up again. And so accounting for this kind of nonlinear Balassa-Samuelson relationship, maybe sub-Saharan African countries don't look like so much of an outlier in a global sense. Maybe this is actually just like a general sort of pattern of development that all countries have gone through, where their prices have started to go down a little bit and then gone up. And so maybe prices are not the reason that African manufacturing has sort of lagged behind.

Tobi:One thing I'm curious about, which I would like you to speculate on a little bit, is how this all relates to food prices. I know that maybe Tom Westland has done a little bit of work here on food prices and divergence in Africa. It's hard to generalise for the entire continent, like you said, but for example, in Nigeria, food inflation is currently 40%. It's been double digits for about a decade. If you further break that down into what, actually, households spend money on, it's mostly food, right? So, like, we have these higher prices, which then feeds into higher wages. What is the relationship to the sort of inability of some African economies to achieve agricultural productivity enough to bring down food prices?

Oliver:Yeah, so this is an incredibly complex issue. I think it plugs into the political economy of a lot of sub-Saharan African states. So the most famous book on this kind of subject is Robert Bates's Markets and States in Tropical Africa. And it's a very slim book, but I think it's a remarkably powerful set of analytic tools for thinking about this stuff. So let's take a step back. Most developing countries, not even just African countries, but most developing countries, what do they have to produce? They have agriculture, right? [In] Most developing countries, most people are farmers.

And immediately after independence, again, not just African countries, but countries in South Asia, countries in East Asia, All of them, they achieved their independence and they started to figure out like, what can we potentially do to start growing? And what sector do you basically have in order to finance development? If you want to import machines, you want to like, you know, foster manufacturing growth. The only sector that you have is basically agriculture, right? And so there's this strong impulse basically to essentially tax agriculture to finance the capital imports and things that you need to foster manufacturing growth.

There's actually a lot of pressure basically to lower the prices that are paid to agricultural producers to finance imports of machines and stuff from richer countries. This process happened not just in sub-Saharan Africa, but again, like in Taiwan and Korea, where basically the state imposed policies that actually had an anti-agricultural bias.

The difference, I think, that Bates argues is that these policies became much more entrenched in sub-Saharan Africa, where basically the state had a lot less sort of penetration into the countryside, where the state was not as beholden, I guess, to the needs and interests of farmers, for instance. And the state basically became captured in the large sense by urban elites who discovered basically that they liked having prices, particularly of food, which as you mentioned [that] for a developing country is the largest portion of the consumption basket, in a lot of places.

And in a trade sense, they also liked having relatively cheap imports from other countries. So for the growing African middle class [and] for the elites, you know, they liked imports of European cars and luxury goods and that kind of stuff. And so that favours an exchange rate that tends to be overvalued to make your imports cheaper. And that actually hurts farmers who are interested potentially in exporting for whom an undervalued exchange rate would actually be the pro-developmental policy.

This is maybe one point of divergence between East Asia and a lot of countries in Sub-Saharan Africa, where, you know, you started from a very similar kind of logic, which is that you should try and take resources, pull resources out of agriculture to fund manufacturing growth so that you can have your own sort of industrial revolution. But those sort of policies that effectively tax agriculture and made it cheaper basically for urban consumers, became entrenched in places like Nigeria and Kenya because the political class and the governing elite became beholden to them in a way that was not true in East Asia. So that was kind of a tangent from your original question, but I think the political economy aspects are worth highlighting here.

Oliver:You’ve mentioned You've mentioned East Asia a couple of times in your answers. It's become the model, the standard when we talk about the economic development. I was telling a friend recently that ever I was telling a friend recently that ever since East Asia, the East Asia phenomenon, basically every country has been trying to make a miracle in terms of development. I mean, 2-3% rate of growth no longer suffices. You have to do 7-10%, at least since China. What was so unique about those set of states Japan, Taiwan ,Korea, Singapore to a lesser extent, Hong Kong? What was so unique about them and that time period that made it possible? Because essentially, i would say, that no country has been able to repeat that level of convergence since .

Oliver:Yeah, unless you happen to be lucky enough to find yourself sitting on a gigantic oil field. Though I guess it's also true that that's not even necessarily good for development. There's a couple of factors that I'd highlight. So the first, I guess, is historical stuff. So East Asia, in some sense, is unusual like Western Europe, in that it has a long history of being organised along state lines. In some senses, like Korea, Japan... and certainly China, these are polities that emerged before the emergence of states in Western Europe. And there's been a lot of research actually trying to understand how these states emerged without a lot of the same interstate warfare that characterised Europe in the medieval and the early modern period, but instead through a process of Confucian learning, of an elite that was based around meritocratic civil service kind of stuff.

Historically, this place is like a little bit unique. And it's unlike, let's say, a lot of Sub-Saharan Africa, where at the time of European colonisation, around 50% of the people were living in sort of polities organised as states. That's not a statement about like, oh, states are better or more developed in any sense. But for the specific problem of if we want to do things like industrial policy or like agricultural policy, get growth to happen, it turns out that having things organised as a state turns out to be a very effective sort of organisational form. Again, to go into the deep history of that a little bit more is this was a rational sort of response by people who were living in Africa at the time, in part because of the relatively low population density. The places actually where you see the emergence of states in Africa around like the Great Lakes region, for instance, or the Ethiopian highlands are places where you had relatively higher population density. So in that sense, it tracks basically the broader sort of global pattern.

Anyway, that's a long digression to say that East Asia is kind of unique in having relatively well-defined strong states. And that kind of already solves a lot of the problems that I think a lot of sub-Saharan African countries are facing, where, you know, essentially a lot of them are creations of European colonialists. You have a whole bunch of people from different tribes, different ethnic backgrounds who don't actually have a whole lot to do with each other and they're lumped together in states that just kind of lack coherence. And so the 60 years since independence have been tragically marred by a lot of the adjudication of these disputes. So, you know, in the worst case, civil war, ethnic cleansing, that kind of stuff. But even in the best cases, a lot of distrust, a lot of competition over rent seeking behaviour, our turn to eat when our president wins election, that kind of stuff.

So at a minimum level, I think states are probably like a necessary precondition for rapid development. The second thing that I would point to in a more near-term sense is that the East Asian states were at a critical sort of boundary in the Cold War, right? So, like, South Korea almost got swallowed up by North Korea. Taiwan was sort of the product of the Chinese nationalists losing the Civil War and for the longest time, actually to this present day, they're worried about getting swallowed up by China. Japan was also similarly worried about communist takeover. And so that sort of enabled a set of policies that are also rather unique. The first one, obviously, is land reform. So immediately after independence for these countries, they conducted large programs of land redistribution. I think politically this also helps. So tying into the state stuff, like, having a broad base of support in the countryside where farmers are part of your sort of governing coalition. And there's an incentive basically to engage in broad based agricultural productivity growth, not necessarily as a result of the redistribution, but because the state has penetration into the countryside and is able to do things like agricultural extensions, spreading fertilisers, high yield varieties and all this kind of stuff.

Yeah. So land reform was like a critical policy that had to happen because across the border, like in North Korea, they have a land reform policy. In China, they have a massive land reform. In fact, because it was so unpopular amongst the peasants, that's why the KMT got kicked out of mainland China. And Japan also had one like in the late 1940s. So, you know, that's just like one very critical example.

Industrial policy, also. The fact that basically a lot of these countries also received a large amounts of American military spending that was directly related to the boundaries of the Cold War. The fact that the United States was fighting these wars, these hot wars, first in Korea and then Vietnam. So it's difficult, I guess, to pinpoint a little bit, but the confluence of these factors - like the existential kind of threat, the fact that if you don't get your development policy right, you will just be taken over [by another country]. In Korea, this was like a very real part of the thinking. It energised things like industrial policy, the fact that we need to create our own domestic steel industry so we can build our own artillery, our own tanks and all this kind of stuff, because we're possibly going to be invaded by the North. Yeah, the boundaries of the Cold War are, I think, an understated component of why East Asia took off.

Tobi:Yeah, so, I mean, it's good you mentioned Studwell, did you?

Oliver:Not yet, but like kind of implicitly.

Oliver:I guess we're going to get there at some point.

So, ever since the publication of that book, How Asia Works, it's sort of become the standardised, informal canon of policy advice in this sort of general sense, perhaps not in the technical sense of what went right with East Asia and what you should do, roughly.

And one country that I think went full Studwell was Ethiopia, with the land reform, the focus on agriculture, the intensive focus on manufacturing, but it hasn't really, really worked out so well. So, to the degree that you know, what was wrong with how Ethiopia just sort of went about going Studwell, to use that phrase?

Oliver:Yeah.

There's a lot of different factors here. And again, I would not call myself an expert on Ethiopia. I've not actually physically been to Ethiopia. I've talked to a lot of Ethiopian students here at Berkeley. So qualify everything that I say with that caveat.

Tobi:Yeah.

Oliver:I mean, it's tragic. I know that this big manufacturing push was already not yielding the expected results before the outbreak of the civil war post COVID. That is just so obviously like a first order fact to point out that, you know, Ethiopia had this horrible civil war a couple of years ago and we're still dealing with the ramifications of that.

It's very difficult, I think, to like try and do broad based rapid economic growth if you just constantly have civil conflicts of this kind. The damage is obvious, I guess, from the pure human cost, from the number of people who’ve died, you know, from the war time kind of destruction. But also like whenever there's a stable sort of post-war kind of settlement, the distrust between the Tigrayans, the Amharas, all these different sort of ethnic groups is definitely going to shape policy. And that's like a common feature, I guess, of a lot of sub-Saharan African countries where there's always competition over spoils rather than thinking about things that could broadly benefit people. And I think that's also partly a rational response. I should also say that even though it wasn't colonised, Ethiopia actually, I think, has some features of a lot of well, it was briefly colonised by the Italians, but nowhere near the sort of penetrating kind of colonial regime. But Ethiopia itself was sort of a product in a response to European colonisation of sub-Saharan Africa, where in literal terms an imperial sort of project that sort of absorbed a lot of surrounding ethnic groups and regions to create buffer zones against European colonisation. So that's the underlying structural reasons for why you have a state that doesn't have a strong majority ethnic group. There's a lot of conflict that's been generated by that.

But even before the Civil War, as I mentioned, the sort of big manufacturing push was not yielding the expected results. There had been pretty impressive, I think, overall aggregate GDP growth under Meles Zenawi, where Ethiopia was achieving something like rates of like 10% GDP growth a year. You can quibble about those numbers, but I think it is probably true that Ethiopia was growing very fast. Most of that, however, was not turning up in the sectors that the state was championing the most, which were the big manufacturing push to very explicitly copy the model of Korea and Taiwan and the East Asian tigers.

Just to list some of the things that the state has done. I mean, the state has like invested in massive industrial parks, which are actually state of the art in terms of the facilities. So you have like the famous Hawassa Industrial Park, it has subsidised electricity for these places. So, you know, a common problem in a lot of sub-Saharan African countries that are trying to pursue manufacturing growth, you know, for instance Nigeria is that power is just simply unreliable or it's too expensive as a manufacturing firm you have to install your own generator that's an incredibly wasteful and costly exercise for everybody to have their own generator. The state has been subsidising electricity in those parks that's building you know the grand renaissance dam this huge sort of project to lower energy costs more broadly.

But even with all these massive explicit and implicit subsidies, the textile sector basically in Ethiopia has just like not been achieving the expected growth One factor that I've kind of identified, it again has to do with these labor costs, where there's just like an incredible amount of turnover, it appears, at these firms. Foreign firms who have sited in like places like the Hawassa Industrial Park, where workers will like turn up for like a couple of days, often their first sort of industrial job so they're coming straight from like farming, and they'll find that they just really don't like it. Or they'll find that conditions are horrible. They're not paid enough for their time. And so they just choose to leave. And I think this creates an incredible amount of churn, basically, where you never actually develop the skills to get better at your job. The managers of the firm aren't able to identify who are the highest performers and potentially promote them. And so it's this very low level equilibrium where you have this constant churn of workers who are not getting paid enough, who are very unhappy, and so the sector just never really grows.

I don't know quite what the policy prescription to that is. One thing I talk about in my blog is like potentially things like trying to institute like a general minimum wage. So if… let's say, the wage is generally set too low, maybe you could raise it to the level where people are like, hey, this job kind of sucks, but I'm getting paid enough to stay around and do it. And maybe that would enable for skill development, would enable for managers to identify the highest performers. But it is like a general problem. And it's a problem that Ethiopia, it appears, has not been able to crack yet. Unlike the East Asian countries, where the manufacturing sector was able to soak up a tremendous amount of labour that was coming in from the countryside. In Ethiopia, despite all these government subsidies, despite all this government effort to try and promote the sector, there just hasn't been a similar movement.

Tobi:I certainly don't mean to pick on Ethiopia or Studwell here. But I mean, just to double down on that question and, you know, emphasise what I'm really getting at. I mean, you can throw in a couple of scholars and public figures here, Justin Hodge, who look at East Asia and, you know, extract a couple of things as policy advices - do industrial policy, state capacity is the big difference, do you have to do land reform which will bring us to your latest paper - because what's certainly been true in the last couple of years, and I can point to your recent work or someone like Nathan Lane too on industrial policy, is that even a lot of what went right with East Asia, there's a lot of nuance to that story than the generalised, simplified model that we've been used to. So is there something wrong with how people are learning from the East Asia experience generally?

Oliver:So what you described, like my paper, Nathan Lane's work, like this is a historical stuff, right? We're looking at what happened in East Asia. But whenever you're talking about development, there's like this additional inductive step. Like, are the conditions that exist in Africa the same as the conditions that were faced by East Asian countries in the 1950s, 60s, 70s? And the answer is like plainly no. The global environment, the global marketplace looks substantially different. So this is, I guess, the third set of factors I would highlight for why there was a divergence between East Asian economic experience and sub-Saharan Africa’s, which is like the environment in which the sub-Saharan African countries are trying to industrialise is potentially just a lot less favourable than that was faced by East Asian countries. And this goes into things like global movements of prices, the relative price between commodities and manufacturers.

During the 19th century, this is work that's been done by Jeffrey Williamson. So [at] the initial stage of globalisation, it was actually not a bad bet as [for a] poor country, [that is] a country on the economic periphery to be a commodities exporter, right? Europe was industrialising at the time, and factories were going up, manufacturing output was going up, manufacturing productivity was going up, and it was driving the relative price of manufactures down. And so if you were like an Indian artisan making a lot of textiles, that was previously the textile hub of the world, this was a tremendous competitive hit, and this was bad for you. If you were an Argentinian cattle farmer and you're producing cattle that fed people who work in the factories and this kind of stuff, that was actually a really good line of business to be in. And so, you know, throughout the latter half of the 19th century, there was this kind of price movement where being a commodities exporter was good, being a manufacturing exporter was relatively bad, particularly if you were doing like non-industrial production in poor countries.

East Asia got incredibly lucky in some sense in that the period where it was trying to develop was very favourable, basically, to manufacturing productivity growth. Europe was basically starting to get richer. You know, it was escaping, I guess, the destruction of the Second World War and the First World War. and so it was recovering, it was growing economically very quickly and you know as you grow quickly you have greater demand for manufacturing goods. At the same time Europe itself was starting to shift potentially more to the services right and so there was an opportunity for places like Taiwan and Korea to start producing things that other markets would want like TVs radios that kind of stuff.

Yeah, the market environment that was faced by East Asia was like pretty favourable. Now, in the present day, the problem is that it appears that those conditions don't exist. In the West, actually, there's been a lot of development in automation that increases the productivity of manufacturing output. That's also true in the places that have claimed the mantle of being the world's factory, Korea and Japan, and certainly China, most of all, where you already have competitors who are able to produce manufacturing goods at a much higher productivity level than if you're a country starting out. And so it's no longer as easy just to rely on the fact that you have relatively low labour costs, like the East Asian countries did in the 1960s or so, to sort of compete in the global marketplace. You actually need productivity as well. And if you're competing against people who use a whole bunch of robots and machines in their production processes, it's just very hard to compete on costs. And so I think there is a sense in which maybe these lessons are not as applicable as we thought, because the sort of global context is just not as favourable to manufacturing growth as it once was.

Tobi:Again, I'm increasingly skeptical and finding it less useful some of what people say, especially when it comes to learning from the East Asian experience, because, oh, yeah, people say stuff like do industrial policy and once you run into the difficulty of doing that, [they say, oh] it's because you don't have the capacity, and okay, so how do I get capacity? Essentially, it's reducible to get a different history, more or less, which is kind of not so different from the institutional people, which is basically just go get yourself a different institution, which essentially means you get yourself a different history.

So I've become less enthusiastic about that sort of arc. Which then brings me to the question, what is the right way to look at successful countries and learn the right lessons that you can then apply to your own context? I know that it's not all different. There are some similarities. For example, I know that a lot of African countries are extremely protectionist in terms of trade policies and shifting a little bit more towards export-oriented sort of trade policies would help. But as an economic historian, how do we learn from history?

Oliver:Yeah, so this is where I would say that the label that I would wear is I'm a development economist, not an economic historian. Like, I do a lot of economic history stuff. My primary interest is like, what can we actually learn to help people today? The historical interest is very interesting. It's intrinsically important. But what's motivating me is, you know, what is actually useful? And I completely take your point. There's a sense, I think, particularly amongst academics, when you peel back the layers of the onion, in the end, it just comes down to, yeah, get a better history. You know, there's just like fundamental factors that are so deep rooted that, you know, basically you can't do anything about it. One answer that I give that's maybe a weird kind of like metacognition kind of point is that let's say you pose this question in 1945 or something. Right. That's not actually that long ago. My grandparents were alive in 1945. I can talk to them and ask them what it was like.

There was no way that they would have thought that South Korea, Japan would be as rich as in some cases richer than France or Germany. Like it was just like inconceivable at that point. I mean, Korea would have a civil war that would kill like 20 percent of the population in five years. And so the cultural factors were broadly the same. The history, you know, up to like 2000 years subtracting like 30 years or so was the same. But the transformation afterwards was just very difficult to predict. So I think there's a sense in which like when we're talking about these sort of factors behind why countries are richer or poorer, we have to remember that we're looking at them from like a very specific point. In 20 or 30 years things could potentially look very different and they can be very different in ways that are difficult to predict.

One example that i like to give a lot is, um, this is like a view that i'm less fond of, like, cultural kind of stuff. Culture surely matters but i think there's like a very strong instinct to want to say that culture is this fixed kind of entity, like these get a better history kind of arguments. It's like this sort of intrinsic quality that is tied to the people and just stays forever. And that's why you're rich or that's why you're poor. In the East Asian case, the answer that's often given by Lee Kuan Yew and others is Confucianism, right?

Lee Kuan Yew became a bit of a celebrity in the 90s or so, just like going around different countries and saying like, hey, the reason that you're not doing well is that you have not absorbed East Asian values of Confucianism, like filial piety, studying very hard for tests, listening to authority figures, having a well-ordered society along these lines. But if you go back 30 years, 20 years or so, scholars, sociologists, sinologists looking at the trajectory of China would have said that Confucianism was a terrible idea, that basically it resulted in states that were unable to adapt to the sort of conditions of modernity. You know, the Qing dynasty was not a great historical success by any means. It completely failed to adapt to the pressures of Western incursions. And so like there's a sense of which I think our descriptions, I guess, of history and culture should be a lot more malleable than I think these get a better history kind of views. The thing that kind of gives me hope is that I think it really would only take one. I know that there's like Mauritius and maybe some other examples, but it would take, I think, only one sub-Saharan African country. I don't know which it would be. Maybe it's Ghana, maybe it's Kenya, maybe it's Nigeria.

But it'll only take one to start demonstrating, I think, this sort of sustainable pattern of growth for that example to kind of spread. That's essentially what happened historically in East Asia. I mean, if you go back even further in terms of the history, the chauvinistic Western view is, you know, modernity was something that was exclusively a property of Westerners, right? Japan proved that very wrong. And that example spread to other countries in the immediate sort of cultural vicinity. I think the same process is definitely possible in Africa. And there's no reason, I think, that it can't happen.

Tobi:So sort of brings me to, I would say my weirdest question yet. I mean, the reason why people talk about development, the reason why someone like me is interested and doing what I do is that I want Nigeria to be rich in my lifetime. It's possible, but maybe not. But certainly that's the hope. Can you imagine a possible future where, to make it as concrete as possible, where 90% of the global population would be around middle income or something we call rich. Like, can the whole world be developed, essentially, is my question?

Oliver:I think so. I don't think there's any structural reason that's holding that back. I'm sympathetic to a lot of like leftist arguments. Like I know there's like core periphery stuff. Like if you're a big fan of like Raul Prebisch, you think that the world is kind of underladen by the fact that, you know, you have like underpaid people in the global south or doing the commodities extraction or whatever to help the rich world.

I'm sympathetic to parts of that thesis in terms of thinking about like why some countries are underdeveloped, particularly from a political economy standpoint, but I don't think in the long run there's any reason that all countries can't enjoy a decent standard of living.

Tobi:As a development economist, which you say is your preferred label, how do you think that development economics and some of the cool research and informative stuff that's going on there can influence policy more because that's sort of like a big, big thing for me because I see more and more governments in Africa becoming so detached from what works at least to a certain degree. So how can development research essentially influence development policy?

Oliver:Yeah, the framing of that question is interesting. You were talking about earlier, maybe before we recorded, that your concern was that African countries, maybe not even just African countries, maybe like developing countries in general, they're not listening to the policy lessons that academics have prepared for their research. But my take, at least coming from someone who was very recently in the heart of the ivory tower, is that academics, even development economists, which in theory should be like the most applied of fields, are not asking questions that are immediately relevant to governments and to policymakers in African countries.

So maybe both can simultaneously be true, like we're kind of like crossing paths past each other. But at least looking at the research production standpoint, when I look at what's published in top journals, often I'm just like, if the composition of development economists looked more like the people who are being studied, would we be producing the set of research? And my hypothesis is probably not.

The framing that you see a lot of development research, particularly coming out of the United States and Europe, is very much in the mindset of I'm a donor, I'm an NGO, I'm an aid agency. What can I do on the margins to make my program better, right? How can I make it more efficient? How can I like, what intervention would work the best? I think that's like a perfectly fine line of work. For instance, my advisor's work, Ted Miguel, he did a lot of stuff in deworming in Kenya. That has helped tens of millions, if not hundreds of millions of people. That is very clearly good to improve. But this is not a critique that's new to me. But broadly speaking, the area that considers the framing of like, if I'm a developing country policymaker, what sort of macro policies, what sort of like broader industrialisation policies can I pursue to sort of foster growth? I think that's a little bit more of a neglected area in terms of academic research. And so, yeah, I guess I would switch the framing a little bit where it's like, the problem I see is also from our end. We need to be producing stuff that's informed more by experiences on the ground, like people who actually know the problems and less about like what we think or what we can convince a grant maker is interesting.

Tobi:What's the one idea that you are most excited about, that you are most enthusiastic about and that you would like to see spread, become more influential? What is that one idea?

Oliver:So this is a bit of an odd one. It's a very nerdy one, but it's like a question that has been bothering me a lot recently. Maybe you can also react to this. It's like GDP is like a number. I recently read like Poor Numbers by Morten Jerven. Have you read this book?

Tobi:Yeah.

Oliver:Yeah, I read it like immediately at the end of my PhD. I mean, I've essentially done 10 years, 12 years of like economic research and like I first heard of this book. Basically the premise, it's almost like a sociology of how GDP is constructed in developing countries, particularly in sub-Saharan Africa. And It's not pretty. Like for those 10 years when I was a researcher in academia, you know, when you go to the UN website, you go to the World Bank, the IMF or whatever, and you download the GDP statistics going back to like 1960, you kind of assume that somebody has done the hard work of like making sure that this is correct. You know, there is actually an army of enumerators out there in Kenya or Nigeria or whatever. They've gone to every store and they've counted every capital good and they've done the math on this stuff. Morten Jerven's book shows us that that's just patently not true. Nigeria features prominently in that book. You know, it's not even clear how many people are living in the country. Population censuses are like an incredibly sort of politically divisive thing. I'm sure you could speak more about that. Various ethnic groups don't want to be counted or maybe they want to be counted more. That determines sort of the allocation of public resources. And so, you know, you don't even have the number of people in the country correct.

And I believe it was like in 2014 or so. This is, I think after the book was published, like Nigeria basically did a revision to how its GDP statistics were calculated. That resulted in a revision that was like something on the order of magnitude of 90%.

Tobi:Yeah. We’ll do another one very soon, ‘cause we’re like the fourth largest economy in Africa now, and I'm sure a lot of people are not cool with that.

Oliver:Yeah, Nigeria like spring vaulted past South Africa to become the largest economy. And like maybe both of those numbers are incorrect. Let's just say that one of them is like as a baseline. That means that at one point your number was 90% wrong. Like I think there's a sense in which like economists have been so focused on things like causal identification, all these crazy statistical stuff, ignoring like the basic question of measurement. If you had a thermometer that was like 90% wrong, like you would not read anything into the fact that your temperature goes up by like two or three degrees. You know, if the air is like 30 degrees, it effectively is meaningless to be making a minute decision. You know, it's not the fault of a lot of these governments. I mean, in some cases it is like maybe they mess with the statistics, maybe they underfund their statistical departments. But it is true that just like it is a hard problem to measure your economy.

There's this anecdote in the book where Morton Jerven goes to the Zambian statistical office and it's like one guy who does both the census and the GDP numbers. And so like that guy was like really well-intentioned, he's probably doing the best that he can. Zambia is like a country of 10, 20 million people and you have one person doing all that work. It's just not conceivable that you could have an accurate sort of statistical product. So getting back to your question, Jerven's book came out, I think everybody like kind of cites it respectfully and they're like, oh, you know, GDP statistics are just not something we should have like a high degree of confidence in, but we just like kind of go on using them anyway. Because what else are we going to do?

Tobi:Yeah. It's just a caveat somewhere.

Oliver:Yeah, yeah. The World Bank did some stuff. There's like a database they have of statistical capacity. So they rate countries from like zero to 100 or something like that based on how good their statistical agency is. But like, again, I spent like 10 years doing development stuff and I just didn't even notice it. So one idea that I've been pushing that I hope to maybe put into a blog post, maybe develop into a formal paper. is like we actually do have a way of kind of describing statistics that are very noisy, which is like, you know, it's election season in the United States, you know, you'll see like Kamala Harris versus Donald Trump polls. But if you're like a sophisticated consumer of this stuff, you always look for the margin of error, right?

Like when a poll is reported, If the margin of error is like 5%, which is very common amongst these political polls, whether Kamala Harris is leading Donald Trump by 47 to 46 or 48 to 47, it's effectively meaningless. There's just too much noise in the underlying measure to include anything from the raw number. I guess one idea that I like to promote is we should do the same thing for GDP statistics. For some reason, economists are willing to treat GDP as this very certain kind of metric without the appropriate degree of skepticism that they sometimes apply to other statistics. And so just having the margin of error printed next to the number, I think, is like a good epistemic reminder to be humble and be like, hey, you know, like these policies that we recommended that we claim boosted aggregate GDP by like point one percent this quarter. Like there's actually no way that you can actually detect that. And so I think that should encourage greater humility amongst economists and policymakers about how much do we actually know about the world and how much can we actually affect it.

Tobi:Not to mouth any kind of defense for Nigeria, but I think since Morten's book came out, there's been some improvement, particularly in measurement, because a lot of it is just the fact that funding statistical measurement is not a political priority. So for a long time, and I doubt it has changed currently…for a long time, the National Statistical Agency is funded by the central bank in Nigeria and not even by the federal government itself. So like Morten recalled in that book, when he came to Nigeria to do research on that book, the Statistical Agency was in the midst of a staff revolt due to poor pay. And the guys that head some of these agencies and try to do the work, they are real heroes because they are trying to basically perform magic with resources that are next to nothing.

I know that, again, the National Bureau of Statistics in Nigeria, the United Nations is heavily involved both in terms of funding and reviewing the methodology and improving the presentation and everything. But you would think that it is something that the government itself should be heavily invested in rather than foreign agency or a donor agency or something. So a lot of it is politics, really, because in the end, governments really do not make decisions based on these numbers. Hence it's not really a priority to get accurate measurements.

So, but I mean, hopefully things are improving, but it's not without controversy. The most recent one in Nigeria, for example, is that the World Bank and the ILO recently changed the methodology for unemployment. And Nigeria, again, just like the GDP thing, went from being 33% unemployment rate to 5% overnight. Right? So, we started having these technical subcategories like underemployment and informal employment, you know, and things like that. So it's politics, really. But i like your idea and we'll try our best to help you spread it as much as possible.

Oliver:All right. Sounds good.

Tobi:Yeah, so thank you so much, Oliver, for doing this. It's been fun.

Oliver:Thank you, Tobi, yeah it's been fun

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.

Transcript

Tobi;

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.

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.

TRANSCRIPT

Tobi;

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.

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.

TRANSCRIPT

Tobi;

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 story

Tobi;

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. There was legislation in parts of America deliberately aimed at Norwegians.

.

I've never heard of anyone discriminating against Norwegians before, but you go back a hundred years ago in the United States, and they really didn't like people speaking foreign languages on trains, they were banned from doing so, they had to speak English. So, I think, first, it's inevitable people will want to move, and I think we're going to see quite a lot of this struggle to manage immigration by countries that really do need it. The problem for a Nigeria, say, is you're going to be educating more and more people to a better and better quality. You know, it's been happening already for more and more people getting access to education for 50, 60 years. That gives them the skills they need to immigrate.

But Nigeria also would benefit from those skills staying at home. So, it's, uh, I don't think there's much you can do about it other than go full communist and not let people leave the country.

But, it’s going to be a challenge. And the numbers do get worse, it’s quite interesting. So, [at] a $1,000 per capita GDP, low-income countries don't see much immigration cause people haven't got the skills on average to be able to leave. But it peaks at about eight, $9,000, quite high levels, kind of where Mexico is, its like the peak. That's when people are really saying, “I've really got the skills to go and work anywhere and I’m gonna go off to America and make my fortune.” And then it [immigration] drops. So, once you get to about $15,000 per capita GDP, people say, “you know what, my standard of living is actually pretty high.” And what we've seen in Poland is that 10, 20 years ago they came to England, they've probably got a better standard of living today, in Poland now, than they do in the UK. Housing's expensive and, you know, everything's expensive in the UK and in Poland you get a better quality of life. So it looks like people finally do start moving back, but only when you get up to that quite, quite wealthy level.

Tobi;

So, I've got two final questions for you. One is hypothetical in a way. As you know, Nigeria has elections next year - February. And, of course, campaign season has started. Now, suppose that whoever of these guys in the election, whether you are at Tinubu or Peter Obi or Atiku and, like, gives you a ring and say, "uh, Charlie, I've won the election. I really want to do good in Nigeria. What and what should I prioritise?" Against the background of this book and your research, what would your answers be?

Charlie;

The first challenge for Nigeria in the long run and the most important is the educational divide in the country. The fact that well under half of adult women in the north, many northern states, cannot read or write in any language, nor has learn anything else. And I just think this is going to ensure that per capita GDP growth in the north will be low until that changes. While in the south, because the education levels are that much higher, the per capita GDP growth can be higher. So, the divide between north and south is just going to get bigger and bigger until every effort is made to get universal basic primary education for all girls in the north, but actually an adult literacy campaign as well. Castro did it in Cuba in the early sixties, Korea did it in the 1950s. You get literate students, and you send them out to the villages, and you get them to teach everybody to read and write.

Even the people who say I don't need to read and write, I've lived my whole life without being able to read and write. Everyone needs to get this. And that would be, I would argue the most important thing for Nigeria in the long term. Second issue is that in itself will then encourage that lower fertility rate and eventually improve Nigeria's savings, um, which will come, but uh, I'd be very tempted to say what's going on with infant mortality and child mortality and why is Nigeria's ratio so much worse than other countries of the same income level like Ghana or Cote d'ivoire. Let's bring in as much support - Medicine San Frontier, whoever it might be, private charity. I don't know. And it doesn't matter who. Anyone who can come in and try and address that, I think that that, again, is one of those very long-term policy choices. But should be a huge focus.

I mean, unfortunately, the state of security in Nigeria means that while I don't like to see a government have to spend money trying to just maintain security because that's not really investment, but unless there's security, you're not going to get that education. So, unfortunately, something has to be done about the security issue too. And I say unfortunately because it just means spending is being spent on that rather than the long-term growth drivers. And then the question comes of what can we do about the lack of savings now? Now, these are all great long-term policies, Charlie, this is fine, but you know, it's not going to sort me out in four years. What can I do now? And I would argue, try the cheap currency policy that will run a current account surplus and help bring dollars into this economy. Because Nigerian needs savings and if the currency's cheap enough, the current account surplus should happen and then there's some savings to be able to invest in some of the infrastructure that's needed to get the economy going.

And at a more micro level, I wonder whether that, for electricity, trying to get Lagos right. Let's try and see if we can get a city with good education and actually relatively low fertility rate compared to the rest of the country, potentially more savings within Lagos state. Is there a way of sorting out electricity here so that this place can show how it can be done? Because the success stories in China, it all began on the coast. It wasn't inland, it was the coast and for 20 years it was the coast that led growth in China. It was only when the coast had done incredibly well - Shenzhen and , all of these cities up and down the coast had done really well. It was only then that money started getting invested in a big way inland and rural, bringing up the rest of the country too. So, if Nigeria can create some positive success stories in [the] Southern states that act as a kind of symbol of what can be done that's, you know, I don't know if it can be done in four years, but on a four to eight year view and one to two terms in office, I think you could start to make a noticeable difference to the growth rates in some of the southern states and that can help be an example for everyone.

Tobi;

My last question for you is, uh, and of course this is a bit of a tradition on the show. What's the one idea - you're not allowed to take from your book, by the way...

What's the one idea? It may be current, it may be past, it may be global or specific, that really gets you excited, and you like to see it become more widely accepted and popular. What's that one idea? Just one idea?

Charlie;

Yeah, that's a difficult one. I mean the book that interested me in terms of the future, over the last two or three years, was Homo Deus and this is the guy who wrote Sapiens as well. But if you read the last third of Homo Deus and he's talking about robotics and genetics and AI and how much they're going to change everything, eventually, for all of us. Um, that, that interested me. I'm not sure that he came out with one specific idea about it, but I would recommend people to take a look at that last part three of Homo Deus and have a read cause it got my mind thinking, not working out the answers either, but it was just something about "this is going to be big. Um, and I don't know quite how it's going to be big." But, anyway, I recommend reading it. I don't know if that's quite the answer you were looking for, but that's totally caught, caught my attention anyway.

Tobi;

Okay, Charlie Robertson, it's been fantastic to have you on the show. Thank you very much.

Charlie;

It's been an absolute pleasure. Thank you for so many thoughtful questions. It's really, um, it's great to discuss it.

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.

Transcript

Tobi;

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 they know the answers to all the problems. They know the problems, the issues, and they know the answers to the problems. The question is whether they will do something with that or not. That depends on various calculations. So that happens, we have that problem. And some would say that problem may have become a bit serious in recent years, especially because the economy is doing well, and when the economies do well, governments often suffer from a certain degree of complacency. But it is true that we do have a good system. We have some good research institutes [and] think tanks who work on economic issues, and they have a very good tradition of doing surveys where they go and get information from rural areas as well. We have had that tradition for a long, long time. And that has informed the policy debates. 

Now, how do those insights enter the arena of policymakers? This is where the role of policy intermediaries is very important. So the researchers themselves may sometimes be able to play that role. Or if they're part of an institute, there may be some people in the Institute, who are particularly good at taking the findings of their researchers, their colleagues, and taking it to the government. So you need to have that kind of capacity. There can also be specialised institutions. In Bangladesh, we have an institution called the Center for Policy Dialogue, which is created with that objective - that they will pick up the research being done by other think tanks, and they will create platforms where policymakers, politicians, journalists, and researchers can come together, donors as well and discuss these issues. And that has been going on for more than 20 years. They get a lot of publicity in the media, so the role of the media is extremely important, and the quality of the reporting in the media - is it data based? Is it logic based? - that's also very, very important. But one important thing for people outside the government to understand is that politicians will seek out advice from experts when they have a strong need to do so. If they don't have a felt need, you can still try and create that need, but that requires a lot of creativity. Otherwise, you can invite them to seminars, they will come out of politeness, they will say the nice things, they will listen to you, but then they will go back and forget that. So the first thing to do is to identify what is keeping the politicians awake at night? What is the need that they feel? They may not have articulated that very well, but once you understand that, then see, what do you have in your knowledge base, which will be useful for the politician? (b) What is the best way to transmit it? So what is the language that you're going to use? Because the language of the politicians is different from your language. And third, you have to understand, in fact, let me mention an anecdote here. 

Many years ago, Sheikh Hasina, who is now the prime minister, but was the opposition leader came to Washington and there was a meeting with a group of Bangladesh economists. And there was a World Bank macro economist who started talking about the importance of trade liberalisation - the usual World Bank mantra of trade liberalisation. She stopped him midway and said, look here, there was a time when I was living with my husband, who is a physicist, in a border town, the border of Yugoslavia in Italy. Three days a week, the borders were opened up. And I saw people from this part going to the other part, and the other part coming to this part, exchanging goods. So I saw firsthand the benefits of trade liberalisation. But if today we liberalise trade, some industries may go down under, what will happen to their workers? The workers are going to come to me, they're not going to come to you in the World Bank, but they will come to me, whether I'm in government or opposition, and say, what do you do about us? Right? So the interesting thing is that the politician had reached the same conclusion, like the technocrats, that trade liberalisation is good, but she has come from a different route, and she had different concerns. And technocrats need to understand the concerns that the politicians have. They need to understand the world views of the politicians. They need to understand that there is a method in the madness of politicians, and only then you can communicate well, and only then your knowledge will be taken seriously by politicians.

Tobi;

On that note, and this is a bit of a tradition on the show. What's the one idea that you feel most passionate about, it may be recent, it may be in the past, it may be from your work, or any other field that you would like to see spread everywhere?

Akhtar;

I think the idea of, as I said, the notion of picking signals. If I'm talking about the government, so if I'm in the government, the idea of picking signals from the people, and then acting upon it, and then seeing the reaction of the people and then acting upon it again. So this idea of synergy of interaction between the government and the marketplace, and continuing that over time, is an important idea. I don't know exactly what you meant by an idea, or what kind of idea you're talking about… 

Tobi;

It could be anything.

Akhtar;

I don't know if this satisfies it. But for my own study of the history of policymaking in Bangladesh and economic transformation in Bangladesh. This is, I think, [an idea] I have found to be at the core of the success of Bangladesh. Which is this kind of interaction between policymakers and economic actors, and the repeated playing out of this interaction. And that is, I think, one idea that I'd like to leave behind.

Tobi;

That's a fantastic idea. In your experience. I mean, Bangladesh gets talked about a lot. What are the common misconceptions about your country?

Akhtar;

Okay, so I often see notes on Bangladesh. And we saw a lot last year when we had the 50th anniversary of Bangladesh's independence. So people talk about the good things that have happened in the economy. And they will often say, despite the government, and I know The Economist had an article about two or three years ago, “Bangladesh has done well, despite the politicians.” And I think I've made it abundantly clear in the conversation, Tobi, with you today, that the government had a role. And I've given you many examples of what the government did, including the withdrawal. Now, withdrawal also is important because it's not easy to withdraw. We may think it's easy to withdraw. But when you have had a system for many, many years, withdrawing is not that easy. So, the government has done so. And in many, many ways the government has played an important role in Bangladesh's development. So, the development has not happened despite government, that's a big misperception. And that's why we need to know what exactly was the role the government played? And that's why, as I said at the beginning, maybe, that has more relevance than the East Asian experience for many developing countries, because the government in Bangladesh, the initial conditions, were probably similar to that in many developing countries. So if Bangladesh can do it, others can do it. So that's one thing. The other misperception is that it was all about garments and remittances. But as I said, agricultural transformation in Bangladesh has played a very important role. And the third could be a smaller misperception that NGOs like BRAC, their contribution is limited to the social sectors - of course, [a] very, very profound contribution, but limited to the social sectors. As I've said, I've given examples of how they had also operated in the economic sphere, and how that has also had profound implications.

Tobi;

What are you most proud of when you think about Bangladesh’s journey in the last 50 years? What are the things that you're most – I visited Dhaka about 10 years ago, I love the food, but the traffic congestion reminds me far too much of my own city, Lagos.

Akhtar;

I went to Lagos about 20 years ago, and Lagos reminded me of Dhaka. I think the thing to be proud of is the thing I mentioned earlier, the fact that Bangladesh’s in general have become entrepreneurial. And in some ways, there’s an audacity, which I'll say it's a sweet audacity. The audacity that yes, we can do it. We can do this. Whether in Bangladesh or abroad. You know, the writer Amitav Ghosh, he said in an interview that Bangladeshis are probably the most globalised nation in the world, because anywhere in the world you go, maybe with the exception of that in America but that may also change, you will see Bangladeshis there. So there is a certain degree of audacity that yes, we can do it. I think that's what we should be proud of as Bangladeshis - that we have shown that we can do it against tremendous odds. So that confidence, that audacity, which I think is very sweet, is what we can be proud of.

Tobi;

Fantastic. Thank you so much, Akhtar, for this conversation. I enjoyed it so much.

Akhtar;

Thank you so much for inviting me. It was a pleasure talking to you.

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, 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.

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.

Transcript

Tobi;

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. Sure

Tobi;

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.

In the episode, Tobi talks to Dmitry Grozoubinski about the politics and complexities of global trade, emphasizing the tension between free trade and protectionism. Dmitry explains how trade policy decisions involve difficult choices that impact both producers and consumers, using Nigeria's food inflation as an example. They explore the balance between national interests and global commitments, highlighting how protectionist policies are often rooted in political concerns rather than economic efficiency. The conversation also touches on the challenges of multilateral trade agreements like the WTO and AfCFTA.

Dmitry served as an Australian diplomat and trade negotiator at the World Trade Organisation and beyond. He has negotiated complex agreements in Geneva, at WTO and UN Ministerial Conferences in Kenya, and as part of the MH17 task force in Kyiv, Ukraine.

Before joining the Department of Foreign Affairs and Trade, he was a lecturer and tutor at the Monash Graduate School of Business and with the Australian trade consultancy TradeWorthy. He is the lead trainer of ExplainTrade and a Visiting Professor at the University of Strathclyde’s School of Law.

Transcript

Tobi: The complexity of trade agreements, the bargaining, the negotiation, and everything that surrounds the politics of trade generally does not get covered so much. It's always about the economics of it. And that's what I love about what you do, your project, your book, and everything. So my first question to you is that I know you wrote this basically from the perspective of global trade, and with everything that has been happening, I would say, basically, since the Trump presidency, which, like, brought trade into the headlines, particularly with the US-China “trade war”, quote unquote. And, of course, COVID is what we see with supply chains, decoupling, and so forth. But, I would also say to you that in development, the sub-field of economics that we call development, which is what we try to cover here on the show, trade is also a huge deal.

I'll give you a bit of a background. In Nigeria, currently, one of the biggest policy issues is the government trying to decide whether or not to allow the importation of food, basically rice, wheat, and all this other basic stuff. Primarily because food inflation is way above 40%. There's basically a cost of living crisis that has been going on for a few years. People are hungry, people are starving, people are angry because their incomes can no longer even feed them, you know? And so it generates this intense debate because on the other side of that, you have the producer class - the farmers and various lobby groups and political interests who say that, “oh, you really can't import, you're going to turn the country to a dumping ground, we're going to de-industrialise and so many other things.”

So one practical question I'll start with you is, if I were a politician, for example, and you know, with the title of your book, let's say that I am an honest politician. Let's assume that I'm an honest politician and I'm asking you that, Dmitry, how do I make this decision? What practical advice would you give me when considering trade policies generally? How do I make trade policy?

Dmitry:

I think that's a really good question, and I think it kind of goes to the heart of what trade policy is. Anytime you're doing trade policy, you're making choices, and they're often hard choices. You just laid it out perfectly there. You have farmers and other producers of food in Nigeria that are benefiting from very high prices. And you have consumers that are effectively suffering because a substantial part of their weekly budget is going to food, and more than was going before. You mentioned inflation at 40%. That is hugely unsustainable. So as a politician, when you are talking about the choice of bringing in more food, the first thing to do is you have to be honest. And you have to say that, yes, if you allow more food into Nigeria, you will hurt the interests of producers.

One reason I wrote the book is that politicians will often try to gloss over this and pretend it's some kind of win-win. They'll talk about competition. They'll talk about greater efficiencies. And that's all true to an extent. But in the short term, if currently you're locking out foreign rice, which is considerably cheaper than Nigerian rice, and you allow that rice in, you are going to hurt Nigerian rice producers. There's absolutely no way around it. So the first thing is to be honest about that choice you're making. The second point is to be honest about what you're trying to do versus what you're not trying to do.

So one of the ways that this particular debate often gets twisted into an uncomfortable alley is people will start talking about the notion of food security. So they'll say it's important that Nigeria be able to feed itself. And if we allow foreign food in, that will degrade our ability to be self-sufficient on food, right? To my mind, that's a way of basically misleading the public. It's very, very, very, very few countries are food secure in the sense that if trade were cut off tomorrow, they would produce enough food domestically to feed everyone in the country. Countries like the United Kingdom import something like 65% of their food. Why? Because it's far more efficient that way. And global trade supplies what people need. The amount of work it would take to convert the United Kingdom, for example, into being able to feed itself would mean you have to stop doing everything else in the country and prices would go through the roof. So it's important to be realistic about that.

It's also, I think, really important to say we live in an era of climate change. And one of the real problems we are going to face moving forward is that extreme weather events are going to become more common. So you are going to have parts of let's focus just on Africa, you are going to have in coming years parts of Africa that are in drought or flood, while parts of Africa are having a phenomenal crop. And those parts will shift around over and over. Our ability to feed people consistently moving forward is going to rely on us being able to move food from the places that are having a really good year to places that are having a really bad year. And I think any politician who is trying to say that if we just keep the walls around like the tariff walls, the barriers to importing food high enough, Nigeria will be able to feed itself forever every year without sky-high inflation, I think maybe is skipping over just the reality of where we live.

Tobi:

So, as you know, in places like Washington and the like, which gives advice to poorer countries on how to make policy and what will make them rich, you know that for about three decades, the orthodoxy has more or less been free trade. You know, you need to be more open. You need to allow more trade. You need to allow more goods into your country. Protectionism doesn't work. Which economically seems to be true, but right now, you have some of the richest countries in the world who have been advocates of open trade regimes, actually more or less going back to the mercantilist protectionist policies of the past. Which I think you sort of touched upon, especially the history of this in the second chapter of your book. So can you just give me a brief rundown on some of the shifts that we've gone through historically? And, like, what moves the needle on the dominant thoughts on trade policy?

Dmitry:

Sure. So when economists talk about free trade being the optimal path forward, what they're actually saying is, if you don't have tariffs, if you don't have trade barriers, we can maximise the efficient use of resources. So the free market will sort of allow and everyone will produce things in the most efficient way. And so overall, as a planet, we will be maximising our labor and our resources. And that's the benefit of that. They also suggest that having competition in your market pushes your own producers to work harder and having free trade can attract more capital. So inflows of capital from abroad that can make investments in your country. With the confidence that if they build a factory in Nigeria, if you've got free trade, if you've locked that in with treaties, they know that that factory will always be able to get the inputs it needs from abroad and always be able to sell whatever it produces to buyers outside of Nigeria. So that makes Nigeria a more attractive investment destination, for example.

So that's kind of the logic for a long time. And you mentioned Washington, Brussels, you know, the big economies generally tended to push that line and tended to believe it. Now, I would say straight away, it's important to note that they didn't universally believe it. So, for example, Europe is like, yeah, free trade's great unless you want to sell us certain agricultural commodities. So if you want to sell beef to Europe, suddenly free trade is not so great. And they protect their beef farmers or their lamb farmers or even their wheat and sugar producers. Ditto, America loves free trade when it comes to certain things. But if you try to sell America a light truck, you're paying a 25% tariff at the border. It's virtually impossible to sell certain kinds of services into the U.S. If you want to get a visa into the U.S., you sometimes have to do a job, you sometimes have to wait two years for an interview at a U.S. embassy. So even the rich countries that were preaching free trade were preaching free trade asterisk.

So what they were basically saying is, we believe that this is the optimal way to arrange the global economy, except on the things that we care about, the things that we're really sensitive on, where we think what's important isn't efficiency, but keeping the French farmer employed or protecting the US insurance market. What we're seeing now is that that asterisk is growing. So the US, Europe, China, all of these major players are increasingly saying free trade is great unless we have a national security concern. Free trade is great except when we want to rebuild the factories in the US Rust Belt. Free trade is great unless we want to create an instrument where you can't bully us with trade, so we're going to set up the EU anti-coercion instrument. So all of these kind of asterisks are being piled on top of what they used to be before.

Tobi:

One thing that often challenges observers, and I would imagine policymakers and politicians included, is the balance between, say, national interest, which again is becoming more prominent when it comes to trade policies, and global commitments, especially membership of world trade organisations, bilateral trade agreements, and other forms of multilateral agreements. And I want to get, especially from your experience advising and consulting on trade, what are the challenges or the headaches, the difficulties that leaders often encounter trying to balance between national interests, like, oh, we want to protect certain companies who are national champions, we want to protect certain key industries, and being signatories to a much wider multilateral, even bilateral agreements? How do you balance such contradictions sometimes?

Dmitry:

So the whole multilateral trading system, the WTO, all of it is built on the exact tension that you're talking about. You mentioned sort of balancing the national interest versus being part of the WTO. The WTO fundamentally only works as long as all of its members broadly believe that those two are the same thing—that ultimately what you're doing when you join any kind of trade agreement or really any kind of international agreement is what you're really saying is, "I am going to sign away my ability to do certain things." So I'm going to say I will swear off doing certain kinds of policies in exchange for you doing the same. And that's not because you never want to do those policies. You know you might want to do them in the future. But overall, you think the benefit of being in a world where no one's using those policies outweighs the short-term benefits of using those policies.

I compare it to like an arms ban treaty that bans chemical weapons on the battlefield. Chemical weapons are tempting to use on the battlefield because they can help you achieve a certain objective that might be really effective at what they do. They're horrific. But countries have come together and decided that the benefits of no one using chemical weapons and our battlefields not being full of chemical weapon residue outweighs any of the tactical advantages we might get ourselves from using chemical weapons. We prefer the confidence of a chemical weapon-free world to the benefits of having chemical weapons.

Trade agreements work the same way. You're always signing away the ability to use some policies you find tempting in exchange for that kind of global stability. So the tension tends to come because we are encouraged to be very short-term in our politics. And the benefits tend to be pretty narrowly focused and acute. So a specific industry is saying, "You have to protect me against foreign rice farmers." And that's something you can do today. The benefits of the global trading system and that kind of predictability are much, much broader, but much more diffuse. Everyone benefits from predictability. You get more investment. You get more trade flows. Prices overall are lower. That's all very good. But it doesn't have that acute politics of a particular industry that wants protection and will throw you a party if you give it to them.

So what political leaders are constantly fighting is the temptation to do something in the short term that weakens the system in the aggregate. And one of the few balances we have against that is the sense that if you do something like that, you're going to get retaliated against and other countries will hit you back.

Tobi:

I think one of the reasons why your book is well-timed is that it comes at a time when we are fundamentally learning that trade policy is inherently political, right? So a way to, like, further extend the last question for me is… sometimes I find it surprising that a lot of trade policies or trade agreements or even I would say maybe intellectual consensuses that have formed over time around a particular subject have political, intensely political origins and not economic or positive-sum motivations. So maybe you can provide me with a few examples from history of how politics have come to shape the conversation. An example I have in mind is recently the Biden tariff on electric vehicles from China. Most of the people, smart people, I should say, who have defended that policy would always say something along the lines of national security. America really needs to reindustrialise its core, you know, this and that. Because it's so obvious when you point out that if you want to transition to cleaner energies, if you really want to fight global warming, then slamming tariffs on electric vehicles makes absolutely no sense. But at the end of the day, people easily just recede to political arguments that would hardly pass water a couple of years ago. So I find that just contradictory, confusing. Help me out. I'm drowning here.

Dmitry:

I wish I could. I wish I could make it all make sense. The only thing I could do is first say—and this is a point that I hammer in the book over and over to the point where I'm worried I'm boring people—is that the big issues in trade have always been politics first, second, third, and then economics somewhere around, like, 26th. If you look at any major trade issue, it almost always comes down to, like, highly politicised questions. And there are really lots of examples on this.

So, for example, Japan, which generally has a reasonably liberalised open trade regime, has insanely high tariffs on rice, like hundreds of percent. And there is absolutely no economic reason for that. Rice farming is a tiny, tiny percentage of the Japanese economy. You know, Japan would be fine as a country without rice. But the traditional way of growing rice in Japan is very politically iconic. It's significant. They have a strong lobby. And so Japan, even while sort of preaching free trade, makes it incredibly difficult to sell rice to Japan in order to protect these small group of farmers.

Another story I like to tell is that when Australia did its free trade agreement with China, China is by far Australia's largest trading partner, hugely, hugely significant. And we finished the free trade agreement. It takes many years to finally get done. We sort of announce it to the public. We take it to parliament and everybody, the media, the opposition party, the entire national conversation becomes about this one tiny provision buried somewhere deep in the services chapter that creates a tiny visa subclass for like 100 Chinese workers a year to come work on gas projects in the middle of Australia. 100 people. 100 visas. But that sort of captures the national imagination. It becomes politicis ed. It becomes symbolic. And that's like the only thing we talked about for weeks on this trade agreement.

So we laser-focused on this issue that was hugely politically significant. But in economic terms, it was so small that it wouldn't have registered on any statistics. Like legitimately, if you looked at Australian nationwide statistics, a 100 workers working on a gas project somewhere outside Alice Springs is not going to even turn up on statistics. So this has always been the case. It is everywhere. And so I think what we're seeing now is just a continuation of that.

One thing I think we are seeing more and more of is politicians trying to distort the choices that they're making. You brought up electric vehicles. I think electric vehicles are one example. Solar panels are the example that absolutely gets me. Because there is no way we do anything about climate change without a transition to much cleaner energy. And right now, China is overwhelmingly the largest producer of solar panels. They are doing that through subsidies, and they are dumping these solar panels on the world market. We need to have an honest conversation about the trade-offs involved in taking those solar panels. Are we comfortable with allowing Chinese government money to create this giant industry, to create this dominant position in world markets if it means we get lots and lots of cheap solar panels? It's a hard choice to make, but it's a real choice, and we need to be honest about it.

So to kind of not answer your question properly because I can't think of any way to make you feel better about all this, it's that in some ways, what we had before—so I'm talking about before Trump 15 years ago—the trade conversations were mostly happening below the radar. There was mostly a consensus in the West about how trade policy should work. Trade very rarely made the news. You know, maybe with a big trade agreement, like the one when the US and EU tried to do, maybe around the Seattle round of the WTO, but mostly it was sort of hidden away in a corner and there was no public discussion about it. And now at the very least, it's in the headlines, and we're having conversations about it. And that is an improvement, even if some of those conversations aren't necessarily helpful.

Tobi:

My two-part follow-up question to that would be that regardless of one's disagreement or misgivings, the consensus around how these conversations are happening and how they influence policy changes seems like it's here to stay. I mean, like we talked about before we started recording, Trump might be winning another election and it's going to be another rollercoaster ride. So, I mean, in a common-sense kind of way, hoping that that prevails in actual policymaking, how would you suggest that countries balance the trade-off that may or may not exist between their economic interests and strategic imperatives like national security, trying to build up your defence base or be industrialised, and so many others that are intensely political and won't go away? How do you suggest the politicians or the advisors find a balance? Relatedly, especially in poorer countries, how do they find this balance without resorting to the kind of hurtful protectionism that we've seen with some countries over the years? So those are my questions.

Dmitry:

I think the only way forward is to be really specific and concrete about what you are trying to achieve. Because I think the danger that we're seeing now is that you have politicians identify a very high-level and nebulous objective. So you say like national security or to, you know, defend ourselves against China at some point in the future. And then they create that very, very high-level objective. They don't define what exactly they're picturing in their heads, like what they want the country to be able to do in that regard. And then that opens the door to justifying just about anything they want to do in any area.

So if I say, well, hypothetically, I am worried about the rise of China and I'm worried about having to fight a war with China and my industrial production in that event. Because, like, oh, what if we need to suddenly make a lot of tanks and bullets? If you've kind of set your objective that nebulously, then any time any factory owner comes to you and says, I want you to intervene in the market to help me, you can retroactively justify that. Because you can go, well, this factory is in trouble. If we go to war with China, we're going to need factories. It's important that we save this factory. And so you've kind of opened the door to politicians doing what is easy or tempting or popular on any given moment by not concretely defining your objective.

But I think there's a lot you can constructively do, even in ways that are sort of protectionist, that's fine, if you've narrowly defined your objective. So if you say, I would like to further strengthen Nigeria's IT sector, right? Like that's what you've defined as your objective. You can look at the barriers, the difficulties that the Nigerian IT sector is experiencing, and work out if there are places where a government intervention, including a protectionist one, might really help. And you've got like, I want to boost the Nigerian IT sector. My goal is to create 50,000 new IT jobs within the next three years. And I want us to have a really good ecosystem for entrepreneurial Nigerians who want to build apps. What would that take? What do I need to do? You've defined your objective. You've defined what victory looks like. And then if you say, OK, one of the things I really need to do to make that happen is to make it harder for Nigerians to use apps hosted in other places so that they're more inclined to use Nigerian apps. You can do that. And then two years later, you can see if it worked. We can judge the policy based on like, we wanted to create 50,000 jobs. We want to create lots of new apps. We took this step. It cost us something. It made life more annoying for Nigerians who wanted to use, like, Canva. But do we now have a Nigerian Canva alternative that's good, that people like, that's selling to the world?

So if you concretely define the objectives, are able to identify how what you're doing will deliver those objectives, and then finally have a way of testing afterwards if it worked, you can have a really mature conversation with the public about this is what we want to do. This is how we want to use the levers of government where trade policy is concerned to make your lives better in these ways. And then the public can sort of decide if the trade-offs are worth it. That's what has to be the mature policy discussion that needs to be taking place between the public and leaders, because otherwise you can just kind of justify anything if you say, well, I'm just doing this to create, you know, for prosperity or whatever.

Tobi:

I want to circle back to something you mentioned at the start, which is about winners and losers with regards to trade policies. Of course, there are always losers. I'll first seek a philosophical commitment from you, which is that on what side of the divide do you fall when it comes to wins and losses from trade policies?

Dmitry:

So where I tend to come from is that the kind of winners and losers framework can be really heartless in the sense that if I'm walking down the street and I decide I want to go for a coffee and I go into one coffee shop instead of the other, that is like a winner and a loser. Someone is going to earn my four dollars for my flat white and someone isn't. But that other company is going to be fine. So there's a winner and losers in that scenario, but it's not a big deal. Whereas, let's say you have a small town in Nigeria that's basically grown up around a factory. Let's say that factory makes shoes. And because of international competition, that shoe factory closes.

From an economic standpoint, like pure economic theory, you're like, well, kind of, OK, that's good because now Nigerians on the whole will get slightly cheaper or more better value shoes from abroad. And these guys can be freed up to do something else more efficient. But that's not how anything works, right? A linchpin factory closes in a town. You've got huge rates of unemployment. All of the businesses that feed into that factory are now in trouble. The doctor who treats the workers, they can no longer afford to pay her. So she moves to the city and now the town doesn't have as many doctors. So there's like a cascading effect. And a 53-year-old factory worker who makes shoes probably isn't going to immediately pivot to making TikTok videos for money. You know, they're not going to become a web developer overnight. So we need to be aware of just how bad it can be when trade creates losers. That doesn't mean you have to try to prevent it ever having any losers. But I think we have to be really, really sensitive to what happens when we create losers. And we need to have a plan for how we are going to help those that, frankly, capitalism rolls over.

Tobi:

I think you sort of answered my pushback because what I was going to say was that sometimes in reality, it can be difficult to tell a priori who the losers are going to be. I might be the trade minister, you know, staying in my fancy office in the capital and not aware that this little town somewhere in central Nigeria depends so much on the shoe factory until after we are seeing the effects. Maybe I get to hear it in the news or something. My question then would be that what are the right sensibilities that policymakers need to have as a general rule when dealing with wins and losses from trade policies?

Dmitry:

One of the things that trade ministries really struggle with is exactly what you're describing, which is in order to understand what the consequences of a trade policy decision are going to be, you really kind of need firm-level and local data. If you're just looking at national statistics, you get a very, very stratospheric picture. So one really common example is that the entire UK fishing industry, so absolutely everyone involved in fishing in the UK, contributes less to UK GDP than the company Games Workshop that makes Warhammer figurines. So if you're looking at national-level statistics, you're like, well, one of those is more significant than the other. But if UK fishing were to disappear overnight, that would be tens of thousands of jobs, dozens of coastal communities that would be devastated. And so if all you're doing is sitting in a capital looking at those high-level statistics, you're going to miss these acute pain points.

So one of the biggest challenges is how do you create a consultation system where the ministry and capital is talking to local authorities, talking to kind of mayors, talking to business associations that are spread all across the country and going, what would happen if we did this? Sort of what would be the consequences? Who would the winners and losers be in your local area? And what do we need to think about? What do we need to keep in mind? That's really, really important. I kind of go back to the example used right at the very start about the current debate that Nigeria is going through on importing food or not in the face of food inflation. And I think that's a really good winners and losers story, because whatever choice you make, you can sort of think through who the winners and losers are going to be.

So if you decide to open up your markets, the world price of rice and grain is published. You can have a look. You can examine how much of a hit that's going to be to farmers' incomes. There's no unknowns in that equation. So we can probably figure that out. Then you can decide, OK, if we let in more food, who are the farmers that are likely to be put out of business or significantly hurt, and what can we do to help them? Well, then on the flip side, if you decide not to let that food in, again, you've got statistics on how much does the average Nigerian spend on food? What is the current rate of inflation? Who in our society, if we keep these barriers up, is going to need help making ends meet and being able to afford to feed their family if we keep food prices where they are and we don't let food in? And how do we deploy the resources of the government to help them?

Tobi:

One of the things that I'm most fascinated about is countries that were previously poor a few decades ago, who are today global giant exporters of certain technologies or goods or commodities. So how would you advise a country that is trying to develop a globally competitive export sector in general? Because the consensus in development economics is that exports help your economy, exports help you grow, create jobs, your industries are upgraded, you're able to import technology and upgrade via all that. So how would you advise countries? What policies would you advise countries to focus on that are trying to build from scratch a globally competitive export sector, especially at the firm level? Because we tend to focus on countries, but it's actual firms that are making these goods and exporting these services, you know, and there are international regulations and standards to comply with. So how would you advise countries to do that?

Dmitry:

Really big question. And obviously every country has its own local challenges. But let me try to give you like a big-picture answer. And I respect your audience to know that I'm painting with a really broad brush. So the fundamental issue is you want to build a competitive export sector. Almost certainly that requires investment because unless you are—maybe if you're like growing saffron, you don't need that much investment. But almost anything else you're going to make, you're going to grow, you're going to export, requires capital and investment in order to do.

Capital looks at opportunities, but they're also really sensitive to risk. So, the question then becomes for governments, how do you send a de-risking signal to a potential investor? An investor is looking at your country, thinking about building a factory there. What are the risks that they're thinking about? Increasingly, factories are modular and can go pretty much anywhere. It's not like it used to be where you have to build them only in certain places. Theoretically, a factory can go almost anywhere. Then the question for that investor becomes, firstly, will that factory be able to consistently get what it needs to operate?

What do factories typically need? Well, you need workers who are capable of working at a modern factory. So that means your education system has to be producing good, talented workers. Second, it needs power. So the power grid needs to be reliable. Third, it needs predictability of your trading regime. So it needs to know that that factory will be able to import the parts and the components it needs from abroad reliably and be able to export reliably. Fourth, it needs to know that the infrastructure is there for it to be able to get its stuff in and out of the country. Fifth, it needs to know that your legal and regulatory regime is robust and predictable and that they won't run into legal challenges.

Now, that's really big picture. There are ways that individual governments have been phenomenally successful at ticking all of those boxes in microcosm ways. One concept that's really taking off all over the world is creating special economic zones. So you designate a part of your country, literally like a couple of square kilometres, and you say, this is going to be the special economic zone, and I'm going to focus on attracting investment and production here. And then inside that zone, you create better regulatory conditions. You create better tax conditions. You then deliberately build infrastructure to that zone because you know that's where the factories are going to be. So you can save on rather than trying to sort of do stuff everywhere, you just build like a really good railroad just to that zone.

When you think about the regulatory compliance challenges that a lot of businesses, especially in the developing world, are worried about, what they're actually worried about is the countries we want to sell to are going to increasingly create new regulations on how green stuff has to be, how carbon neutral stuff has to be, how slave labor-free it has to be, all of these kind of new standards and rules. The challenge for most developing countries isn't in meeting those regulations. It's in proving that you've met them because it's not enough to be carbon neutral. The customs official at the port of Rotterdam has to accept that you're carbon neutral.

And one thing that special economic zones allow you to do is that you then set up the trust to say a laboratory that tests your meat products for all of the things that your buyers are worried about, you set it up in one place. And because it's servicing the entire special economic zone with lots of businesses inside it, that makes commercial sense rather than trying to build one all around the country. So one way that you can think about this is by saying, OK, it's going to take too long to raise the entire country up to the level where it ticks all six of those boxes for potential investors. But we can start building individual areas that tick all of those boxes and use those to lift the rest of the country up.

Tobi:

I love the answer so much, especially the latter part. And speaking on regulatory standards and the like, a couple of years ago, and this was after years of debate, African countries finally signed up to what they call the Africa Free Continental Trade Agreement. I'm not sure if you're aware of that. So it has faced difficulties. So I would say it hasn't lived up to its promise. And part of the challenge is that it has been really difficult to scale up or harmonise the regulatory and the standardisation, that is, both legal and logistical and all the other things has been really, really challenging to replicate that across all the signatory countries.

But as we saw with Europe, that in itself can then become a challenge, you know, because you can have farmers in England angry that Brussels is making the rules, or people in France complaining that German goods are unfairly competitive because Germany suppresses industrial wages, or you have Greeks complaining that their tourism sectors cannot compete with Turkey because the euro is overvalued. So my point is, what are the benefits and risks of single market type of trade agreements, and how can you make best use of them, and how can you like, you know, slam on the brakes so that it doesn't break stuff domestically?

Dmitry:

So the dream of the AfCFTA is pooling all of the unique strengths of different African countries together to make a much more competitive whole. If you think about the strength of the US economy, one of the things that makes the US so economically powerful is that you can combine and build something across five different US states. And then you get lower wages because you're manufacturing it outside of Detroit, but you get to bring in capital from New York. You get to bring in design from California. You get to bring in raw materials from the Midwest. And you can do all of that because there are no internal borders to cross within the US. You just load up your trucks with the materials and you drive them across and it's all seamless. And then it goes to a port and leaves, right?

That's kind of the advantage. And that makes the US a lot more economically powerful than the 50 individual states would be on their own. And that's kind of the dream of the AFCFTA too, right? This idea that you'll be able to combine stuff that was made in Nairobi and then sent to Nigeria for further processing and then maybe shipped out of the infrastructure in the ports in South Africa, right? And at the moment, that is a huge, huge bureaucratic challenge. The WTO once screened a documentary where a television crew basically followed a truck driver driving a shipment of flowers from Central Africa-West and eventually to Europe and just photographed all of the paperwork that driver needed to cross each of the individual internal African borders. And it ended up almost being a second truck worth of paper because every single border required a different version of the form that he needed to carry. Because every country had its own export and import declaration, and every country had its own plant health declaration.

All of that makes it much, much harder to manufacture Africa-wide and build a competitive product. That's the advantage. Obviously, there's some benefits to local consumers as well, bringing down prices. The disadvantage is the inability to kind of compete with other African countries on your regulatory regime. Everything becomes a lot slower and more rigid because if you have to design a new regulation, but in order for it to come up, be real, you have to agree it with every other African country in the context of the AfCFTA, you can't be agile and dynamic anymore. Nigeria can't go, I am going to attract more investment than Uganda by having a looser regulatory regime around something. So you lose that ability to compete internally, which can be good and bad.

And as you say, it does tend to generate its own political antagonism, because what you were describing in what all politicians in Europe talk about is the fact that anything bad that happens is the fault of Brussels. Anything good that happens is them. So the system like that builds up its own opposition because it creates the incentive to blame all of the problems on the AfCFTA while claiming all of the good things that happen for yourself. And over time, that builds up resentment and political opposition to the project.

Tobi:

Recently, I was reading in the news something about the Director General of the WTO warning that we must not return to the protectionist policies of the past. I mean, the whole leadership of the WTO, in my opinion, can sometimes cut a hapless figure. Because here you are, sometimes it seems like the wheels are really falling off global trade, and you have the premier institution of global trade basically toothless to do anything about it. But again, when you then talk to countries or you hear politicians from individual countries speak, you turn around and blame the WTO, the inability to enforce certain rules, which then creates this unfairly competitive environment, you know, maybe some accusations that have been levied against China, for example, the China shock.

So my question to you would be, what are your suggestions on how to fix WTO, or do we need an entirely new framework for the governance of global trade?

Dmitry:

So my best advice is to think about what the WTO is set up to do versus what it's not set up to do. I think your diagnosis is 100% right. You're seeing a shift towards other priorities away from just liberalising trade. You see major players doing things like the European Carbon Border Adjustment Mechanism, the US's IRA, their big kind of investment, sort of, green energy transition bill that has a lot of subsidies. So you have all of these really, really big things that governments are doing. And expecting the WTO to stop them is crazy. If the European Parliament has just passed the biggest climate deal it's ever going to do, it's not going to reverse it just because someone in Geneva complains about it or because someone takes a dispute with the WTO. So the wrong way to think about the WTO is in preventing all of this. The WTO has to explain what are the dangers and what are the trade-offs, and that's important. But the WTO, I think, also has a really significant role to play in shaping the implementation.

So let me give you like a really concrete example. The way that the EU's carbon border adjustment mechanism is going to be implemented or is implemented is incredibly complicated and has lots of different potential kind of externalities that might be hurting, for example, African firms in a way that the EU never intended. The WTO is actually a really good place for African countries to come and say, hey, EU, the specific way you're doing the CBAM is hurting my companies in this specific way, and we have an idea for how you could fix it. Not by reversing CBAM, but by changing a little bit the way it works. It could be just something as simple as the verification requirements, the forms, the procedures.

And the WTO, because of the way it's set up, because there's procedures, there's committees, there's experts, there's a process to follow, is a fantastic place for us not to prevent deterioration of the trading order and other priorities being pursued, but to shape them in a positive way, to mitigate unintended consequences and kind of add some oil to the machinery of whatever the global trading system is turning into.

Tobi:

So my final question to you, Dmitry, is this, and again, this is a bit of a tradition on the podcast. What is the one idea, just one, that you would like to see spread everywhere, that you would like people to be excited about, that you would like to be more influential? Just one idea. It can be your idea. It can be borrowed. It can be from any source. What is that one idea?

Dmitry:

I think one of the coolest programs I have ever seen is working visas for young people. A lot of rich countries have this between themselves. And what they say is basically if you are under sometimes 35, sometimes 30, you can come over and work in our country for a year or two years. And it's not immigration. You come over, you work. And it is such an amazing way of bringing like the world together, bringing new cultures into other cultures. The people come back with incredible experiences. You know, they come back and they start businesses back home. They bring ideas. And it's so amazingly powerful for spreading ideas, spreading cultures, spreading conversations. It's like stimulating economies, but without brain draining poorer countries. One idea I would love to spread is just the idea of letting young people all over the world spend some time in a hassle-free kind of visa manner, working wherever they want to work, doing the jobs that they want to do, just so that we have a world where more people have experienced what it's really like to live in another culture, and more people have the experience of working with entrepreneurial, exciting young people from all over the world, rather than just their backyard. So that is one idea I would love to see spread, love to see take off. And I think it would genuinely make the world a more pleasant place to be alive in.

Tobi:

Yeah, yeah. And we will do our best to help you spread that idea. My guest today has been Dmitry Grozoubinski. You should check out his wonderful book, Why Politicians Lie About Trade and What to Do About It. I want to thank Dmitry for coming to the show. It's been fascinating talking to you.

Dmitry:

Thanks so much, Tobi.

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.

TRANSCRIPT

Tobi;

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;

Yeah

Dan;

Then I can meet face to face.

Tobi;

Yeah, I would I would love nothing more.

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.

TRANSCRIPT

Tobi;

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.

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.

TRANSCRIPT

Tobi;

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 that

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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.

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.

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.

TRANSCRIPT

Tobi;

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.

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.

TRANSCRIPT

Tobi;

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.

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.

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.

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.

TRANSCRIPT

Tobi;

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.

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.

I had a very stimulating conversation with Nathan Lane. Nathan is an empirical economist and an Associate Professor of economics at the University of Oxford. His research focuses on the political economy of development, the economics of the state, and Industrial Policy. Nathan's work combines new methods from data science and traditional micro-data to understand questions at the heart of economic development -in particular, industrial development.

His work has focused on the policies behind the East Asian miracle, and the comparative experience of Asian economies. We discussed Industrial Policy in this conversation - and Nathan brought the careful nuance and clarity that characterizes his research. It was Nathan's research that inspired me to start the newsletter that evolved into the podcast - and I am grateful to him for having this conversation with me.

You can subscribe to the podcast on all the major podcast vendors (major links here) - and you can rate us generously to help others discover the show. If you care about the work my team and I do in bringing you these conversations, then consider supporting us by becoming a paid subscriber or by becoming a patron on Patreon.

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.

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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.

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.

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.

Tiago Santos joins Tobi on this episode of the podcast to discuss Parliamentarianism. Tiago believes that if African countries had adopted parliamentary systems during their democratization wave, they would have likely seen better development outcomes, citing the success of Botswana and the economic growth seen in parliamentary countries. He also highlights four main flaws in presidential systems according to political scientist Juan Linz: lack of clarity in authority, rigidity, winner-takes-all nature, and personalism. These issues often lead to ineffective governance, coups, and excessive polarization, which hinder development and political stability. Tiago further argues that better governance structures, like those provided by parliamentary systems, are crucial for economic development. He emphasizes that parliamentary systems lead to greater political stability and more inclusive decision-making, essential for fostering long-term growth and escaping the "Malthusian Trap."

Tiago Ribeiro dos Santos has been a Brazilian career diplomat since 2007. He has a law degree from Pontifícia Universidade Católica in Rio de Janeiro, a professional degree from Instituto Rio Branco (Brazil’s national diplomatic academy), and a master’s degree from the University of Chicago Harris School of Public Policy. He is the author of the excellent book Why Not Parliamentarianism.

None of the opinions in the interview reflect the views of any institution he has been associated with - and you can find the full transcript of the conversation below.

Transcript

Tobi;

You're, I would say, a strong advocate of parliamentarianism. I wouldn't call myself a strong advocate, but I'm fairly biased towards your point of view and became even more convinced when I read your book. Particularly in Africa, a couple of countries went through long periods of military dictatorship. And around 20, 25 years ago, there came another wave of widespread democratisation on the continent. What happened was, maybe due to the influence of American foreign policy or some other global forces, a lot of these countries opted for the American-style presidential system. And in my own observation, maybe I'm wrong empirically, a lot of these countries, my country, Nigeria included, struggled with the workings of this presidential system, such that there had been constant agitation for a kind of return to the parliamentary system that Nigeria had immediately after independence. My question to you then is that, are you willing to say or assert that perhaps if a bunch of these countries around 20, 25 years ago had opted for parliamentary system, would they have done better development-wise?

Tiago;

I don't think anybody can say for sure, but I'm convinced that they would probably, very likely, had done better. With respect to Africa, I think, yes, there is a strong influence from the American model because it's obviously a very successful country. So it's very easy to model after them. But I think that there is something else also in the choice of presidentialism by African countries. I've read a paper by James Robinson and Ragnar Torvik that argues that there is a tendency for endogenous presidentialism, which is that exactly because in presidentialism the leader has more chances to exert their powers without much resistance. So back in the 60s, a bunch of countries in Africa, I think most of them, had a parliamentary constitution, not only Nigeria, but many other countries had a parliamentary constitution and basically all of them switched to presidentialism at some point. If you look at Botswana, the economic performance that they had since the 1960s is very impressive. I wish Brazil had the rate of growth that Botswana has been experiencing consistently. So looking at the countries in Africa that have adopted parliamentary constitution, I think that it would be the case, yes, that had these countries adopted a parliamentary constitution back when they democratised again, they would probably have done better.

Tobi;

I mean, Nigeria is so loud. that the word restructuring, which is a shorthand for reconstituting the political system, is so common in political parlance and, you know, we kept shouting restructuring, restructuring, and it never really comes to pass.

But given the ubiquity and the allure of presidentialism, at what point, particularly historically, did you become convinced enough to write this book about the superiority of parliamentary systems?

Tiago;

It wasn't something that particularly interested me during the first 40 years of my life, before writing the book. So I wrote a book on the economic effects of the Brazilian Constitution. So the idea was to make this research and check every article of the Constitution, what economic effects we could expect to have in Brazil with my then boss, Otaviano Canuto, in the Brazilian constituency in the Board of Directors of the World Bank. And one of the things that I started researching on was exactly the difference between presidentialism and parliamentarianism. And I started to find some striking results. This was too big to go into the article, so we don't mention it in the article that we published. We mentioned other aspects of the Brazilian constitution, but then I couldn't stop researching this. And I was always also checking myself, trying to push my good economist friends. I was trying to also get comments from many people that have thought about this problem very well and to check that I wasn't thinking something that was completely out of base. And I was increasingly convinced because of the feedback that I got, the continuation of my research, it was then when I combined all the elements that I think are in favour of parliamentarianism that if we just look at countries that are parliamentary or countries that are presidential, you see that parliamentary countries perform better in just about any indicator.

If you look at the history, if you look at the informal theory, if you look at formal theory from economics, if you look at the evidence that people try to do with studies that are not just correlational, but that introduced good statistical controls for things, If you look at complementary evidence from companies - so companies can adopt a parliamentary model, which is having a board of directors and this board of directors can control the CEO. And no company elects a CEO by the shareholders directly. And this CEO will have a checks and balances relationship with the board of directors. This figure doesn't exist. And I think the market is in a very good position to choose the best arrangement. And finally, the council management system in the U.S. that I learned when I was doing this research is a system that is very similar to parliamentarianism. And cities that adopt the council management system perform much better than cities that adopt a strong mayor system, which is similar to the presidential system.

Tobi;

So what are the key flaws that you mention in the book? Perhaps there's more now since you wrote the book. What are the key flaws in presidentialism that you think a parliamentary system addresses effectively?

Tiago;

We were discussing before you started recording. I don't try to be original in my book. I try only to convey the knowledge that's already there. And in this, the most influential thinker is by far Juan Linz, a political scientist. And I think that he has the best frame for this. And he talks about four main flaws in presidentialism that parliamentarians doesn't suffer from. So these flaws are in presidential countries, you don't have a clarity of where the authority lies. So what happens in the end is if you like the policy that Congress is trying to push, then you will stand on the side of Congress and if you like the policy that the president is trying to push, then you will stand on the side of the president. And there will be lots of undermining of initiatives by both the Congress and the president. They won't agree on many things and it will be difficult to have a coherent proposal. Daniel Diermeier has an article on this, on how parliamentary systems are more cohesive.

So the second thing I think is a big problem, also from Juan Linz, is the rigidity. So if a country is presidential and the president is working badly, there's nothing we can do. We just have to wait for the mandate to end. And if this is bad enough, if some sectors of society perceive this to be bad enough, you have often coups that derive from a perception that there's no way that the president can stay in place. And then a majority of the powerful actors in a society will install a coup. So that's why the prominence to coups in presidentialism is so much greater than in parliamentarianism.

Then you have a winner-take-all situation. So if you win the presidency, you have so much power that you will be able to implement so many things and you have almost complete control over so much of government. Whereas if you are the losing side of a presidential election, then you are out of government completely. So there's too much at stake. And this incentivises the kind of polarisation that we see in many presidential countries, a type of politics that is very visceral, that is very combative. That's not the kind of politics that we would hope for. And lastly, it's personalism. The presidential system focuses way too much on the figure of one person instead of different institutions in society, different sectors and different voices. And it's often the case that in many presidential countries, people don't love the candidate that they see. They would never support that candidate if not for the reason that they hate the other candidate that will have so much power. And then they try to minimize the flaws that they would never accept in a normal situation on the candidate they support. And this leads to a race to the bottom sometimes. So the personalism is a disastrous characteristic of presidentialism, too. So I think the Linz framework is still the best description.

Tobi;

Yeah. Two common pushbacks that I get when I try to discuss parliamentarian systems whether amongst friends and other people so i want you to help me respond to them is that first is the issue of capture of the political system. So most presidential system have what we call term limits. In Nigeria, in the U.S., and some other places, you say, oh, a president can only serve two fixed terms concurrently. And after that, it becomes unconstitutional. Even though some countries, their president have successfully overturned constitutional time limits to become de facto dictators. But, I mean, let's leave those aside. Whereas in parliamentary system, it's possible to have the same party, the same ruling coalition in government sometimes for decades, right? So what is the nuance between something like presidential term limits in the presidential system and the prospect of having the same, basically, the same government in power for decades? How do those two systems compare in that regard?

And the second pushback I get is stability. The recent case that comes to mind is the Netherlands, for example. They had an election recently where a controversial candidate and party basically won the election. But at the end of the day, it became impossible to form a government, which is what you don't get in a presidential system. The system is such that there is the emergence of a clear winner who then forms a government and then proceeds to govern. Whereas in some parliamentary systems, in some cases, you can have this persistent chaos for a while, like in the UK now where they've had at least three prime ministers in about six years. So those two push back, how do you respond?

Tiago;

With respect to the first, I think there's a strong consensus in political science that term limits actually are a negative quality for an institutional system, because if you recall in the book, I discuss a model by Persson and Tabellini, two economists that studied this question. And they are the only model that I know of. For the only model that thinks that presidentialism is superior to parliamentarianism, one of the most important characteristics is that there are no term limits. Because the idea is that if there are term limits, then a president will try to grab everything that he can before he loses power. Or try to stay in power forever by demolishing the democracy completely. Because he knows that he will never get a chance to be in power once again.

Whereas in the parliamentary system, there is no ending to what he can do. He can stay in Congress, in Parliament, for as long as the people want him there or her there. So what I would say is that even though there are some countries where you see that happening, that some parties stay in power for decades, they are pretty rare. It's not a very common situation in parliamentarianism. And one thing that I stress in the book is that you cannot expect there to be a guarantee that it will be better, you just have to have an expectation that it will be better. So you have Japan, you have Botswana, they are countries that have parties that stay in power for long. You see that even though these parties stayed in power for long, there was not that much repression of the opposition. And in many cases, at some point, the opposition did win an election.

Whereas in presidentialism, you also have cases where parties have remained in power for very long, like in Mexico. So this particular problem that you point to, I don't think presidentialism solves. And the other thing is that sometimes for the opposition to gain power, they subvert completely the regime. They change the constitution. They get into power by force. So even though there was a change in power, it wasn't a desirable one. So for that, I think one of the advantages of parliamentarianism is exactly that it doesn't need to have term limits because any presidential country will have term limits, at least on the president. Because if you do not have term limits on the president, the chances that they will stay in power, be reelected indefinitely, and thereby destroying the democracy are very high.

So since it was invented, presidentialism, you have that problem. With respect to stability, I think that we need to look to what kind of stability that we want. So I think that presidentialism has an illusory stability often. Because you have the very clear legal mandate for the president and the president has a very clear legal mandate to name whoever he wants to government. And of course, one person will always be able to name a cabinet. You have the illusion that there is a functioning government. But this functioning government will be very often completely disconnected from the true forces of society that want to move in a different direction. Whereas in parliamentary governments when there is disconnect, when there is this fight, it becomes apparent and sometimes you have shuffling of cabinets, very frequent. Sometimes they are not frequent at all. You can have Angela Merkel in Germany that stayed in power for some 20 years, and then she left like nothing happened. It was a very smooth transition. And so parliamentary has this flexibility. If something is working, then they stay in power for very long. If something is not working, they don't stay in power.

And you mentioned the Netherlands. I don't know about the Dutch situation right now, but I recall that Belgium also was without a government for a while. And when we say without a government, we really mean without a cabinet. It's not that there is no government in Belgium. They're still doing all the things. There's still police, there's still courts, there's still schools. So I think that if there is not enough consensus in a society, then not having a cabinet pushing for policies might be a good thing. And if you look at the Netherlands right now, I don't think it's chaos, right? I think it works very well, as Belgium did, still worked very well, even when it didn't have a cabinet. If you look at the Netherlands is one of the most successful societies in history and is still one of the most successful societies right now. So I would never describe their situation as chaos. So what I would say is that, well, if we have to deal with situations where there's no cabinets, then fine. I'm not as bothered by that as I am by a lack of basic sanitation or a lack of economic growth or a lack of health services or a lack of safety in streets, that sort of thing, which presidential countries have much less than the Netherlands.

Tobi;

I would like to stretch that point a little bit. So perhaps it's a good thing that the Netherlands has a parliamentary system and that they are in their current equilibrium because the party that won the election and the individual vying to be prime minister is controversial, is internationally disliked and has some positions that are quite disagreeable. But it's also easy to imagine the opposite. where his party his platform his ideas and his policies might actually turn out to be excellent for the country and for the region and perhaps influential enough for the world but here you are in a system that prevents that person from getting to power. So i'm trying to gauge how earlier, many three systems respond to the good leader, bad leader argument because some would say one of the strengths of the presidential system is if you're lucky enough to get a good leader, he or she can then use all that power, all that legitimacy to then drive transformation and growth and all the good things to the maximum and transform the country within a few years.

What's your response to that?

Tiago;

First of all, I don't think countries have been lucky enough that we would still bet on that. If we look at the history of presidential systems, the evidence shows very clearly that this hope for a very good leader, it's like playing the lotto, I think. The chances are very small. And I think that even if you had a person that had all the vision and the capacity to implement very good policies, if he doesn't command enough support in his society, there will be sabotaging, there will be opposition, there will be people that have capacity to interfere with society, trying to undermine his efforts. Even with this great leader, you wouldn't have the great outcomes that one would expect. So I think the crucial thing, and I think it's central to democracy, is exactly that there is a wide consensus. The thing is that presidential elections do not create wide consensus. They create two rival candidates, two rival sides, and then at the end of the day, one of them wins. And this goes to late[r] part [of the book], which stressed the importance of consensus, the capacity to take into consideration the interests of different sectors of society at once. So this is why I still like parliamentarianism better.

Tobi;

So for the benefits of people that haven't read the book, I'll go through perhaps a few more questions that you should explicate on before I go into what actually interests me, which is how you then relate your argument on parliamentary systems to development or economic development more broadly. So one thing I also want you to clear up is you talked about corporate governance and how they are better under parliamentary system. Can you elaborate on that a bit?

Tiago; 

So corporate governance, we usually think of governments and companies as completely different walks of life, completely different situations. But in fact, they are not. So governance is not a word that came about by chance. It does come from the same principles. And when you look at how boards make decisions, they use something called parliamentary procedure. They use some books like Robert's Rules of Order, which is taken by, I think it was a colonel, it was someone in the military that was very frustrated by how meetings were being used and then he used exactly the sort of decision that was being taken in the United States Congress to take these decisions. And we see, I forgot the name of the author right now, but this book, Shareholder Democracies, he explains how the modern public company takes a lot of how it's governed from the evolution of government, particularly because there was a time that the modern company was started in England.

And there was a time when you would need to have authorisation by the government to create one of them. And then the board members would be often people from government as well. So there was this very intense relationship and this very intense exchange of methods of approaches to problems. And then they had tried many things, many approaches, boards with lots of members, boards with very few members and all sorts of ideas until they ended up with the model that is replicated in basically every public company that we have now, which is the shareholders elect a board of directors, the number may vary, and this board will choose the management of the company, particularly the CEO, which will be kind of like the prime minister, but maybe different from the UK, because in the UK, the prime minister must be from parliament. But in the Netherlands, for example, it doesn't have to. But the board elects the CEO and then they can fire the CEO at any time as well. So this is something that allows for a much more efficient handling of the affairs of the company than the situation where you would have the shareholders elect the CEO themselves. I wrote to one of these authors about this parallel, and he thought it was perfectly applicable… “And yes, yes, I completely understand what you're saying about the presidentialism.” He couldn't think that it had ever been tried by any company, the exact presidential system. One thing that was tried is the shareholders choosing some people in management already. And this didn't work. So I think that this is very strong evidence for that because markets, they have the greatest incentive to perfect their governance systems.

Tobi;

What is the attenuation bias and how does this bias feed into our common understanding of presidential and parliamentary systems?

Tiago; 

So attenuation bias is something that I put in there because when I was discussing this during the process of writing the book, I got a lot of pushback by people. And recently I also had one pushback by people saying, well, but it's hard to classify countries in presidential or parliamentary forms because there are many types of intermediate situations. So you have semi-presidential countries in Africa. We have lots of semi-presidential countries where the president has power, but the prime minister does have power too. So there is this combination where not everyone agrees about which countries should be considered parliamentary or presidential. And also many other political scientists first need to decide if a country is a democracy or not and then classify it as presidential or parliamentary, because they say if it's not a democracy, then it doesn't matter what the Constitution says. The dictatorship can do anything it wants. The Constitution doesn't have any bite.

I disagree with that view. I think that constitutions matter even in situations where you don't have a full democracy. But in any case, people would be saying that this would make the results in terms of stability, political stability, in terms of economic growth, less strong. And then I argue the exact opposite, which is the attenuation bias is the mathematical fact that when you have noise in the explanatory variable, the effect that you see will be smaller than the real effect. Whereas if you have noise in the explained variable, the dependent variable, there's less precision, but the size of the effect is in expectation the same as the real effect. So what I argue is that, yes, there are debates about what countries are parliamentary, what countries are presidential. And if this is hard to classify, then we should expect the effects to be even larger. Many people criticize academics and scholars that raise the issue of attenuation bias because people often raise the issue of attenuation bias even before they convincingly demonstrate that there is a relationship in the first place. But I think that at the point where I make the point about attenuation bias in the page that I make that, I think that I was able to demonstrate that the relationship does exist. So if it does exist and we do have difficulty classifying countries in parliamentary or presidential, then we should have attenuation bias and we should expect the effects to be even larger.

Tobi; 

I would say how your research, your writing, your argument does relate to economic development, or maybe development for shorthand, is what I found most interesting in your book and most relevant to my passion. Because I don't know if you caught this yesterday, Jishnu Das, I don't know if I'm saying that correctly, wrote an essay titled, let me quickly check, "Did Development Economics Lose Its Moral Compass?" Yeah, you're not making similar arguments, but how I see them connected is the fact that development, the field or the development industry has more or less given up on governance. And now everybody is obsessed with whatever tiny interventions you can make that get people from $1.90 to $2.90, and then we can sing hallelujah that we've ended poverty. Whereas I, and I imagine yourself and some other people that we both admire, like Lant Pritchett, are interested in changes that we can make in Nigeria, in Chad, in Ethiopia, that can get those countries to middle-income status and possibly greater than that. So how do you see the relationship between economic development and the system of governance or the political system generally? How does this tie in your head when you were writing the book?

Tiago; 

Okay, so I think that in theory, we should expect this to happen. When we look at the institutional school of economics, they say that the central aspect for growth is institutions. So you go back to Douglas North, you go to Acemoglu and Roderick and those people, and Douglas North in particular. Not all institutionalism put the emphasis that North puts on parliament and he puts because he sees that as protecting property rights, specifically. And I think he goes for too narrow an approach. But if you look at the consensus that there is around institutions being central to economic development, and the consensus that there is in political science that parliamentarism is central for political stability, and if you just connect the dots and say, well, political stability must be important for institutions to work well, right? If you just connect these dots and think that also, if institutions are key and a country doesn't even have political stability, will it have capacity, which is something that Pritchett talks about too, about state capacity for many other things. So if it isn't even able to have stability, will it have the capacity for development to be promoted? And I think not.

And then, going back to Pritchett once again, one thing that I talk about in the book is the Pritchett test. I learned this from Paul Romer in a blog post. He mentions that urbanization passes the Pritchett test. And this is a series of requirements that don't seem to be very stringent, but that Pritchett proposes that any policy that you say will have development should pass this test. And this was relating to the frustration that you were talking about that you have and that I share. And I think that he is the person that talks about this best, which is we are promoting very modest, very unambitious proposals that we don't think would possibly have an effect. And then the test is this. In a cross-sectional comparison of levels, do countries that are more developed have more X? And this is easy. I showed this in the beginning of the book, that parliamentarism does have many more developed countries than presidentialism. There are much fewer presidential countries that are rich or developing in any way.

And then he goes in a cross-sectional comparison of growth rates. Do countries that have rapid growth also tend to experience a rapid increase in standards of living? And I present evidence that we do have that. In my blog, I have a post on how parliamentarism passes the Pritchett test. When we look at the few countries for which we have long historical records, do the ones that become much more developed also acquire much more access? And then we see, this is very interesting, that it's exactly in the two countries that first parliamentarize in Europe that we see the end of the Malthusian Trap, the escape from the Malthusian Trap. So it's the Netherlands and the UK, in England. And then this parliamentarianism spreads around Europe and then Europe itself becomes much richer. A very parliamentary tradition establishes in the U.S., so we tend to think of the U.S. as much less parliamentary than it really is. And you have Canada, you have Australia, you have New Zealand, they are countries that for more than 200 years have had this sort of constitution and also have done very well.

And lastly, if we look for countries that switch from a regime of slow economic development to a regime of rapid development, we see a prior shift. So this is for us to think of this just conceptually. And then we have some studies that show a very strong connection of growth and parliamentarianism. So we have Gehring and other authors from 2009 that shows stronger growth in parliamentarianism. And we have one specific study by Richard McManus and Ozkan from 2019 that shows much stronger growth in parliamentary countries from 0.6 to 1.2 percentage points per year, which is huge. And it would explain a country being developed. If a country did grow 1.2 percentage points per year in its per capita GDP, it would become developed over time, of course, but it would be enough. So that's why I think that the connection between parliamentarianism and development is very strong.

Tobi; 

I guess what I'm trying to get a sense of from you, you're a career diplomat, you've been in some of the rooms where some of these decisions are made, what has become so broken about development in general that we've stopped being ambitious in the sense that trying to change your political system can actually get you more benefits development-wise than whatever tiny little cash transfer you're doing in whatever village in Kenya or Nigeria or… how did development become so unambitious?

Because one of the points you touched on in the book is this fallacy of having tried everything, you know, and, oh, so this is what we have… because the state of particularly development economics for me, the state of things are so terrible in my view. The so-called evidence landscape has become so broad that you can find evidence for anything. For example, if I'm the president or the chairman of a local government in Nigeria and I choose to not fix the road, for example, or choose not to build a power station, I would rather take a fraction of that money and do a cash transfer program. I will find evidence and possibly researchers that will tell me that that is a good thing. So how did development become unambitious from your vantage point?

Tiago; 

I think that's hard. That's something that I will speak with, but without as much conviction as the other things that I'm saying here. But I think there are some different processes going on. One is the idea that there have been some, we haven't tried everything, but we have tried some things. And these things, these specific things that we've tried, the big push theory and some other things like that, did not work out as expected. And then there was this too quick giving up on trying other things. I think there is a fear of being perceived as a failure on part of policymakers, so they would rather be unambitious than being perceived as a failure. And I think that has been married to an academic predilection for precision. So academics are more preoccupied by doing the randomised trial and getting the precise estimate of the effect of something. And then they only care about it being significant in the statistical sense and not on the practical sense. “Oh, this is statistically significant. It makes a difference. Then let's do this.” So I think that these two tendencies have worked.

And lastly, one thing that hopefully I'm not being too centered in parliamentarianism, I think that the fact that we have forgotten key benefits of parliamentarianism has made us look basically anywhere else instead of here and this has consequences because I think that a society that does not have the correct, the best institutions for it to develop will have a very hard time and then any policy that is tried will be perceived as a failure because they don't have the conditions that allow the society to really develop.

Tobi;

I don't want to dump all my frustration about development on you. So let me move on from that.

So practically speaking, now, suppose you get a few elites, leaders in your country that are ambitious and courageous enough to want to make a change from a dysfunctional presidential system to the parliamentary one. What are the useful key elements steps that can be started without tearing their political system apart? Because a lot of the fear also comes from not causing too much political turmoil or alienate an influential group that can then go ahead and form chaos in society. So what are the useful first steps you can take towards parliamentary governance?

Tiago;

So I talk a little about in the book what one can do. And as I said on the last part, these are things that I'm not as sure as I am that parliamentarianism is better. On the how we implement it, I have much more doubts, but I still have some suggestions. And I think that we should try to make the proposal of parliamentarianism similar to the proposal for democracy. Because when you ask for more democracy in a country, it's very rare that anybody will push back. “Oh, this will rock the boat here. Our country doesn't have a strong tradition of democracy, so we should just keep without tradition.” These are not arguments that are accepted by someone that's promoting democracy. They say, “no, no, this is a better situation because this will be able to really convey it the will of the people, so it's not a matter of tradition or not.” So what I would do is try to make this conversation within academic circles, with journalists, with policy makers, and that type of person, because I think the things that do get implemented, they are downstream from these people. I don't know if you read the Stefan Dercon book, Gambling on Development?

Tobi;

Yes, he was also a guest.

Tiago; 

He was a guest too?

Tobi;

Yeah.

Tiago; 

Oh, that's great. I’m in very good company. So he talks about the importance of an elite bargain for a country to find development. In this sense, I would mention the book to convey the importance of trying to convey this through the elite. I don't think it's as disruptive as we make it to be, because if you think about it, think the issue with presidentialism, the winner-take-all. In the winner-take-all, it means that for a presidential candidate that loses the election, it might very well be the case that losing the election has more negative consequences for them than actually switching to the parliamentary system. So he will expect to have a better participation in the political system of his country if they switch than if he loses the election. And I think this is very true. And I see politicians in many countries are favorable to parliamentarianism. In my country, I see that the politicians are the easiest class to convince. I think that because they live it, they know how dysfunctional presidentialism is, and because they perceive that they would themselves benefit. So they are the easiest class. I think that the journalists and the academics in many of these countries are much harder to convince.

In Brazil, it's definitely the case that this happens. So even though there is this strong consensus regarding the superiority of parliamentarianism in political science in the US and in Europe. In Brazil, we don't see anything like that. The political scientists in Brazil are very skeptical of Linz and other authors and there's specifically a Brazilian scholar that's very influential that tries to undermine Linz's arguments. I think that he doesn't do it satisfactorily. But this is how I would do it. And then, I don't know, I think that we should try to do the things that we do for other causes that we see. So climate change, what do people do for climate change when they try to fight climate change? They create think tanks, they create campaigns online, that sort of thing. That's what I miss.

Tobi;

So, I mean, if you look at the world today, especially the trend in global politics with the rise of populism, nationalism, trade wars, the state of global governance generally at institutions like the UN and the prospects of cooperation between the EU, the US, China, Russia, and what is called multi-polarity generally, do you think that parliamentary systems put global diplomacy on a better, steady footing?

Tiago;

I definitely do, yes. And this makes me sound like, oh, I think it's a panacea. It's a problem solver for all things. And anticipating that, I would argue that it's actually presidentialism, personalism is really bad. And when something is really bad, it can harm you in every area of your life. So parliamentarianism solves the problems that presidentialism causes. And with respect to diplomacy, we see that the democratic peace theory is one of the most, I think, the single most established empirical fact in international relations, that democracies don't fight each other. And there are some attempts at trying to make this look not as solid as it is, but it's widely perceived as the most important empirical fact in international relations. And if we think that parliamentarism is so central for democracy, for the democracy level, for democracy duration, then I think that it becomes very clear that parliamentarism will have this effect.

And I think of a book written by Chris Blattman, a professor at UChicago [University of Chicago], Why We Fight. And then he explains the few reasons why countries will fight, because he argues very convincingly that conflict is much rarer than we try to make it to be because the news cycle is so prone to publishing on conflict. But conflict is rare. And then there are several failures that are related to countries fighting. And many of them relate to a country being presidential. So one of the failures is that the government does not reflect enough the will of the people. So the utility function, more or less, the interests that the government is taking into account is not the interests of the population as a whole. So it may make sense for the government to fight a war, even though it will be disastrous for it’s own people. And parliamentarianism is supposed to better convey the interests of the people of a country into government much better than presidentialism does. So this is just one example. And just a better functioning government also will help in diplomacy.

Tobi;

I'm curious, as a way of steel manning your argument, what is the one critique of parliamentary systems that you find persuasive?

Tiago;

Many people ask me that. I have a hard time thinking of something. So the one thing I really think is that it's very counterintuitive. It's something that people just have a very hard time accepting that might be true. People would like to have a good leader and they would like presidentialism to work. So it's very unpopular. It's very hard to convince people that this is indeed the case. I think that it's a lot like, I don't know, like markets in general. I think that people are suspicious of markets in general when they shouldn't be. And I think that parliamentarianism has this flaw. But on a performance level, I really can't think of anything. I know this makes me look like more of a radical than not. But I've looked for it and I couldn't find it.

Tobi;

Final question. This is also a bit of a tradition on the podcast. By the way, you're not allowed to say parliamentarianism. What's the one idea that you would like to see spread everywhere? It might be your idea. It might be from something else. It might be from someone else. What's that one idea you like to see spread around the world? You like to see people get passionate about?

Tiago;

Opening borders. That's one thing that I think would have a huge effect.

Tobi; 

So you're very much a card-carrying member of the open borders movement.

Tiago;

I am. I think that, yes, as I said, I'm a fan of Pritchett and others too, Bryan Caplan, Alex Nowrsteh. There are many people, Michael Clemens, there are many people that are working on this. The economic effects of opening borders would be just transformative, double GDP, according to the Clemens estimate. And that would happen exactly by helping the people that are the poorest. So it would also have a great distribution effect. So I think that it's a policy that I would definitely like to see being more discussed on high levels.

Tobi;

Thank you so much, Tiago Ribeiro Santos, for talking to me. It's been wonderful.

Tiago; 

I thank you, Tobi, for the opportunity to talk about these ideas and congratulations on your work. And let's hope for more ambitious developing ideas.

Tobi;

Yeah, thank you.

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.

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.

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 Koyama

* How to build a state - Anton Howes

* Some Thoughts on State Capacity - Mark Koyama

* “State Capacity” is Sleight of Hand - Bryan Caplan

* Identity Rules, Group Rights and the Promise of Liberalism - Mark Koyama

You 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.

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.

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).

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.

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

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- Gbenga

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.

TRANSCRIPT

TL: 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...Enwerem

TL: 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: Yes

TL: 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.

Laughs

CO: 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.

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.

Transcript

TL: 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...

Laughs

TL: 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.

Laughs

CO: 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.



In this episode, Tobi talks to David Pilling, Africa editor for the Financial Times. They discussed his book "The Growth Delusion", exploring the significance and limitations of economic growth, particularly in poor countries. David challenges the conventional reliance on GDP to measure economic success, proposing a more nuanced approach that considers wealth distribution, environmental impacts, and overall well-being. He argues for a balanced view that recognises the necessity of growth for development while advocating for policies that prioritise human and environmental health. The conversation also touches on broader development issues in Africa, including the misuse of resources and the political challenges hindering effective governance and equitable progress.

The transcript of the conversation is below, and many thanks to David for coming on the podcast.

Tobi;

This is Ideas Untrapped podcast, of course, and my guest today doesn't need much of an introduction, anybody who reads the Financial Times knows David Pilling. He is currently the Africa editor of the Financial Times newspaper, he used to be the former Asia editor of the newspaper, and he has written many fantastic columns and essays covering a wide range of subjects. And recently he's been writing a lot about Africa, especially stories on development and other related matters. It's a pleasure to welcome David Pilling today.

Welcome, David.

David;

Thank you so much. It's a pleasure to be here.

Tobi;

I want to talk about your book for a bit and one question that keeps popping into my mind as I kept reading, that was a couple of months back last year, the general tone of the book, which is called The Growth Illusion was, you know, one of skepticism, right?Also, the impression that jumps at me from reading your economics-focused stories about Africa is that growth is important. So has your work in Africa forced you a bit to reconsider some of the positions you take in the book?

David;

Yes and no. I mean, the book never said growth isn't important. It is called The Growth Delusion. It's true. And that is a, you know, deliberately, I suppose, provocative title to some extent modelled after The God Delusion by Richard Dawkins. So it was a kind of an echo of that. So, yes, you're right. It was a sceptical title and journalists ought to be sceptical. And what I was doing was I was prodding at the concept of growth, what it is that we measure, how we measure an economy's success.

What I was not saying is that growth is not important. And I think growth is particularly important for poor countries. You know, we can put richer countries aside for one second, but in a poor country where there are not enough resources for people to have what Amartya Sen, the Nobel winning economist, calls sort of what we now know as agency, really. You know, choices over their lives, where they live, what work they do. And those choices can be denied by very simple things. Lack of food, lack of a roof over your head, lack of work, lack of safety and security. Unless those things are satisfied, then I believe that people aren't able to live their full potential. And for that, you need an economy that's firing at a certain level. In other words, you need to go from an economy that isn't firing to one that is. Then, of course, many other things need to happen, including the wealth that is therefore generated to be, you know, relatively equitably shared, for people have to have access to economic opportunities.

But my book was never saying, you know, growth is bad. We need degrowth, which I know is a trend of thought out there. But my book, despite the title, was really looking at other things, which I'm happy to go into if you'd like more of a discussion. But just to make it clear, I was absolutely not saying that if you have an economy where people lack what I would consider the absolute sort of basic minimum to live a fulfilled life, you know, those economies absolutely need to grow and they need to grow fast as the experience of Asia shows with the rapid growth in places like China, which has transformed hundreds of millions of people's lives and opportunities.

Just occurs to me that what just happened, you know, the power going out is in a sense a tiny example of what I'm talking about. You know, there you are making a podcast that you want to be a world class podcast and it's interrupted. I mean, in the end, it's not such a big deal and we are able to carry on. But it's just a little window into, you know, if Nigeria had a decent power system. then you and millions, in fact, tens of millions of other people would have much easier lives, would have much higher productivity, would be able to worry about other stuff. I mean worry in a good way. And, you know, we could call a better power station growth or a better power system, if you want. The money, the resources, the expertise, the systems to produce a good power system for all Nigerians so that all Nigerians can just rely on it and forget about the lights ever going out will make an enormous difference to people's lives. We can call that growth. And so I'm not against growth. I'm for growth.

Tobi;

Especially for the benefit of listeners who haven't read the book that perhaps I didn't frame that first question very well. The book not in any way suggested that growth is bad. And, of course, I urge everyone to read. It's a fantastic book. So what I'm trying to get at is there seems to be a big debate, even in the subfield of development in economics, about the appropriate measure for growth. The measure that best captures what makes a difference in people's lives, what people value, and you do a little bit of that also in the book, particularly in your discussion around GDP. So please just walk me through the history of the GDP, your critique of it, where it falls short, and what are the things, what are the other dimensions of well-being that it doesn't capture, and why is the field or policy reluctant to expand what we mean by growth?

David;

Yes. Okay. That's this very big subject when I wrote 250 pages on it. But let me try to encapsulate a few things. So GDP was invented, if I remember right, invented is probably the right word, in the 1930s, 40s by a guy called Simon Kuznets. And the aim, in a sense, was trying to encapsulate what was happening to an economy. And as hard as it is to believe before the invention of GDP, which really sort of measures all the products and services that an economy produces in a given period, before that invention, a single number to encapsulate what an economy is doing, there was no such number. So you could say, well, things feel good, people have work, the stock market is going up, there seems to be a lot of delivery of coal or whatever.

But there was no single number that said, you know, GDP is this and it grew by this. So the first thing to acknowledge, I think, is that this is a very clever number and it's an important number. And if you only have one number, it maybe is even the best one. Although somebody said in Mozambique, a finance minister, that he used to watch the May Day Parade and he judged the quality of people's shoes. And if people were wearing decent shoes, then he thought things were getting better. And if they weren't, he thought things were getting worse. But clearly, that's a very crude measure. So GDP, I'm saying, is not a bad measure, but it misses an awful lot and it distorts an awful lot. Let me give you a few examples. So the first thing to know about what we call growth, what we call GDP, is that it's a measure of what you might call flow. It measures what an economy produces, let's say, every year. It doesn't tell you anything about the wealth, which is the assets of that economy.

So let's take Nigeria as you're in Nigeria. If you take oil, which is an asset, and you take it out of the ground, you can turn that into GDP, into a flow of wealth. But eventually that oil is going to run out. So if you keep just taking out oil, selling it, spending it, take it out, sell it, spend it, eventually you've got no oil and you've got no money. And you could argue that maybe that's in part what Nigeria has been doing. The best thing to do with wealth like natural capital as it's called, is you turn that into other forms of capital. So you turn it into productive capital, which means infrastructure. So you'd build with those billions of dollars that have come out of the ground in Nigeria, a world class health system, world class transport, world class airports, world class universities, and you'd build human capital. Some of the same things with healthy, well-educated people who can then go on when your oil has run out and do many other things.

Now, it doesn't take a genius to work out that Nigeria hasn't done particularly well in that. Of course, there are brilliantly educated Nigerians and there are some lucky Nigerians in the elites that have access to good healthcare and good education, but often outside the system, sometimes indeed outside Nigeria. But what I would argue that Nigeria and many other countries have failed to do is to move that wealth into different sorts of wealth that will produce GDP again going forward. Because otherwise what your GDP has measured is a kind of a one shot. We took oil, we sold it, it's gone. So that's the first important thing about GDP is it's a flow, it's not the wealth.

Let me give you another example, and this moves into the environment. If you have a forest from the perspective of GDP, the absolute best thing you can do with that forest is chop it down as quickly possible and turn it into something else like a table. Turn your wood into a table or burn it or do something to produce energy or goods that you can sell and forget the forest. The forest is worth zero as far as GDP is concerned. But of course, the forest has its own value and once the forest is gone, it's gone. And our measures of economic progress take no account at all of the environment around us that I would argue has been a perverse incentive that has enabled us to think that we're doing extremely well producing all this growth, all this economic activity, but forgetting that there's a cost to that, which is the environment that we've been ransacking and polluting and degradating. And that can come back to bite us as we're seeing in global heating and in all sorts of other ways. Let me go to just a third thing and then I'll stop. So you can produce GDP and for all its limitations, it does tell you an awful lot. If you're growing at 10% a year, your economy is doing well, as China found out. China grew at 10% a year for 30 years, more or less and it transformed China from a poor country to a middle income one. However, how you distribute that income is also very important. There's a joke that economists tell, which I think is in the book, about Bill Gates, who walks into a bar. On average, everybody in the bar is a billionaire. But of course, the averages don't tell you anything. So you could have very fast growth in an economy.

Let's take Equatorial Guinea [which] grew very fast on the back of oil but most of the population continues to live in poverty. There's really been no attempt to spread that wealth. So no attempt to reinvest that wealth in the health and education that will produce more wealth, like science and development and all of that that will produce more wealth going forward. And also very little attempt to spread it equitably. So again, GDP doesn't tell you really much about that. And so these are three, I would say, fundamental limitations and fundamental different ways that we need to think about, you know, what is it that we're producing? If you say an economy is growing at 10% a year or 0% a year, what lies underneath those numbers? And what are they telling us about how people are living in those countries and the opportunities they have, which after all is the objective of growth. We don't want growth for its own sake, that's pointless. What we ought to want, I think, is to improve people's lives and opportunities. That's what we should be really measuring. And growth tells you part of the story, GDP tells you part of the story, but certainly not the whole thing.

Tobi;

These are important things you've raised. It's an important critique. I would not say that a lot of people who work on policy or who study these things are not aware of some of these things and the illusion of averages around GDP and what it captures, what it doesn't. My question then is, isn't this more of a critique of the politics or should I say the priority of the political class of a particular country as opposed to a critique of the measure itself, because the limitations are well known and how it falls short is known. So if you then persist with this measure that you know does not quite capture the wealth of the country, does not tell you anything about how income is distributed in the country, it does not tell you how much you are destroying the environment, and thus possibly future growth of the country, isn't that then a political problem?

David;

Yes, a very astute observation. Martin Wolf, a very sort of gifted, a brilliant, actually, economist at the FT, in a sense thinks my book is nonsense. I mean, I don't think he would go quite that far, but he would say, look, the problem isn't the measure. The problem is what you do with it. And to some extent, I absolutely agree with that. However, I do think that what you measure in a sense is what you get. If you set up, you know, we want the economy to grow by X amount, let's say, and you're going to be judged by that politically and to some extent you'll miss out on the other things, let's say the impact on carbon emissions, which clearly we have missed for 150 years. I mean, it's not as though we've managed to do both at the same time. We have missed this.

Now, in the end, you're absolutely right. It's a political decision. But I think if you took a political decision that we're going to do things slightly differently, you would probably want to measure different things as well. A lot of these things are measured, actually. If you go to the Office of Statistics in Britain, you'll find that they measure a ton of what I'm talking about. So I'm not after alternative measures or fancy indexes or whatever. In a sense, I'm after slightly different political priorities. So in a rich country, for example, I mean, even in a poor country, it doesn't really matter. You know one thing you might target is life expectancy. Not just life expectancy, I would argue, but healthy life expectancy.

So you might say, look, we think that it's reasonable in a country of our wealth and prosperity for people to live on average, and clearly it's going to be an average, 75 healthy years. And sure, the last couple of years, they're going to be unhealthy. That's just nature. And that's just what happens. But we're going to aim for 75 healthy years. And if that became your political target, lots of other things might change. You might start pumping more money into your health sector. You might start thinking more about primary health care, about preventative medicine, all sorts of things. Because you've tilted what you're measuring and your priorities, as it were, you then begin to tilt how you organise this.

And again, look at Nigeria. I'm bringing it back to Nigeria. If you take the GDP per capita of Nigeria and the GDP per capita of Ghana, I know this is a tetchy, tetchy subject to compare these two countries.

Tobi;

Go ahead.

David;

You know, I think I'm right in saying that the life expectancy of Nigerians on average is 11 years lower than Ghana. So I would say, well, what on earth is happening there? What does that tell you about the priorities of successive Nigerian governments? Now, it's obviously true, tweaking your measure here and there is not going to solve that. I think the life expectancy on average is 54. A lot of that will be because of very high child mortality. So a lot of kids not making it until the age of five. So, you know, you could have a government that says, right, by the end of our term, we're going to raise that to 60 as a start. A big country like Nigeria with all this oil wealth, this incredible talent pool, and anybody who goes to Nigeria knows that, you know, with doctors and nurses who, unfortunately, are all around the world helping other people. We can pull ourselves together and push life expectancy, let's say, to 60 as a starting point, not as a final point. And you could see then government policies shifting potentially in that direction.

So you can kind of see that measurements can lead to policy changes. Maybe they just focus the mind or maybe they're just a shared ambition. The public and the politicians who have entered into a contract, which is what an election is, “we’ll vote for you on the basis that you'll try and do A, B and C. If we don't like you, we'll kick you out.” That's kind of a highly crude definition of democracy. So you can see, potentially, you might say I'm being idealist or unrealistic, or maybe I am, but you can see how that could work as a guiding principle. So how you leave the confines of GDP to push another priority right up your list of what you're going to do politically, and then you're judged against that. That's where politics and measurement kind of meets.

Tobi;

With due respect to my Ghanaian brothers and sisters, there might also be a little bit of statistics going on there because the life expectancy in some parts of Nigeria may actually be higher than Ghana because Nigeria is quite a big area. But your answer, let me pull you into another debate from that answer, which is income versus, should I say, the rest of other measures of well-being. As you've written about, you're familiar with the SDGs and the predecessor - Millennium Development Goals. And I've had guests on the show, maybe someone like Andrew Nevin, who would say that poor countries can do better with alternative measures like what you have on the SDGs, zero hunger, this and that, as opposed to the annual churning out of GDP statistics.

But a different class of economists or thinkers will tell you that what really makes a difference is for the income of the population to grow and that higher income is highly correlated with all of these things that you say, including life expectancy. If you have more money, you will be able to eat better, afford better quality care, and your life expectancy will go up. It also pulls into what some in the economic subdiscipline and some global charities have been doing, which is interventions - deworming, cash transfers, bed nets, and so many ways that they measure that. But again, some economists will insist that, yes, you can do that and it's not a bad thing to do. But if you have the policies that are able, like you mentioned the example of China and some other countries that have been able to transform radically in just decades, South Korea is a fantastic example, then all this other things that we use as a critique of economic statistics become irrelevant once the majority of the population are able to increase their average income. So what's your reaction to that?

David;

Well, I agree with when you were saying there's some economists. So the second half. So if you have to choose between however many SDGs there are, all these different multiple complicated targets versus let's increase the income of each of our people. I'm definitely on the latter side. And in that sense, income, I think, is absolutely key. You'll find a curve when people go from a couple of thousand dollars per capita income towards 15,000, 20,000, things get better along that curve. Of course, you can blow it. You can have terrible policies. But assuming that you have reasonable policies and reasonably equitable distribution of that income, then there's a pretty good correlation. And you're absolutely right. You will move up that curve. Your health will get better. Your opportunities will get better. Your education will get better. Probably you'll have fewer kids. You'll put more money into each of those kids. They'll do better, et cetera, et cetera. And you'll get into an upward spiral. And in that sense, you're absolutely right. Yeah, then, you know, your bed nets become irrelevant because you've got middle income, educated people who know what they need to do and besides, you probably don't have stagnant pools of water. And besides, you probably have enough money to have a mosquito eradication thing. And, you know, a well-organised policy, which is producing that kind of growth is likely to, in a sense, be kind of self-fulfilling.

So absolutely. In that sense, I don't have a beef at all with income as a measure of the potential to improve people's lives. And I think I can hold the two ideas in my head simultaneously. I think I can prod the measure of GDP, particularly, I would argue, or wealthier countries, as well as saying it's probably the best measure, particularly as you go from the poverty, let's say, of a country like, it's invidious in a sense to name countries, but let's say Democratic Republic of Congo, you know, up through middle income, you know, your kind of Malaysias or whatever, there you'll find that rising income. And I keep saying, reasonably, equitably shared among the population, which is important, of course, then that will have your number one transformative effect. I have no argument with that at all.

Tobi;

Maybe I've been, I don't know, unfair to you by putting your book in the context of poorer countries, because certainly that wasn't the primary cohort of the analysis of the book. So, I mean, you talked about healthcare. You cited the American example, which was such a big, big, big talking point until Obamacare, and it still continues to be. For example, if you compare the American healthcare system with the Canadian healthcare system, and I know so many public policy analysts and other forms of thinkers look at Canada and say, oh, that's what we should be when they talk about America. But there are lots of Canadians and other people from countries with fantastic healthcare system who wants to move to America, who would move to the United States in an instant. So, again, does that tell you that a lot of these things that we worry about is not what people care about on average?

David;

Well, this is a very different question, I think. I mean, look, the American health care system, I would call inefficient, unequal and at its best, excellent. And it can be all of those things. So if you're a wealthy American or if you're an American with good health insurance, you probably have among the best health care systems in the world. The problem is if you're not wealthy, you don't have good insurance, then you have a pretty average, even a bad health system. The Canadian health system is probably more equal and certainly more efficient. The Americans also spend too much money for what they get. So they spend, I think, 20% of a very big GDP per capita on healthcare or of their entire GDP on healthcare. And that's quite inefficient. A lot of that is kind of litigation, it's profits, it's insurance and all of that. So it works for a good proportion of the population. As I say, if you're middle class, upper middle class, you probably have the best or among the best health care systems in the world. And that will figure in all sorts of things. Healthy life expectancy, for example, a very crude measure, but worth looking at. But if you're not in that category of people, then you probably have a pretty average health care experience.

And again, averages can tell you something. You know, life expectancy in the US has dropped for 20 years. Tiny, tiny, tiny amount. But what's going on? The economy has been growing, you know, with a few bumps, but it has been growing. There are wealth being created and yet that's not transferring into better life expectancy. You know, there are things like the whole OxyContin issue, et cetera, that begin to explain that. There's what people call lives of despair [Deaths of Despair], you know, suicide and people who just feel pushed out of the middle class. So it's affecting a subset of the American population, but that's enough to kind of bring the average down. So I think you have an unequal system. And that's how I would compare it with the Canadian system. I'm not familiar with the Canadian system at all, but I can imagine it's sort of like a UK style, free at the point of service, roughly like that. And the UK system has all sorts of huge problems. But again, if you have a health emergency, it's probably going to be a pretty good system. It's less good at dealing with sort of preempting health problems and preventing health problems. But again, I think this is possibly leading a little bit off the subject of GDP, but that's how I would explain the differences in different health systems.

Tobi;

Yeah, so my question then is, but a lot of people still want to move to countries where they think they can get rich really fast, where they think their skills can be better compensated and more often than not, that is usually the United States, despite the inefficiencies and inequalities of the health care system at the lower end. So, now does that mean that people do not know what they want or they value growing their personal income better than a lot of these other things that we talk about?

David;

I mean, America is still the biggest economy in the world, measured in dollar terms, not in PPP terms. So it's the biggest economy in the world. It's clearly very dynamic. If you're in tech or IT or AI, this world leading technology, world leading universities. You know, if you're making it in America, you're making it pretty big. And immigrants tend to be people who are ambitious. They're driven. That's why they picked up and left their country and gone somewhere else. You know, America can seem quite attractive. You kind of think if I'm going to roll the dice somewhere, I'll roll it in America. Now, if you're American, social mobility actually is not as good as it has been in the past. And it's not as good as in some European countries. That's quite a counterintuitive. But I've read a number of papers and data to suggest that. But still, you've got a big, powerful, high-tech economy that kind of sucks up labor, that's bounced back much quicker from the global financial crisis, that's bounced back quicker from COVID than most other equivalent economies.

You know, if you're thinking, where am I going to go? Where have I got my best chance of making it? You know, it's not irrational to think, well, America's big enough for me, you know? So I don't see the two in contradiction. I don't think people are saying, I'm going to go to America because on balance, it has the most rational healthcare system that's the best use of resources. People don't think like that. They think like, where am I going to go, fit in, have a chance? So I would say that's what attracts people to the US.

Tobi;

Yeah. Let's talk about the environment a bit. I don't know if I have the right phrase here, but it seems to me, as recently demonstrated by the recent spat on BBC between the host and the president of Guyana, by some countries, again, on the poorer end of the global wealth spectrum sort of fighting for their right to pollute, i would call it, Which is that you cannot tell us now to care about the environment, sustainability, low-carbon green economy, when you've had 150 years to basically do what you want, which sort of then got us into this problem. I don't necessarily agree with that argument and I do think that there's no part of the world that is insulated from some of the big, terrible changes we are going to see from global warming. But what's your reaction generally to that argument?

David;

OK, well, I do have some sympathy with that argument, but again, like most things that are worth talking about, it's complicated. So let's just start with a few basic facts. And, you know, I've never really written about the environment as a core subject, although I have written about it quite a lot both from Asia and increasingly actually from Africa. So bear that in mind. But let's take the per capita carbon emissions of Uganda. When I last looked, I think there was 0.1 tonnes per capita per year. And compare that with America which I think is 20 tons per capita per year. Now, if you say to a Ugandan, you have to be really careful because the world's on the brink of catastrophe so you guys need to cut your carbon emissions. I would agree with people who say, well, that's nonsense. I'm not cutting my carbon emissions. What Uganda needs to do, I would argue quite strongly, is to increase its carbon emissions.

Now, of course, that doesn't mean to say Uganda's ideal path of development is to copy in its entirety everything that went on in the West, which would be massive, crazy pollution with coal-fired power stations and whatever destruction of the environment, followed by a kind of, oh, my God, what have we done moment, drawing back and then are trying to kind of address the problems. Often, by the way, outsourcing your pollution to some other poor country. But anyway, I'm not saying that that is the path to go. But I am saying that from per capita carbon emissions of 0.1 tonnes, then yes, the only way is up for a bit. Because I don't believe that you're going to be able to get out of poverty without increasing those carbon emissions a bit.

Albeit that we have solar power, we have wind power, we have all of this. And clearly one doesn't need to emulate the old fossil fuel model in its entirety. But I think that it's reasonable to assume that, say, in Mali, where per capita people use the same as British people use to boil their kettle. So that's the power consumption in Mali, what we in Britain use to make our tea, basically. And you're saying to a Malian, sorry, that's all you've got. Now, that I think is totally unfair and is unsustainable politically and rightly so. So I think that the Malis and the Ugandas of this world will have to increase their carbon emissions a bit as they become wealthier.

But as soon as possible and wherever possible, they ought to embrace new technologies, green technologies, which in some cases will be cheaper and more efficient anyway. But, you know, we still don't really know, for example, how to make cement using green technologies. It's there or thereabouts, I believe, but it's not really proven technology at scale. And we can't say to Uganda, sorry, you missed out on concrete. You know, that one that one passed you by. Clearly this is ridiculous and unsustainable. So I do have sympathy with the view.

Of course, you can abuse that view. You can say, you know, you polluted for 150 years. Therefore, we're going to just carry on recklessly as normal. Let's take the conversation back to Nigeria. There is a conversation in Nigeria, you know, how dare you tell us that we can't use our oil and gas? Now, I have some sympathy with that, but the corollary and the additional argument is we need to electrify. We need to bring power to 600 million people in Africa and to a 100 million people in Nigeria who don't have power. I completely agree. But I would say, what have you been doing the last 30 or 40 years? The oil's been pouring out of the ground the last 30, 40 years, and that did not translate into electricity for all Nigerians as it should have done.

So it doesn't follow that if you're allowed to follow this fossil fuel path, that all will be right with the world. Policies need to be intelligent. And intelligence means to the extent that you do use fossil fuels, you must use them efficiently and for the benefit of your people. And where possible, you stop using fossil fuels, you embrace new technology. South Africa has a ton of coal, for example, but it also has among the best solar and wind potential in the world. Its problem in transitioning, and of course, as you'll probably know, South Africa is having trouble keeping the lights on. Its problem in transitioning from coal to solar and wind has not been primarily a technical problem. It's been primarily a political problem with people trying to protect the coal industry. That is a mistake. But I don't think you can say to the Ugandans of this world, sorry, you missed the boat. We don't really know how you're going to prosper in this new green world, but good luck. I think that does not wash. So in that sense, I have sympathy with the Guyanas and the Malis and the Ugandas of this world, yeah.

Tobi;

But not Nigeria.

David;

But clearly, you know, you need governments that use their oil wealth better. I don't think you would find a Nigerian that would disagree.

Tobi;

I agree with you. Again, I'm not trying to frame this as a direct consequence of your work or what you've written, just trying to expand the scope a little bit. So I want to get your sense about where you think policy should go in trying to strike a balance. Because as you know, a lot of African countries are in financial distress from sovereign debts. The domestic investment environment is not that great so even if you want to keep insisting that, oh, we're gonna pollute we're going to do this we're going to do that, if the global investment appetite for fossil fuel continues to dwindle as policy in the West is forcing companies to divest, you might not have a choice, even if you want to pollute at the end of the day, because nobody would be willing to invest in that in the next 20 or 30 years. So my question to you then is that how do you think that the policy environment, especially around all these global gatherings and perhaps even some more pragmatic measures can strike the better balance between these two views.

David;

Okay. Well, again, a complicated question, but definitely one worth asking. There are a few things going on there. The first thing I'd say is that finance just sort of cutting off all carbon, all fossil fuels is almost certainly unfair. And the idea that gas, for example, could be a transition fuel is one worth considering. But there's a big caveat here. And the caveat is the following, really. I don't really believe that there are many governments in Africa that have a serious plan for development. I mean, that's quite a big, harsh thing to say. But, you know, you had Stefan Dercon on your program. Gambling on Development was the name of his book. You know, if you're going to use fossil fuels to improve the lives of your people, fine. But where is that being done? Maybe in Senegal, maybe in Ghana. You look around the continent and you struggle to find these success stories where people are saying, no, no, no, world, we're not listening to you, we're going to use our fossil fuels because right now we're in this fantastic phase of growth and development, and, you know, if you cut off our fossil fuels, you're going to stymie that. You've got a lot of countries that are hardly at the starting line, I would say. And again, that sounds quite harsh. But, you know, you take Ghana, which is a relatively successful African economy. But Ghana had the same GDP per capita. This is oft used. In fact, I think it has had a higher GDP per capita. But probably these measures are imperfect, as we’d suggested at the beginning of our discussion. But somehow it was not dissimilar from South Korea.

South Korea is now 20 or 30 times as rich as Ghana in per capita terms. South Korea has done something that Ghana never did. And Ghana is a relative success story. So South Korea has certainly done something that Democratic Republic of Congo or Niger or Angola or Liberia or Zambia have never done. It's managed to take off economically. Yes, using fossil fuels. Now what we're being told is, you know, you can't use fossil fuels. But I'm also asking, where is the plan for development? Where is that big transforming development happening on the continent? That's what's necessary. That's what I want to see. But you have to kind of look quite hard to find it. And you're going to be finding the kind of the beginnings of it. Let's say in Ghana, in Senegal, you know, maybe in Rwanda, maybe in Ethiopia before it blew up politically. But you do have to look quite hard to find it. So yes, the world's saying fossil fuels, you can't have them. We're not going to finance them. That's potentially a big obstacle to growth and development. But just as big an obstacle to growth and development is governments that don't seem to be there in the fight to produce growth and development. And I think this gets back to politics. There are too many governments who get to power And their reason for getting to power is to extract, extract wealth for, you know, themselves, their families, their regions, maybe, if you're lucky, but not for the whole country.

Tobi;

It's an interesting observation. I'm going to ask you a speculative question and trust me, I don't want to put you in any kind of trouble. So, I mean, if you look at a set of countries that I call the tragic trio, which is the three biggest economies on the African continent, Egypt, Nigeria, South Africa, it's a useful comparison to me because they sort of went through a major transition in terms of power right around the same time. Nigeria it was 2015 when we had the first opposition leader coming to power since democratic governance started in 1999. South Africa, I think, was 2014. And I think Egypt was around the same period. If you look at that decade for all these three economies, what you see, it's not a pretty picture, unemployment is quite high. Youth unemployment particularly is through the roof. All three economies are chronically indebted. Inflation and the general macroeconomic policy environment is just a terrible mess. So I'm asking you, as someone who has been on the ground a couple of times in some of these countries, what do you think from an outsider's perspective, has gone seriously wrong with the political class in countries that can actually pull their weight on the continent if they are doing better.

David;

Sure. You mentioned, obviously, the three biggest economies on the continent. Now, first thing I should say is I can't really talk about Egypt because I don't cover it. For whatever reason, the Financial Times' definition of Africa is sub-Saharan Africa. So I cannot really talk with any legitimacy about it. But Nigeria and South Africa, you know, I've been to, I don't know, 20 times each. I've thought about them both quite hard, I suppose. And I would first say that they're just very, very different cases. The overriding factor of South Africa was the apartheid regime and the liberation from this horrendous apartheid policy, which deliberately impoverished a section of the population, the non-white section of the population, particularly the black majority. And extricating South Africa out of that is proving extraordinarily difficult. And South Africa is failing at that. And I could go into that in much more detail if you want. Nigeria, I think, is a whole different case. Nigeria never really had, well, it didn't have an apartheid system. It had a colonial oppressor: Britain; colonial occupier: Britain; then Britain left. But Nigeria doesn't have the terrible racial legacies of apartheid that South Africa suffers from.

In that sense, I actually think Nigeria starts from a better position than South Africa, albeit that South Africa had much more sophisticated some kind of world-class industries, manufacturing base, etc. Still, I would argue that the politics in South Africa is so complicated that Nigeria weirdly starts in a better place. However, one of the things that I think has gone wrong in Nigeria, and again, I don't think there'd be many Nigerians that would disagree with me, is that you discovered oil and lots of it. So you discovered oil and lots of it, but weirdly not enough. So if you take a Qatar or a Kuwait, one of these rich Gulf states, they have huge quantities of oil and very few people. So it doesn't take a kind of genius government to be able to spread that wealth kind of around, you know, to bring in foreign labor if required, et cetera.

Nigeria has a lot of oil, but not enough oil for 200 million people. If you gave all that oil wealth to each of 200 million people, you wouldn't have very much, which creates an incentive to try and get your hands on it. So it creates a perverse incentive, I would say, and the resource curse sort of starts there and did start there. And so the point of government becomes to share oil wealth, get your hands on the oil wealth, share it, share it among the political class, keep out everybody else and use your political influence to get as much of that oil wealth as possible. One obvious sort of result of that is the highly logical thing to do if you have oil is you begin to move up the value-added chain. This is what you should do if you're trying to develop any economy. So what do you do with oil? Well, you turn it into petroleum products, into the fuel you put in your car, to heating, electricity, all of this stuff. And again, you don't need me to tell you that Nigeria has not done this. It has refineries that have not worked. Now, of course, you have the Dangote Refinery, And there's a lot of hope, some hope anyway, attached to the Dangote refinery.

But in the past, what the Nigerian elite, and I can only blame the elite because they've been the ones in charge, what they've done is they've taken that oil, they've sent it abroad for somebody else to add all the value, and then they've bought it back, spending all the money that you've earned from the oil in the first place to somebody else because they've got a refinery. I mean, this is crazy, crazy policy and crazy politics. And this, I think, has been the curse of Nigeria that has informed much else. Of course, there have been many, many other problems, some of which go all the way back to colonialism and the colonial legacy. The fact that Nigeria was kind of jammed together by Britain, that it's a nation state if you draw it on a map, but it struggles to be one in reality.

And you could argue that Nigeria has been successful in creating this kind of feeling that there is such a thing as Nigeria, that we're all in it together. But you can also say that the elites, those who reach and by that, I guess I mean those who reach political power and those who enable them to reach political power, they have not really treated Nigeria as a nation because otherwise there wouldn't be 10 million kids out of school. There wouldn't be these massive disparities between different states, some with very much better health outcomes, et cetera, some with much lower levels of people in school, some with much better infrastructure, some with much worse infrastructure. That wouldn't exist to the same extent if your elites had treated the country as a real state and the purpose of the oil being to fuel that state and to fuel its development. That has not been what's happened. You've had an elite that has, in a sense, followed a colonialist model, which is to extract wealth and sometimes to send it abroad, which is why a lot of people go for their health and their education abroad, because they haven't bothered building it to the extent that they ought to have done in Nigeria itself. So these are very different stories. They may lead to the same or similar positions. You started by asking about why these three big economies have not fulfilled their potential, let's say, to put it kindly. So I think the reasons are quite different, particularly in the case of Nigeria and South Africa. But your end point is similar, if not exactly the same.

Tobi;

I want you to talk a little bit about South Africa, and especially in the last 10 years, what has gone, maybe that's not fair, but what has gone really, really wrong? I mean, to paraphrase someone I listened to during the lecture, I'd rather not say his name, is that South African elites care more about making the elite structure blacker than making South Africans wealthier. How should you think that conforms to reality?

David;

Well, that is a controversial statement. I mean, I think the ANC has become increasingly a kind of a black South African party. And it's to some extent losing some of that kind of rainbow nation, colourblind, non-racialism that was kind of, in a sense, so inspiring in 1994. So there's a couple of ways of answering that question. I mean, you said the last 10 years have been bad. I mean, I know that some people think the following: It's been 30 years since apartheid they kind of compare it to a football match - first 15 years, first half, pretty good. Second half, pretty disastrous. Lots of own goals. And that's one way of looking at it. The cutoff point is Zuma. So you have Mandela, you have Mbeki, sort of technocrat, reasonable growth that's growing at 5%. You do have a commodities boom, it's true. Then the financial crisis hits and Mbeki is dislodged by his own party, only a year before he was due to leave anyway, but still dislodged. Zuma's put in and Zuma starts the process of state capture and the real kind of erosion of some of the institutions that South Africa had maintained for those first 15 years. So that's one way of looking at it.

I think there's another really sort of, in a sense, more interesting way of looking at it, which I first read, again, in a Martin Wolf column. And he talked about the concept, which was originally applied to Brazil, actually, of Belindia. And Belindia is a combination of Belgium and India, a small, in this case, white economy. It doesn't really matter what the colors are, but a small white economy surrounded by much, much poorer black economy. That's what South Africa looked like in 1994. It had been deliberately engineered by a white racist system. So that's what you got. The question is, what policies do you have to deal with that? Because you've got two economies.

If you think about the trouble that Europe had when Europe joined and you were trying to set interest rates across Europe for different economies, for Spain and Germany, let's say. Now you've got Belgium and India. What policies do you put in place to maximise the potential of both of those? Because one of the things that you obviously try to do is you basically raid Belgium. You redistribute from Belgium to India, which is what's been done. And that's, I think, perfectly fair and a perfectly rational thing to do. You redistribute from the wealthy part of your economy to the less wealthy part of the economy. But that's not all you can do, because if that's all you can do, then eventually you're going to just impoverish Belgium and you're just going to have an impoverished country. So you can't do that. You've got to somehow turn India into Belgium. And it's not really clear how you devise policies that can do that.

You know, if you're India, it's much easier. You're a poor country and you trade, in a sense, off your poverty like China did. You know, China moved people from the countryside in China into factories in the cities. So it transformed inefficient farmers into increasingly efficient players in the global supply chains. But it did that via low wages. It's not really possible in South Africa because of the political inheritance that it's had. So one of the policies, for example, that the ANC tried was black empowerment. Which is, again, rational and completely understandable. They wanted to create a black middle class and people like Cyril Ramaphosa, who was put on various boards and given shares in various companies. He became very wealthy through that. And a black middle class was created. But you can also see how there are problems there. One is that this can lead to corruption. You know, you get those opportunities based on who you know and who you know means knowing the ANC. So you can see how that reinforces or could reinforce bad politics and cronyism. And indeed, that is exactly what's happened, unfortunately.

And second, you can see how it can lead to inefficiencies. So a well-known example was that, you know, even the airline needed to buy its planes. you know, Boeings, et cetera, through a black empowerment business. So, of course, no planes are made in South Africa. So the only way of doing that is a black company is set up to buy planes and then they sell them to South African airways with a markup 10 or 20 percent. So immediately you have an airline that's 10 or 20 percent less efficient. And that's kind of mirrored in the rest of the economy. So in trying to adjust to the hundreds of years of historical injustices that you've had, you kind of fall into policies that are going to be counterproductive and make your economy inefficient. Having said that, the ANC has also just failed flat out, right, in some policies that it also have got right. The biggest of all being education. Under apartheid, you had an education system that was deliberately tailored to keep black people poor and to limit their education so that they could work in the mines and work as domestics in people's houses. A vile system.

That was the starting point. It ought to have been really easy to improve that by leaps and bounds. And South Africa has actually put quite a lot of money into its education system. But for one reason or another, some of which I don't fully understand, to be honest, it's failed. And the education system for most people is failing. And so it's failing to transform people's opportunities via education, which would be not a simple, not a salvo either, not a panacea, but certainly it ought to be a very important part of the ANC's armory in transforming that society. And it's failed.

Tobi;

That's deep. And I agree it's a complex problem. I mean, They have an election also this year, and in Nigeria we had ours last year. From the field currently and how the political dynamics is evolving, what do you think is the hope of turning some of this around, at least for the people?

David;

Sure. Well, there are a few things. I mean, like you often say with development, well, I wouldn't start from here. I mean, it's not a particularly good place to start from. That Belindia image, I think, is quite powerful. And you can't just wish that away. That's history. That's going to take a long time to overcome. What is going to happen in this election, what is likely to happen, is that for the first time, the ANC's majority, i.e. its 50% plus of the vote, is going to be challenged. So last time it got 57.5. In previous iterations under Mbeki, for example, it got, I think, in the high 60s, certainly in the mid 60s. So the ANC sort of was dominating politics. Now, I think disillusion with the state of the country is such that that majority will be challenged. So it's possible, it's not definite, but it is possible that the ANC will fall below 50%. That opens up all sorts of possibilities, some of them more promising and some of them less promising.

So if the ANC does very, very badly, let's say it gets 40%, I think this is unlikely, but possible, then it's It may go into coalition with a party like the Economic Freedom Fighters, Julius Malema, who's a breakaway, sort of a radical breakaway. They want to nationalise the commanding heights of the economy to expropriate a lot of the land without compensation, maybe nationalise the central bank and then sort of change central bank policy so that it's much more in favour of growth distribution than in sort of tackling inflation. Now, you know, maybe this will all go brilliantly well, but experience and history tells you that that's not likely to go very well, that project, and could impoverish South Africa further. So the loss of the ANC majority, while important and necessary, I think also sort of opens up the country to danger.

I think much more likely is the ANC will get in the mid 40s or high 40s and therefore will go into coalition with some of the smaller parties. And this, I think, is where the hope lies. So you have a number of smaller parties, some of which are pretty terrible, but some of which are really good. There's a party called RISE Mzanzi, for example. A former journalist, Songeso Zibi, has formed this party. A lot of people really think that this is a good guy, progressive, forward-thinking, not attached to the ANC, not attached to the DA, which is the right-of-centre kind of party that has tended to be a very white party and therefore is really not electable in the country as a whole. So I'm not saying that RISE Mzanzi is the great hope of South Africa. I'm not saying that at all. I don't really know that much about them. What I am saying is that you can see how the breakdown of this ANC monopoly could lead to new ideas, some of which will be bad and some of which could be much more hopeful and progressive. And, you know, come the next election in five years' time, you could see some of those parties that have established themselves now growing their support base and maybe changing the policies of South Africa for the better.

But I do think that the ANC, you know, as amazing a movement as it was and as necessary a movement as it was to overthrow apartheid, after 30 years of unchallenged power, it's hardly surprising, is a sort of a pale shadow of its former self. And it'd be difficult for it to reform within without losing power, or at least having its power seriously challenged.

Tobi;

For the sake of the millions of South Africans whose lives depend on their government getting things right, I hope they do. My final question before I let you go, David. So I'm going to ask you one big question and maybe a couple of two or three more rapid fire questions. And this is a bit of a tradition on the show, which is talk to me about one big idea. It may be yours, it may be an idea of someone else, but just one idea that you are excited about, that you love very much and that you would like the world to be excited about as well. Possibly could change the world.

David;

That is a… you should have warned me about that question type. So my mind's going blank. The thing I'm thinking about is so far from what we've been discussing that I don't know that it's relevant. I mean, let me name two things and they're quite different. What is very well established, but I think very important, and I'm not trying to be trendy here, but I think the idea that if you concentrate on giving women opportunity in society that a lot follows is very promising in development.

If you look around, women kind of hold families together, their kids' health and education, they are the guardians of that. If they're empowered, given opportunities, I think huge amounts can follow. And if you want to kind of a way of unlocking growth and development, you could do a lot worse than thinking, what are we doing for women at all levels of society? This doesn't mean women in boardrooms or women in this. Of course, it means that, too. But it means policies that enable women to take control of their finances, take control of their bodies, take control of their education, take control of their destiny. If you get that right, I think an awful lot follows.

Second, totally different and something I hardly know anything about, but I keep hearing about it. It's something called eDNA. This is a way of measuring biodiversity. As far as I understand it, you take a measurement from water or soil and rather than counting the number of animals or trying to count, you know, the number of bacteria or worms or whatever it is, you kind of have a baseline of the biodiversity of an area.

And given that baseline, you can then work out, are we improving this area or are we degrading it? And it may be the kind of the GDP of the environment, let's say, a one shot measure that enables you to say, let's leave this country, this wetland, this region, this forest in a better state for the next generation than we found it. I think that could be a very powerful idea.

Tobi;

Charter cities, which is something you've written about, are something with a big potential for change, especially in the context of Africa. Do you find it promising or a fad?

David;

I'm highly skeptical. You can see where it comes from. You know, Shenzhen in southern China, you could say it was a charter city. You could say Singapore kind of acted like a charter city, Hong Kong. If that's what you mean by a charter city, then maybe. But look, if you have policies that are good, then you should roll them out to the whole country. Why should they be in some isolated little part? I don't see why you need to start from scratch. You could say, yes, we could experiment. We could try Charter City A, Charter City B, Charter City C, see which does better and then roll that out to the country as a whole. Fine. Okay. But the idea that you can get around government, you know, outsource public goods to the private sector, start totally from scratch. I am quite skeptical of that idea. I find it intriguing and I've written about it in a way that may not necessarily show my skepticism. But if you ask me, do I think it's a great hope or a fad? I lean towards the faddish end of the spectrum.

Tobi;

Senegal, Nigeria or Ghana, who has the best jollof rice?

David;

Yeah, if you make me answer that, then I'll never be allowed back in Nigeria again. So the best jollof rice I've probably ever had was in Lagos, actually. Not meaning that there's not fantastic jello fries in the other two countries, but the best one that I happened to have had was in Lagos. Kind of spicy, pretty good.

Tobi;

Okay. Generally, from your travels across Africa, where to you has the best food scenes, the best restaurants, best coffee shops?

David;

South Africa is an obvious example that has good food. I like some of the food I came across in Madagascar, in Antananarivo. And in West Africa, I'm going to say Lagos and Accra draw, just to be diplomatic. But there are certainly some very cool places in both. And I've noticed that, I mean, clearly in Lagos, Some things happened in the last few years because there's been a kind of a mushrooming of places, some of them very high end, which, you know, have limited use for me. But, you know, there is clearly some interesting stuff happening.

Tobi;

Finally, Labour or the Tories, who do you think will win the next UK general elections?

David;

Labour.

Tobi;

Thank you, David Pilling. It has been a pleasure to have you on Ideas Untrapped.

David;

Thanks, Tobi. I really enjoyed it.



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.

Transcript

TL: 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.

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 Lawanson

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. 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 Lawanson

So 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 Lawanson

The 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.

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.

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.

TRANSCRIPT

TL: 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.

Laughs

TL: 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?

Laughs

TL: 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.

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.

Transcript

TL: 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 - SG

SG: 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.

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.

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). 

Transcript

TL: 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. - ML

ML: 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.

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.

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.

Transcript

TL: 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 - AO

If 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 - AO

I 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 - AO

TL: 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 - AO

AO: 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? - AO

Is 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? - AO

If 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.

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.

Transcript

Tobi: 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. - AS

Now, 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. - AS

Tobi: 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? - AS

But, 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. - AS

Tobi: 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. - AS

So 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.

In this podcast episode, Tobi interviews Rasheed Griffith - who is the CEO of The Caribbean Progress Institute, and host of The Rasheed Griffith Show explores the adaptability and policy implementation in smaller countries compared to larger ones, noting that smaller nations can change more swiftly due to simpler institutional structures. Rasheed contrasts this with larger countries like China and India, where changes, although rapid, are often driven by cultural homogeneity and authoritarian governance, which may not be desirable in Western democracies. The discussion also touches on the impact of leadership and institutional capacity on economic development, emphasizing that the quality of governance often outweighs the mere structure of political systems in influencing a country's developmental trajectory.

You can listen to episodes of Rasheed's brilliant podcast (The Rasheed Griffith Show) here. You can also subscribe to the Carribean Progress Institute newsletter here, where you can read many interesting and important writings.

Transcript

Tobi;

Welcome to the show, Rasheed.

It's great to talk to you.

I want to start with something that you mentioned in our first conversation, which has stayed with me. I haven't been able to stop thinking about it since, which is that small countries are somewhat more amenable to change than big countries. You know, when we talk about ideas and policies and economic development,

I just want you to expand on that a bit. I know I'm paraphrasing, but I want you to expand on that a bit.

Why do you suppose that is?

Rasheed;

Small countries have less people to influence politically, economically, socially. So ideas can spread faster and ideas can spread deeper in small countries. So for example, if you have a country like Nigeria, you have over 200 million people, you have vast, vast institutions that are captured or incentivized in very radically complex ways.

Compare that to a country like Saint Lucia that has 180,000 people. Very small institutions, very small number of schools, very small number of just social actors.

For the difficulty of idea spread and idea capture, it's a lot less in a very small place, and yet these are still essentially independent sovereign UN vote countries that have as much rights in that league as Nigeria.

You know, Walmart...Walmart in the US has more employees than all of Saint Lucia has population. Or even Saint Vincent, or even Trinidad, Walmart has more employees.

So, when you talk about turning the ship of these small countries, it's a lot less complicated than trying to influence Nigeria or Ethiopia or the US or Canada.

Tobi;

I want to square that a bit with what we saw in China in the last 40 years.

China is obviously a very large country and some people would say that it went through a process of rapid change, I mean, after the 1978 reforms. How did a country like China and to some extent what we are seeing in India recently, do you think that having, even if you're a big country, having a homogenous culture, language, ethnic population, does that also help speed up the process of change.

China, obviously, communism being the central guiding ideology and of course, majority of the population is Han Chinese. And we're seeing Modi, you know, rally around Hinduism as the national identity of the country. So, how does homogeneity play in here? And you see some pretty screwed up small countries, you know, Haiti…

What are the constraints and what are the catalysts?

Rasheed;

So China is obviously a good example, but China didn't just transform itself via ideas. It transformed itself via a dictatorship. And I think most people would not want that trade-off. You know you go to Shanghai, [which] I've been to many times, you go to Shanghai and you say “it's so great here, the transportation is fantastic the skyline is amazing, all this happened in 30 years” but then the problem is this; the way [and] how it's done, the effects, the results are quite spectacular but for most people in Western countries, you are not willing socially, morally, to make that trade-off even if the trains are so nice. Because you don't want to have the authoritarian system that China has.

So, you know, you can describe China as communist and of course the party structure is very Leninist communist structure [but] of course how the economic stuff operates is very open in terms of price mechanisms that you typically find in other capitalist operation. But, you know, don't make no mistake, this was a very harsh trade-off that the Chinese people did not have a chance to make particularly because they had a very authoritarian, still has a very authoritarian party.

And I would also say that a lot of the transformation of China that has happened it wasn't particularly directed by the party. People always use Deng Xiaoping as the start point for the opening up policy. But when you look at the proper historical literature, he really just allowed the people to do what they were starting to do already.

The market reforms were a very bottom up process. So it wasn't like they kickstarted the actual change themselves. As usual, it's a market system that happened first. So, again, I don't think in Western countries that have a history of democracy, a history of institutions, history of social liberties would want the kind of trade-offs needed that China used to rapidly push in one direction.

Now, India is tricky because India, of course, had a lot of growth, but India has very weak institutions. You know, when you are there on the ground, there is a massive difference between India and China, even states like Bangalore, for example, or New Delhi.

It is still quite a developing country because there's so much development, the numbers kind of look good but in my opinion no unit, no particular place itself can be called developed yet and a lot of the really massive growth in India… again, its government has not really been very good at capacity building, although at some measurements of state capacity India still runs very high for some strange reason but it is always a bottom-up process in India. However, depends on where you go in India, again, there are some parts that are still very far, far behind and some parts that are very, you know, far forward.

Again, same in China. You go to Western China, it's as poor as it was 50 years ago. Because those are big places, very big populations, it's very difficult to look at macro measurements as like default indicators, whereas if you go from Shanghai to even like Jiling, it's a very, very, very difference in economic proportionalities.

Tobi;

Yeah.

It brings me to this question of democracy versus autocracy in the context of economic development. As you know, a lot of African countries, especially around 20, 25 years ago, after a very long history of military coups and dictatorships, started democratising, you know. And if I use Nigeria as an example, the challenge and why there seem to be a pining for autocracy, especially if you look across and, you know, compare what East Asia was able to do, there seem to be no continuity.

For example, in Nigeria, the way I describe Nigeria is bad ideas are immortal, but good ideas have no continuity, right? So what is the nuance, precisely, in this democracy versus autocracy debate when you want to kickstart development and sustain it, you know, and try to reach for high income?

Rasheed;

See, it really depends on what people mean when they say democracy, because oftentimes I get the sense people really mean just voting and competitive elections.

Is that what you mean by democracy or they mean something deeper?

Tobi;

Well, that's a good distinction because I think loosely we use democracy basically to mean that, okay, you have cyclical elections, you have a constitution that grants people relative freedom, on paper, in practice might actually be very different. You have a somewhat independent judiciary and there is separation of powers.

So that's how I would describe what I'm talking about.

Rasheed;

I see that's tricky, right? Because England does not have separate powers. It doesn't have a separate judiciary. People still call it democratic. So it's a complicated question there.

Also they don't even have an actual constitution either.

Tobi;

Yeah, they don't. I'm fascinated by how that works, by the way, but i'll say maybe from the 2000s upward, most new states or newly democratising states have gone for the American-style presidential system, you know, and i feel like that is part of the struggle with a lot of states especially in Africa. For example in Nigeria, after independence it was a parliamentary system of government then there was the war and the coups and then during the second republic we kind of went the way of the American presidential system and then there's always this constant debate about: do we really have a federal system, how do we handle things like state independence, how do you balance minority rights versus rule of majority, right?

Now, for states that have opted for this American federal system, you know, without having the same history and the same institutions, they seem to struggle. And I'm trying to understand why.

Rasheed;

So the basic premise on which you structure your electoral process is not enough to govern a country. And new states tend, by definition obviously, don't really have a history of institutional capacity behind the electoral process. And many states probably of course in African states, also even Latin American states to be honest, they never actually stabilise on a particular path of institutional growth, capacity building, and so on. So you can look at Nigeria, Burkina Faso, you can even look at Peru or look at Guatemala and Nicaragua, these countries have very constant states of flux all the time. And, you know, a lot of that is obviously a remnant of how the independence movement happened and what happened after independence and things were essentially kind of, you know… the the way how the state itself was set up, the initial premises, obviously caused a lot of problems going forward but it's [a] difficult question because in my mind the literal category of electoral process you have isn't really that important.

The important thing is who are actually working in the governance mechanisms.

What kind of people are working in the public sector?

What kind of trainings do they have?

What are their histories?

How much power do they have to actually form ideas and make choices and so on?

Those things are the more critical things in governance, not the electoral process per se.

Well, yes, we need to have an electoral process that is fair, but so what?

I mentioned in England, they don't have a separate court, really, up until 10 years ago in 2013.

The parliament and legislature are the same thing, they don't really have that either, the separation…so you don't need, even in theory, to have these things all separate. But the difference is that in England the institutions that govern so you manage your finance and treasury so on, they have very high capacity people and they are allowed to make decisions and the people in charge follow the decisions that they make because they have these reviews they have these regulations that affect how you make choices in governance. Where[as] in new countries, they don't have these things, they don't have these systems of stability. I don't know how one creates these things because these are such old states, we really have no idea how these things form themselves. You could say, yeah, if there was one very strong impactful leader who happens to be governing very well, then yeah, let's pass forward. You know, we all use the Singapore example but that's a minefield full of history. There's nothing you can do to create the conditions to make that happen.

You can say also maybe Rwanda, maybe, is another example - Kagame - of this, but again, before Kagame, there's no way to a priori determine if a particular strong leader will actually be a good governor. You can't decide those things a priori you kind of have to go with the luck of the choices. So I don't have a good answer to you because I think no one has a good answer to that question.

How do you build institutional capacity in countries that don't have it and have never had it that well is probably the most important question in development economics that no one actually tries to think about that much or at least outside of very niche academic circles.

Tobi;

Another thing that comes to my mind is the people question - speaking about the policies themselves, I know you can't separate it from the people, but a lot of policies especially around economic governance is more towards socialism and leftist ideas… I can say for Nigeria and of course a lot of African states.

So my question then is, did colonialism, for example, or the history of exploitation, especially in countries that have a history of such, did it make capitalism a bit of a tough sell?

You know, because during the Cold War and before that, the fight for independence and the liberation of these states was supported by the communist bloc and there was a lot of knowledge transfer, there was a lot of personnel transfer within that period. Was that why we still have this persistence in terms of socialist ideas which are clearly not working but are very very difficult to get rid of. Nigeria is going through a period of extremely high inflation and macroeconomic distress right now, and what you still hear from the people that are responsible for policies are still the same ideas that we have tried that have failed.

A Lot of Statism, A Lot of Protectionism.

Why do these ideas have such persistence?

Is it history?

Rasheed;

So history is a very, very big part of it.

So you pointed out that the decolonial movement, a lot of the ideas were anti-colonial powers.

That was the basic premise. England, France did this, therefore we need to do X, something different. And at the same time, as you mentioned, at the time, a lot of the Soviet bloc, East bloc at the time, were communists, very pure communists. Then that kind of influence also went towards their anti-imperialism, which was again, anti-Western.

So everything kind of fused into one thing.

I don't know, really, how much you can call it anti-capitalist, I think it's most anti-imperialism and by default it means anti-Western institutions and I'm trying to sort of grouped in capitalism as the exploitation, you know, is clearly not a very strong argument of course but that's what they did and the same thing happened in Caribbean, same thing happened in Latin America and it still persists the same way also in Latin America, also in Caribbean, also Africa.

And the persistence is really a matter of ideology. You can't really think outside your own ideology if you don't have any interest in thinking outside your own ideology. So [the] leadership who come up [is] all Marxist training, all socialist training, very anti-imperialism, those kind of things, and they don't have any instinct to think about alternatives that they would never try.

But in Tanzania, after Nyerere, the next president, I think it's Mwinyi, I don't remember his name properly unfortunately, he was much more pro-market.

And why was that?

I don't know, actually.

It can't be education. He had the same, essentially, education notice as Nyerere, and Nyerere was a shrugging, you know, socialist believer.

So what was the difference between those two people?

I don't know that much about it.

But he had an instinct that was much more pro-market, pro-capitalist, pro-freedom, where he really transformed […] policies in Tanzania. And his son is now the president of Zanzibar and again [with] that same instinct of openness and more free market liberal policies. So you see that now play out in Zanzibar.

So you have an instance where the two leaderships, one family, has had a massive impact on these policies.

But why do they have these different views?

It's hard to say.

Why does Kagame, for example, have the view of more liberal policies while having also very strong, strong, state arms on security and so on. Economically, he has more liberal policies. He doesn't have any distinct, highly distinct educational backgrounds, not much, but instinct-wise, he is very liberal.

Why is that?

These are the kind of questions I think people don't really grapple with. Because it's not a theoretical issue. It's a leadership problem. So why do leaders that should come up in African states, but again, same for Latin America, same thing in Caribbean. Like, why don't more of the people who have more liberal instincts go to vie for leadership in countries like these where we live?

I don't know.

But that's the key point.

That's the key change.

The people that have an instinct of liberalism must lead the countries.

Tobi;

Sticking with the colonial question, as someone who work with ideas, I really want to know what is the persuasive framing for this debate around exploitation and growth, right?

You have this movement, not just individuals, who are absolutely convinced that not just modern economic growth that started with the industrial revolution was built on slavery, but that the extension of that or the correspondence of that period with colonialism was the instrumental thing. It's a bit similar to the 1619 project in the history of capitalism in America. And this group of people, sometimes very loud, are absolutely convinced that they are right.

And they use history as their evidence.

Do you want to deny that X happened?

Of course it did.

How then can you say that it was this exploitation that gave these people prosperity and obviously retarded us?

What is the place of better balance in that debate? And what do you think is the persuasive framing to make people understand that exploitation by itself is not what gives you productivity? You can't really exploit your way to TFP growth.

Rasheed;

These are two different questions.

The first part is the historical thing.

Now, the historical problem is very challenging because the people who are based on the idea that the colonial exploitation is the thing that made the West rich and the thing that made Africa poor versus people like me or, I guess, you that have the view that, no, that was not the base reason. The problem is coming to a centre point is that we exist in two different planets, unfortunately. Because history happened. It's in the living past but how you interpret history is the really important aspect of it.

So you say, oh, they use history. They don't use history. They use interpretations of history. And it’s similar on our side as well.

But the problem is that it's very difficult to get someone to drop their interpretation of history for a different interpretation of history when they have emotional resonance towards their own interpretation.

It's very difficult.

In some cases, perhaps even impossible. If you have a very strong view on this topic, it's very difficult for people to change your view because it's not actually based on fact it's based on interpretation. Because, again, ideology is almost like a religious view at that point in time but it's not actual quote-unquote fact. Now people, the general audiences, don't have as much strong view as someone who has a firm ideological commitment on the view and that is usually people you need to target.

Because they don't really know the names, they don't really have any dates, they don't understand the actual contours of the argument, they just come up hearing something all the time and those are people that have a better chance of changing their mind on things. And especially in Africa, especially in the Caribbean, this argument about historical exploitation of colonial capitalism is the reason why the country is poor is extremely persistent in a very perverted way and I feel in some ways the governments that currently exist…

I think some of them do really believe that's true but I also think many especially in the Caribbean where I'm from use it as an absolution. They don't want to really put any hard work to get things done so they admit this argument and say hey it's not our fault it's 200 years ago fault. Therefore, that’s why we can’t get anything done properly now.

So they kind of absolve themselves of responsibility in the present by using history, bad history, as a clutch. At least, in the Caribbean I know that’s true and Africa also, I can’t really say definitively. So that's the big issue.

Now, on the other side, in terms of the present and what has changed or and what has not? Again, if particular leaderships don't have an instinct of liberal change, i don't know if there's any education you can do, particularly speaking, to change their minds about how things should be done. Especially also [somebody] who have so much power, so i think it's very difficult in that situation that's why I'm saying when it comes to changing big countries it's so hard because the entrenchment is so deep that where do you pull levers to get things done? Who's actually in charge of this particular thing? You don't know.

In small countries you know exactly who's in charge of what, from when, and who they know, why they know it, and so on. So the tapestry which you can go about plotting change is a lot more direct in small countries. In big countries, it's a lot more difficult.

But I say I'm telling you, the thing you have to do is obviously encourage the spread of more liberal ideas, but in reality, the really, really key things that the people who go up and try to transform states, they need to have the gut instinct of liberal thinking.

Tobi;

That brings me to reparations and one of my favourite essays of yours. Uh, the reparations movement if we can call it that has gained some traction obviously in the Caribbean of course, and to some extent, perhaps not as loud, in Africa as well. What is your case against reparations?

Rasheed;

Reparations is based on a few things at the same time and I think people really kind of fuse it all together as one argument. And I say that in the Caribbean part because that's the most vocal element of the British Reparations Caribbean-Africa, a lot of it actually is very Caribbean-driven which is actually very surprising because the Caribbeans do a lot better off than African states on any metric.

But again, it's not too surprising given that the very most famous books about the exploitation argument is How Europe Underdeveloped Africa, which is a very famous book actually written by a Caribbean person.

So I suppose it's not too surprising when it's a Caribbean-led movement in that sense.

Now, the arguments are based on history, economics, and philosophy. Those are the three primary basic categories of the argument.

The history argument is simple in the sense that sugar plantations in the Caribbean were the main economic engine of industrialisation in England. That is the really core argument. But the problem here is you can look back in economic data to see how big the sugar industry was as a percentage of all industry in the UK at that time, the 1700s and early 1800s but, you know, mostly late 1700s. You can look back at data and see at best, sugar production was about two percent of overall income in England. That's very very small. That's as much as other industries, for example like agriculture, for example, like imports of copper from Ireland is about also 2%. But no one makes the argument that copper imports from Ireland was the reason why you had industrialisation in the UK.

No one makes that argument.

So why make the argument sugar?

You can go back to, for example, and see things like the amount of slave trading you could get. You should also see numbers and impact and revenue numbers.

All these data are collected. England, luckily, was very anal about numeric analysis of their economy and their systems so if you go in the British archives [there’s] so much written, captured reporting on numbers through time. One of my favourite time series is the Millennium Time series by the Bank of England that goes back A Thousand Years of Economic Growth in the UK.

So you can make accurate measurements of all these things going back a thousand years and definitely 300 years. When you read the arguments of the pro-reparations people about the economic impact, you will notice they never actually give a good economic analysis of the sugar production to impact in the UK.

They literally never mention actual econ numbers on these things.

They say, yes, this happened, believe me.

And they go as far as saying, if you don't believe me, you're racist.

That's also part of the argument, it's literally in the books. I have it in my essay. Another aspect is the… let's call it the philosophical or moral argument. I think at this point anyone would say, slavery was bad, it was evil. Okay. I don't think people debate this. I don't debate it, at least. But they leap and say therefore you owe me money and that therefore is where all the work needs to be done and they don't actually do the work. Because of the Caribbean centre argument, it's a very difficult one to do. Because, again, the Caribbean is actually doing decently well. It's not doing great, you know, comprehensively like Singapore, Taiwan, sure, okay, but it's doing good.

And if you look at the Caribbean data when it comes to this, the bulk of Caribbean economic growth happened in the late 50s, early 60s, late 60s, literally right on the beginning, even before independence and going into very early independence. So the time when it had the most colonial influence still is when it had the most growth.

And then as the colonial influence goes down, growth actually also went down in the Caribbean.So also, you can look at the other counterfactual, which is the Caribbean still has British colonies. You can look at the other counterfactual, which is there are independent Caribbean countries that were part of the British Empire. They are not independent. And at the same time, concurrently, they have Caribbean countries that are still part of the UK, like Bermuda, BVI [British Virgin Islands], Cayman Islands, you know, those countries and all of them are performing better than the equivalent independent Caribbean country.

So if the British part is exploitation, there's something breaking down where the British colonies have better performance than the independent ones and that is very difficult to square off and the reparations debaters or pro-reparations never try to discuss this point either, they always avoid it. Actually I don't even think they even think about it as a thing to think about in that sense.

So then you look at the moral part. Now you realise that the decline in growth happened well into independence, so it can't be the British exploitation that made the growth worse because you were already independent countries when you had a decline in growth after the late colonial period actually growth started to happen. So who's to blame if you're going to blame someone for post-independence growth, given that pre-independence growth was higher?

It has to be the independent countries, not the British.

Black, it's the leaders of those countries that have failed to do good policies to bring up the countries. Again, this is another way to absolve themselves of responsibility.

It's not our fault we have bad policies that don't grow the country. It's 300 years ago that put us on this path, even though most of the growth happened while you were still a colony. So the pro-reparations argument really based on nothing. However, it's ideologically soothing so you think it's good.

Tobi;

That's deep.

How do you reckon that their influence, especially in terms of policies, in terms of how they influence the general direction of what young people think and believe, how would you gauge the influence of the reparations movement, their ideas, their arguments?

Rasheed;

At least in the Caribbean, it's quite, quite impactful.

I think, not I think, every Caribbean country, these are independent English Caribbean countries are pro… as official policy, pro reparations from the UK. All of them.

So it's very impactful.

And I think if you talk to the average person on the street in Barbados or Jamaica, they will likely also be pro reparations too.

They haven't thought about it that deeply, to be clear, but just growing up in this context you will probably also be pro this thing. You know, there are people who are not either, of course, but I say on average people will be more leaning towards, yes, the idea is good and as an official policy that you should get reparations in the independent English Caribbean from the UK. So it's one of the most impactful movements, I think, in the entire region.

Again, it's not new, it's an old movement, but it has had very big impact.

And then on the UK side, it's gaining more traction by, for example, the Labour Party in the UK.

On the UK side, you know, I guess you call it woke liberalism these days as the term people use in America.

That's more why they believe it's correct. Not for any historical reasons either. So when those two things combine themselves you have a very powerful movement.

Tobi;

It will be really hilarious to me, at least, personally, if a pro reparations government actually that comes into power in the UK because I doubt the UK can afford what the reparations government is asking for.

Rasheed;

The thing that the people are, so Labour Party is very likely going to win the next election and they are going to discuss this topic a lot more, but the things that the reparations people are asking for isn't pure money.

I think that's a misconception.

I think maybe years ago that was the main thing they wanted but they're not actually asking for cash per se. So they're asking for things like better education support, perhaps even more scholarships to the UK, they're asking things like better funding for health systems in the Caribbean, they're asking for funding to do like arts and museums to have more African Culture in the Caribbean and people can understand African culture.

Things like that, also for like debt cancellation, things that still cost a lot of money, but they're not necessarily asking for direct cash transfers, particularly speaking.

Tobi;

You follow Latin America pretty closely. Are you bullish on Argentina, especially in the light of Milei's election?

Rasheed;

I think bullish would be a very strong word to use.

I would say, I think Milei has a 30% chance of getting this things done, which is, I think, so high. It's a high chance for Latin America. But I'm not going to use the word bullish. I think that's too strong a word to use in this case. It's a very, very tough road ahead.

I think people are a bit too optimistic about Milei's administration. I like Milei, I love Milei's policies and his administration, but you have to understand in the context of Argentina, the institutions are so captured by Peronist people, socialist interests that is very difficult to get really deep change happen and, of course, also the countervailing forces like the the trade unions for example, the population themselves, generally speaking, is very very pro socialist policies. The different governors in different regions are also often very pro socialist policies. So getting all of that on a correction path is going to be very very difficult.

So because of the different administration levels in Argentina the governors, the trade union leaders, the people working in the public sector, the population, it's still very directionally socialist.

See, saying the word Peronism is difficult in Argentina because Perón himself was actually a lot more liberal than Kirchner. But they're both called Peronists so it's difficult to use that term but the socialist leaning governors and people and so on make it very difficult to get really hardcore liberal change happen in Argentina. So I want it to work to be clear. Now, if he gets the dollarisation plan pushed forward and actually implement dollarisation, I think that would be a very good sign that many other things will get done. But they're really delaying dollarisation and I think they need to push that forward ASAP.

That should be the first thing they've done, but they went a different route to do it.

That was a very incorrect move.

So I wouldn't say bullish, but I'm 30% optimistic about Argentina.

Tobi;

Do you think countries that are poor today or I would say low income, that is below middle income, do you think that they can benefit from this multipolar world where global trade is fracturing and there are now talks of nearshoring and friendshoring. What are the chances that some of the countries that are poor today can, you know, seize those opportunities?

Rasheed;

See, generally speaking, I think these are more concepts in the academic sense than in practical sense.

You hear about nearshoring, for example.

What does nearshoring actually mean?

A lot of manufacturing has really been put in China but that hasn't actually changed in the last two years. People always use the examples of, oh trade between Mexico and the US are going up; okay, fine, yeah, but the manufacturing concentration in China didn't go down. [It’s] still as high as it was. So it's very difficult to really understand what these concepts really mean in practice

I don't think multipolar world makes anyone's life any easier. It probably makes it more difficult. I don't think nearshoring will have a very big impact on anything in the short term. What would happen, or what will happen, is that China, as they go up the income ladder, in theory, will be more expensive to manufacture goods in China, some goods.

Again, these are very basic goods.

It'll be more expensive to manufacture in China and therefore they might go to Bangladesh and so on. The problem there unfortunately is China is still very poor in terms of population proportions. There are 40 percent of China so literally poor. So the next China will still be China in this sense. They already have the baseline manufacturing talent, machinery, managers, you know, chemicals, all the know-how is still there. So they can just essentially push that game for at least 20 more years as things go on.

So I don't know if you want to wait 20 years for China to be completely middle income for thinking about if that kind of near-shore, offshore benefit can benefit countries in Africa, for example, as that's too long a period.

So I don't think that will have a material impact in any way as a strategy particularly to use it as growth in these small, currently poor countries.

Tobi;

Can you see a future where the Commonwealth, for example, can be a trade bloc or maybe even a loose political union like the EU?

If no, why not?

Rasheed;

No.

And the Commonwealth is not a real thing for 50 years.

Like, the only thing, the only thing the Commonwealth has in common is the English language.

Tobi;

That's something.

But go on.

Rasheed;

Well, that's a nice thing, right?

Netherlands speaks English better than some states in the Commonwealth, right?

So that's not enough. There's no core in the system. There's no common policy. There's nothing. There's literally nothing you can do to put Sri Lanka, Barbados, and Canada in the same block politically.

There's nothing you can do.

And no one wants it, it's not going to happen.

Tobi;

Would it be a worthwhile economic project though?

Maybe something like NAFTA? Or…

Rasheed;

No, it would not be. Again, you import things from China, not from, you know, the UK. So if China is not inside the bloc, the goods don't change prices. Also, you export to the US and there's no way the US is going to give you preferential taxes.

Tobi;

We are seeing things flaring up in the Middle East.

There's Russia and Ukraine.

There's Sudan, Central African Republic that is getting really ugly. Do you see a sort of global conflict similar to, say, World War II in the next decade?

Rasheed;

It's obviously very difficult to predict things like that.

If we were to assign a probability, maybe 5% chance, which is, I think, too high, but perhaps 5% chance in a decade.

A decade's not that long, so probably 5% chance.

Tobi;

Final question, which is kind of a tradition on the show. What's the one idea that you would like to see spread everywhere?

It might be your idea. It might be something you're working on. It might be an idea from anywhere.

But what is that one idea that you would like to see gain a lot of prestige, like to see spread, like to see have a lot more influence?

Rasheed;

Small countries should get Rid of Their Local Currency and Use the US Dollar.

Tobi;

Why?

Rasheed;

It is better for them because it doesn't allow their governments to monetarily finance the deficit. It allows you to have more economic freedom because you are not constrained by local capital controls. It also allows obviously low inflation because the U.S. inflation will be there for your inflation. And I trust the U.S. Central Bank a lot more than I trust Nigeria Central Bank, for example. And also it allows you to trade a lot more easier because you don't have to worry about currency exchange risk.

In terms of foreign investment, that's also a lower barrier to entry because foreign investors don't have to worry about things going, spiraling around in Nigeria where they have high inflation, they have exchange rate risk, or if, for example, the government decides, okay, we are going to put laws so you can't take your money out of the country.

So dollarisation is the general term that's used to call this concept I'm talking about. It’s actually one of the most pro-liberal, pro-free market, pro-freedom policies a country can do that doesn't actually require that much work.

Tobi;

That's interesting.

Thank you very much, Rasheed. It's been fantastic talking to you.

Rasheed;

You're very welcome.

I had a quick chat with the IMF mission chief in Nigeria, Jesmin Rahman. I started by asking her whether Africa is facing another debt crisis. We ended the conversation with Jesmin outlining some reform measures that can put the continent on a long-term growth trajectory.

You can find us on all podcast platforms, some links to sources here. You can also find us on Spotify by simply searching for "Ideas Untrapped".

TRANSCRIPT

Tobi: Welcome to Ideas Untrapped and today I have with me, virtually, from Washington DC, Dr Jesmin Rahman who is the IMF Mission Chief for Nigeria. Welcome, Jesmin.

Jesmin: Thank you. Thank you for having me, it's a pleasure.

Tobi: Where to start would be that is Africa facing another debt crisis especially in the light of Covid19?

Average debt to GDP ratio in sub-Saharan Africa has increased by ten percentage points in the last decade, while average revenue to GDP ratio largely remain unchanged - JR

Jesmin: That's a very topical issue. Africa's debt gained global attention even before the Covid19 crisis. The debt level has been on the rise for quite some time and this is particularly true for low-income countries in sub-Saharan Africa. More than half of these countries were assessed to have been in or at risk of death distress in 2019. But even [for] those countries who were not facing [the] risk of debt distress there were two important vulnerabilities: the first is composition of debt - a growing share of debt has been to external commercial creditors, for example, this year more than half of sub-Saharan Africa's debt service payments are going to be made to these creditors whose terms are not as favourable as they are, let's say, for international financial institutions like the World Bank or the IMF. And the second vulnerability comes from [a] reduced capacity to repay debt. Average debt to GDP ratio in sub-Saharan Africa has increased by ten percentage points in the last decade, while average revenue to GDP ratio largely remain unchanged.

So, in other words, debt servicing capacity has fallen behind debt. So they were already vulnerabilities before the crisis on the debt front. What has happened since Covid19? The pandemic's impact on fiscal balance has been particularly devastating for commodity exporters, but really nobody has been spared. In the IMF's latest economic projections that we have just released, we are expecting real activity in sub-Saharan Africa to contract by more than 3 percent this year. Compare that to an average growth of 3 percent in [the] last two years. So we're expecting a sharp contraction in output, and, as you know, output contraction means lower fiscal revenues which together with higher spending needs to support life and livelihoods will raise deficits and debt across the continent. We are projecting average fiscal deficit in sub-Saharan Africa to nearly double this year compared to last year. Average debt level is also projected to rise significantly reaching above 60 percent of GDP.

Now, this is considerably lower than the levels that were reached in the 1990s, but there is a wide divergence across countries. Some countries are reaching very high debt levels. So bottom line, without a question, as a result of this pandemic, we are likely to see the number of low-income countries in Africa facing debt distress increase.

Raising revenues is Nigeria's largest fiscal challenge, I would say - JR

Tobi: You talked about divergences within the continent itself, so let's zero in on Nigeria here a bit which I'm sure most of our audiences are interested in. How large are the fiscal challenges that Nigeria faces? I know there have been some worries in some circles that the current path is not a sustainable one.

Jesmin: So [indistinct words] is one of those countries where debt level per se is not considerably high but debt-servicing capacity faces a precarious situation due to very low fiscal revenues. So let's look at debt first - overall public debt stock is estimated at 29 percent of GDP. This includes not just general government debt, but also all known potential government liabilities (in the IMF we like to be comprehensive). Now at this level, public debt is roughly half of the average in sub-Saharan Africa, it is also lower than various thresholds typically considered safe in analytical literature. As you know, there is no magic, one safe threshold that can work for all the countries. It depends on a country's growth performance, strength of policy and institutions, and risk perception, among other things... and we have looked at Nigeria's debt level from all of these angles and public debt appears sustainable. So that's on debt. But when we look at debt-servicing capacity, that is where you get out of the comfort zone - interest rates take up a large share of revenues. So for example, this year, all of [the] federal government's revenues are expected to be spent on interest payments. The problem is not exorbitant interest costs, the problem is low revenues. Adding debt without raising revenues only increases vulnerabilities. Raising revenues is Nigeria's largest fiscal challenge, I would say. Total revenues that include oil and non-oil was at 8 percent of GDP last year. Now, this is among the lowest in the world. To give you some perspectives, the average for sub-Saharan Africa is twice as high, the average for oil exporters is five times as high. Every government needs to collect a minimum level of revenues to deliver basic services and provide an enabling role for the public sector. We did some cross-country studies in IMF and based on that the IMF estimates that this minimum threshold is at 12 percent of GDP, now Nigeria's collection is much less than that. So this is a challenge that Nigeria must overcome if it is to put its fiscal house on a strong footing and provide the kind of service its citizens need. What is needed to be done? There is no easy fix. This is going to require a lot of technical and policy efforts in the areas of tax administration and tax policy, but above all, [a] very strong political will.

Take for example the CIT (Corporate Income Tax), Nigeria has a rather high rate at 30 percent but collection efficiency is very low because of widespread use of tax holidays and exemptions which are kind of sub-optimal compensation for a very difficult business environment. So raising revenues does not necessarily mean raising rates - JR

Tobi: Let's stay on this revenue issue because the usual discuss and I'd say, sometimes, response in policy circle is to conclude, as you've laid out this problem, that the government needs to collect more revenue and that means more taxes. But like you also said, the economy is shrinking. So isn't that a double whammy of some sorts, can you really raise revenue from a shrinking economy? Shouldn't growth policies be the priorities and then a growing economy means the government can then strategize ways to collect more from sectors that are growing?

Jesmin: Yeah, so let me unpack that... what I mean by increasing revenues, that does not necessarily mean increasing tax rates. Take for example the CIT (Corporate Income Tax), Nigeria has a rather high rate at 30 percent but collection efficiency is very low because of widespread use of tax holidays and exemptions which are kind of sub-optimal compensation for a very difficult business environment. So raising revenues does not necessarily mean raising rates. It means collection efficiency and this is particularly true in the case of Nigeria - the active taxpayer share is very low across tax categories whether we're talking about VAT (Value Added Tax), CIT, [or] PIT (Personal Income Tax). So, indeed, the first order of business is to broaden the tax base by taking away some of these exemptions, improving the large taxpayer units, making sure that you have a taxpayer register which is up-to-date, properly segmenting the various taxpayers into small, medium, large taxpayers so you can properly target them, improve compliance...so these are really much more important than, let's say, increasing tax rate. On tax rate, for example, Nigeria has a very low VAT rate. It used to be 5 percent, was increased recently to seven and a half, and it's much lower than let's say ECOWAS countries which are your neighbours and comparable to Nigeria. But as I said, this is not the time to look at the rate increase. Indeed, the first order of business for Nigeria is to actually make sure to collect what is collectable while it increases efficiency.

But this crisis is very different. It is unique and massive in its scale. This is not your typical balance of payments crisis that a developing or emerging market country faces- JR

Tobi: Thanks for that clarification. Looking at the liquidity challenges that some countries have faced especially in the light of the crisis, emerging markets by some estimates have seen capital outflows of over 40 billion dollars. Some have argued, and I want to get your reaction to it, that the IMF has an important role as some of intermediator or lender-of-last-resort given that the access of countries to dollar swap market is not equal. So is that a role that the fund is really stepping up to at this moment?

Jesmin: You are absolutely right. Countries typically come to the IMF when they are facing challenging circumstances. For example, the government is not able to pay for vital public spending or there is not enough foreign exchange to pay for necessary inputs or service debt. But this crisis is very different. It is unique and massive in its scale. This is not your typical balance of payments crisis that a developing or emerging market country faces. We have a global pandemic which is wrecking a havoc on lives and economies across the world. Countries are being hit by not one, but in some cases three to four simultaneous shocks, right? You have a health crisis, you've got a commodity price shock, lack of access to the international financial market, and plunging external demand. So there is [a] super urgent need for financial assistance, and no wonder some 100 member countries have reached out to us for assistance.

So how is the IMF handling, sort of, this very unique crisis? Now fully understanding the nature and depth of the crisis, the fund has stepped up lending through its two emergency financing facilities. One of these facilities which is called the Rapid Credit Facility is fully dedicated to low-income countries. And loans from this facility have a zero interest rate and a grace period of five and a half years. What that means is that if you borrow from this window you don't have to pay anything for the next five and a half years, so it takes you through the whole crisis period. There is a second window which is called the Rapid Financing Instrument, that's for our general membership and it also carries a very low interest rate right now of one and a half percent. The IMF has also temporarily doubled access limits for these two facilities. So why these facilities and not through regular IMF loans? Well, these facilities allow the fund to provide emergency assistance without the need to have a full-fledge program in place. As you know this full-fledged IMF programs take time to negotiate, they have conditions and these take time to put in place.

Under the emergency facilities, money can be disbursed very quickly, to access member countries, [to] address their health and other vital fiscal needs. And we have so far disbursed some 10 billion US dollars to Africa, and this amount, to give you a perspective, is about 10 times our average in recent past. Typically we lend about a billion-dollar a year and this is 10 billion already and we're not done with the year. So that tells you the enormity of the crisis and also IMF's commensurate response. So we're still a lender-of-last-resort if you like. In this crisis, we have played that role as countries have come to us facing large financing needs and being shut out of market access. But in addition, if you like, the IMF has also played kind of a role of a first responder, in some cases, rushing to provide emergency aid to member countries.

In addition, the government has also committed to undertake a safeguards assessment of the Central Bank. Let me also mentioned that the Nigerian government has specified two very important policy tensions as part of the RFI request: first, to move towards exchange rate unification and greater flexibility; and second, to strengthen domestic revenue mobilization efforts once the crisis passes - JR

Tobi: Using the RFI, which I believe Nigeria has accessed (that's the Rapid Financing Instrument)... using that as a case study now, the general information made available is that this instrument comes with no conditionalities, but a standard practice with the fund [is] that there are accountability measures. Can you explain or lay it out for us some of the accountability measures that are required to access and implement this fund?

Jesmin: The two emergency financing facilities as their name suggests are intended to be rapid. So money is disbursed upfront upon approval of the request without our traditional ex-post conditionality. But as you mention, it is important to ensure that resources are not improperly diverted. At the time of urgent crisis like this one, where many countries are under lockdown or there is restricted mobility, one has to zero in on what is absolutely critical and implementable, right? And without unduly burdening the government. That's what we're trying to do. So let's look at Nigeria's RFI, the government approached us for emergency assistance being hit by the twin shocks - covid-19 pandemic and a plunging oil price. The IMF board approved assistance of 3.4 billion dollars which is equivalent to 100 percent of Nigeria's quota under the RFI on April 28th, and the assistance is meant to help Nigerian government provide critical support to the healthcare sector, help shield jobs and also limit the decline in the national reserves. So even though there are no conditionalities, there are important policy commitments made to safeguard the use of resources.

Let me give you the examples: the government has committed to create special budget lines to record all emergency response measures - these will be published on Nigeria's treasury online portal. They have also committed to undertake an independent audit of crisis mitigation spending and related procurement processes. Again, the procurement plans and notices for all emergency response activities including the names of awarded companies and beneficial owners are to be published. The idea behind all of this is to strengthen budgetary oversight of financial assistance through full transparency. In addition, the government has also committed to undertake a safeguards assessment of the Central Bank. Let me also mentioned that the Nigerian government has specified two very important policy tensions as part of the RFI request: first, to move towards exchange rate unification and greater flexibility; and second, to strengthen domestic revenue mobilization efforts once the crisis passes. You mentioned in the beginning, you know, [that] one has to carefully look at the revenue situation given the current economic crisis that we are in - so we urge the government to step up these efforts once the crisis passes. And both of these policies are very critical to ensuring macroeconomic stability.

Tobi: I guess an obvious question is... governments have committed to some of these policy measures in the past and either for political reasons or otherwise, they've reneged. Are there at enforcement measures for compliance?

Jesmin: We are very much engaged with the government in terms of policy dialogue, assisting them in any way through technical assistance, through analytical support, so we will remain engaged with the government in coming months to help them implement these measures. But as I mentioned these are not conditionality per se, so in that sense, it's not like a typical IMF program where you have a review and the team goes and checks implementation against a sort of benchmark.

I used to work in Europe and before that [in] Asia, when I compare Africa to, let's say, European growth model or Asian growth model, one thing that stands out is how low the contribution of export sector is to growth in Africa. You have more [some] successful cases but generally speaking, this is a lake that Africa hasn't relied on too much - JR

Tobi: On a final note and this is speculative a bit... What are the long-term growth reform measures that low-income countries can put in place to get out of repeated sovereign debt crisis? Because it's like an old story and where does it end? How does it end?

Jesmin: Yeah. You raise a very important issue, it feels like deja vu, right, every time we get into the debt crisis. A few things: we talked in the beginning of our discussion and the importance of revenue mobilization, I think that is absolutely critical. When you look at what happened to revenue to GDP ratio in let's say sub-Saharan Africa over the last decade or 15 years; as I mentioned, it hasn't moved much, and we try to find successful cases of sustained revenue mobilization period in sub-Saharan Africa. And when you look at this long period of time, let's say, since 2000, there are only a handful of these episodes (6 or so). So it's incredibly challenging. Not just the technicalities of it, [but] because it's such a slow-moving animal if you like... achievements come very slowly and political cycles are short, you really need someone to own the process and be the big push - the big political push behind it to bring in large gains. So first thing would be to put the revenue house on a secure footing, increase domestic revenues so that you don't have to go out and borrow as much, right? That's first. The second would be to improve the growth performance so to say. Not having growth too tied to commodity cycles, so economic diversification... I used to work in Europe and before that [in] Asia, when I compare Africa to, let's say, European growth model or Asian growth model, one thing that stands out is how low the contribution of export sector is to growth in Africa. You have more [some] successful cases but generally speaking, this is a lake that Africa hasn't relied on too much. But the same time Africa is a young continent, it has a lot of human resources but you need to build these resources up so that investment comes.

Weather investment comes from outside or whether domestic or regional or continental investors pick this human resources up and make good use of it, it doesn't matter. But you need some ground conditions to be in place. You need a business environment that people can count on, that investors can count on. You need regular trade facilitating infrastructure in place. So all of these what we call sort of structural reform (you know, good structural conditions, enabling conditions for businesses to take off), you need all of those reforms as well as good investment in human capital so [that] population is not a liability, [but] population becomes your resource and that's how growth will take off. And if you've got the domestic going revenue mobilization and you have your growth going, that is how the continent can take care of its debt problems in a lasting way.

Tobi: That's a very interesting answer and there's a lot to unpack in there. Thank you very much, Jesmin, it's been wonderful talking to you.

Jesmin: Thank you, it has been my pleasure.

The former Managing Director of Frontier Capital, Olufemi Edun provided an insightful tour de force of the intricacies of financing and managing big infrastructure projects and investments. He provides rich historical and political contexts to such projects in Nigeria. He also has an important commentary on development policy towards the end of our conversation.

You can listen or download in the player above, all other listening options are here. Or you can can just read the transcript. You can also rate this podcast on any of your preferred listening apps or directly here.

Transcript

Tobi: Welcome to Ideas Untrapped and today I am on with Mr Femi Edun. Femi Edun is the former Managing Director of Frontier Capital Limited. You're welcome.

Femi: Thanks very much, Tobi.

Tobi: One thing I first want to discuss with you is public-private partnerships in the finance of big infrastructure projects like monumental projects or special economic zones or ports. What really are the barriers to making them work and why haven't we seen some kind of explosion in its impact in Nigeria?

Femi: Perhaps I should start by telling a story. Last August, I was in Togo meeting with the top executives of one of the largest fashion brand companies in the world, and they are considering setting up multisite manufacturing operations in west Africa to support their global business. And they said, "we just want to get comfortable with all the countries that we are planning to locate in". They were in Togo at the invitation of the Togolese president who had met with them in London, as well as in China - and he said, you know, doing large projects and making large investments in a country is like getting married.

Tobi: Hmm.

Femi: So first there has to be a courtship, and these days smart countries are the ones that go out courting investors and then we get comfortable. And when we get comfortable, then we get married. Because we're going to business together for a long time, and a major investment - whether by a domestic investor or a foreign investor, it doesn't really matter...a major investment like that is in a sense like a marriage. So why are we not getting married in that space? It's a number of things. I think we need to be a bit more deliberate and systematic in our messaging and in the signals that will send out to investors. So on the one hand, we're telling investors that they are welcome and their investments will be protected, on the other hand, they are seeing examples of activity that may suggest that that is not exactly the case. And certainly as far as foreign investors are concerned, one of the things that foreign investors will tell you is that they want to see how a country has treated its local investors in the process of making decisions about whether to invest or not. Then beyond all that, in making the investments, is there a smooth seamless process (going) in these investments? What are the rules, are they well-known upfront? How much work has the government of Nigeria done? Has the public sector side demonstrate its readiness to investors?

With all of these projects, usually, there's a significant amount of project preparation that has to be done in order to demonstrate, at least, in an outline and preliminary way the viability and the desirability of these investments. We need to be very clear about the legal and regulatory regime. We need to be clear about how the relationships are likely to be structured. We need to be clear about the extent to which investors will have protection for their funds. These are some of the areas that we need to improve. So we have an Infrastructure Concession and Regulatory Commission, the ICRC, that does a great job, led by very good people. The CEO there is an ex-Shell executive who's got an engineering background, worked on large projects, he knows how the world works. And there are some excellent people working within the ICRC. But beyond navigating ICRC, there's the whole question of how you just deal with the octopus that Nigeria can be - lots of regulation, there are lots of government agencies and entities that have some form of oversight or some form of regulatory role to play in these projects and we've just got to be able to do a better job of bringing all those things together in one place. And it goes beyond lining up 26 agencies in a hall and saying that it's a one-stop-shop. It really goes beyond that. We really need to be a lot more joined-up in the public sector in terms of how we approach the private markets for capital for these projects.

Tobi: Is it a failure of communication because interesting thing you mentioned... you can have the Ministry of Trade and Investment that is trying to bring investment into the country courting investors and all that, and you can also have an example of a regulatory agency that is more or less standing in the way of growth for a fledgling sector or industry, so what could better improve this synergy in communication to present a common agenda on the investment front?

Femi: Again, I'm a great believer in the power of stories. Let's go back to two examples. Nigeria is a country of interesting paradoxes because one of the most successful PPP entities in the world is in Nigeria.

Tobi: Hmm.

Femi: Nigeria LNG is one of the best examples that you can find globally in the area of public-private partnerships. That's something that was constructed very very carefully to create alignment between Nigeria and the international oil companies (the IOCs) in the process of trying to exploit our gas resources. Now, if you remember the history of Nigeria LNG, it took a while... it took a number of years for it to actually come out of the ground and become operational. But I think one of the key messages there is that there was a very careful and deliberate process of creating alignment between the public and the private sectors. The public sector being [the] government of Nigeria (the NNPC), the oil industry, at least, the publicly owned oil industry in Nigeria and IOCs who brought in management and capital of this project. So we brought our gas, and for that we got equity. The IOCs brought cash, the knowhow, the management expertise to run these multiple projects over several streams that represent the company to create what is the largest fleet of LNG vessels in the world, to build a company that has paid billions of dollars (tens of billions of dollars) to government in dividends over the years. So beyond communication, I think the real point is working hard to ensure that there is alignment; that's something that we hear a lot in investing, in private equity, in principal investing, in any type of investing where partners are involved - it's critical for you to have alignment between the partners, that's why the analogy of marriage is such a powerful one when you're thinking about PPP projects in Nigeria. So, yes, just as you need communication to make good marriages work, you need communication to make good PPP projects work. That communication is even more critical early on whilst you're trying to find the partners and whilst you're trying to create alignment.

Tobi: Hmm.

Femi: It's not exactly a PPP project but the process by which we conducted the auctions for the GSM licences that brought private companies coming in to take spectrum from government in what was acknowledged as an open, fair, transparent, very professionally managed process is certainly one of the high points in the history of Nigeria in terms of attracting foreign direct investment; and if we just apply those lessons on a consistent basis to the things that we do, take time to be very clear about our objectives, take time to make sure that we communicate those objectives very clearly, design a playing field, level it, and make it open and use sensible criteria to determine the sorts of partners that you want. One of my old bosses always used to say that one of the things that's important for you to do in life in building a business and selling a product or services is to define your target market clearly.

Tobi: Hmm.

Femi: Even going into partnerships like marriages you've got to be very clear about it. So we were clear that we wanted investors that had experience in deploying telecoms networks internationally, that had experience in working with the manufacturers, that had experience in rolling out the technology, also evidence of a particular capability to make these things work and that's why we got the results. So if we follow these sorts of processes and we make sure that they're run properly, openly, by people of integrity, then we'll get the results that we're looking for. So we have great people in the ICRC, they are credible, they have character, what we need to do is just add the other bits, then just get our signalling right as a country, get our priorities right as a country and start singing off the same hymn sheet.

Tobi: Since we're on the subject, maybe you can help me untangle one puzzle that has personally haunted me for years and I haven't been able to get a good answer. What went wrong with Tinapa? This was a project that had so much promise, there's so much investment and, of course, we've gotten a multitude of answers... some will say "oh, it's because government didn't build the port" or "Calabar did not have the natural advantages" blah blah blah, in your own opinion, what went wrong with that project and would you say we have learnt the lessons from some of our failures?

Femi: Well, you're right when you say that, you know, depending on who you talk to, you'll probably get many answers as questions to the question of what happened to Tinapa. In my view, from the perspective of an interested bystander, in the sense that I was somewhat involved in the credit rating process of the project financing that went into that. And I certainly was involved from just my interest in governance and political economy. But my view is that like most other project financings, when a project has lots of externalities - in this case, things like dredging, modernization of the ports, improvement of road, air, infrastructure going into Calabar - were outside the role of sponsors, Cross Rivers state and their investment company. When you have those sorts of things and those who were involved are not tied into the financing themselves with clear obligations in order to make the project go forward. Tinapa was a great project, an interesting location but if they had put it, perhaps, closer to the existing infrastructure in Lagos even as poor as it is and as stretched as it is currently, maybe they would have had a better chance of success. But you see I think one of the issues there is that we've got to realise that it's important for a country of this size for us to, if you like, democratise the development of infrastructure. We roll it out, so that we reduce the pressure on Lagos. But Tinapa was a few years ahead of its time and it was also a victim of externalities that were outside the control it's [indistinct word].

Tobi: Would you say we have learnt the lesson from that experience?

Femi: Well, I think the way to answer that question is to say that when a project sponsor is a public sector entity or a sub-national government, to the extent that it doesn't try and repeat projects like the one that failed, it learns the lesson, right? But when we see similar projects coming to market and getting broad support across the board? No, we haven't learned the lesson. One of the paradoxes of the financial market especially the banking credit markets which goes through cycles, seven to ten-year cycles, everybody that was involved in the last banking downtown, the last growth of non-performing loans either retired or they lost their jobs and the institutional memory sort of just stays on the shelf and we end up making the same mistakes in different ways. But we forget everything and we learn nothing. That's what the history of the financial markets tells us, that's what the history of the economic cycles tells us. I don't think that's anybody's fault in particular, it's just that, usually, what we end up finding is that there is a triumph of hope and optimism over experience.

Tobi: Another passion of mine is special economic zones which I have actually researched quite extensively and there are a number of them in Nigeria. As a matter of fact, we've been doing it for years under different aegis whether industrial parks or export processing zones. Again, why haven't we seen the kind of impact for this idea as we saw in the case of places like China and Korea? What's going on?

Femi: Nigeria was actually an early adopter of the idea of special economic zones and our export processing zone decree was written in the Babangida administration, so this is something that we did in the early 90s. The development of Calabar export processing zone, Calabar free trade zone which was the first one which is fully government-owned, I think started in 1993. Kano free trade zone which is also government-owned started, I believe, in 1996. So Nigeria was an early adopter of the idea but when you think about government ownership of special economic zones whatever name they are called by, we've got to look at the fact that one of the drivers of the success of these things is the quality of infrastructure, the ease of doing business, and the cost of doing business. So it's supposed to be a magnet for investment by offering world-class infrastructure that makes it easy to do business and lowers the cost of doing business. What that means is that government needs to make significant amounts of investment in the hard and soft infrastructure, both inside and outside the fence. Outside the fence in terms of the connecting infrastructure - road, rail, air, sea or water transportation, power, these days ICT and so forth. You need to make sure that there is also infrastructure within the fence. You need to make sure that in addition to all the hard infrastructure, there is also the soft infrastructure in terms of the regulatory framework in terms of the supply of skilled labour both operational and managerial. So there's a huge amount of investment that needs to be made in hard and soft infrastructure both inside and outside the fence of these SEZs, and that requires government to come up with substantial amount of money. Now when you think about all of the competing demands on the treasury - for education, for healthcare, for public infrastructure, for the justice system, for the police, for the armed forces, the court system - we will struggle to be able to come up with the amount of investments required to make these projects work, at least, to the standards that are required and to the levels that we see when we go around the world. That is something that we cannot run away from and government hasn't been very successful in being able to attract private investment into collaborations with the public sector in that space. The best examples that you will see in Nigeria of special economic zones are private ones - the Onne free trade zone in the Port Harcourt area is a great example, that's an Intels project; the LADOL project in Lagos is another example; Nigerdock is another example, even though Nigerdock, the basic infrastructure there was invested in by government in the late [70s] and early 80s and it went through a process of privatisation. But the real issue is that government would struggle to come up with the amounts of capital investment required and its patient money that's required to stay there over 15-20 year time frames. So I think until we figure out a sustainable way in which to attract private investment in collaboration with government because there is a very important role that government will play as an enabler, as a regulator, as a facilitator of the operation of these special zones. Until we find that solution, I think we'll continue to struggle.

Tobi: Do you think that in making some of these policies, particularly regarding special economic zones, do you think we are pragmatic enough about the economics? And here is why I say this: some of these projects you'll see, at least, in my own reading of some of the initiatives and some of the policy documents, you see things like, oh, wanting to put a zone in all the six geo-political zones and trying to be ethnically correct or politically balanced, where actually in some cases those are not what works. Special Economic Zones primarily should be able to facilitate trade and you have industrial parks located in landlocked places in Nigeria. So are we being pragmatic enough about how we apply these policies?

Femi: As to the question of pragmatism, my answer is no. As to the example of locating zones across what we now call our geo-political zones, I beg to differ slightly.

Tobi: Okay.

Femi: If you look around Nigeria, there is no part of the country, there is almost no state you would look in where there's not some compelling argument for some type of investment. I remember looking at the northwest and a place like Sokoto and you will say it's far from the port, it's landlocked blah blah blah, but what most people usually buy as Moroccan leather is mostly the hides of goats that are killed in Nigeria. If you look in the southeast, some of the best quality lead and zinc on earth is buried between Abakaliki and Ishiagu in Ebonyi State. If you look in the southwest, you look in Ogun State, you will see its ability to support major investments in ceramics. If you look in almost every state in Nigeria, I daresay every state in Nigeria, there is some compelling case that can be made and that's not to suggest that you should put a special economic zone in every state, I think that what is required here is to actually take a regional view and use these things as regional levers for development. Use them to leverage regional development by making them magnets for infrastructure investment, magnets for development of manpower and almost like hubs around which regions of the country can grow. So I think that's actually being pragmatic when you take a regional view of development of Nigeria and I think you will be able to establish viability as long as you do the hard work of approaching it correctly and making sure that they're set up properly. However, that's not to say that generally as a country we approach our economic decision-making primarily from a pragmatic point of view. There's a lot of emotion, there is a lot of emotiveness that goes into our policy-making and there's the diversity of views that complicates decision making in Nigeria. There is the fact that we are a democracy which is a good thing, but it just means that every voice will be heard, every voice must be heard and in the policymaking process, in the context of ideas it seems to be that it is the loudest and most strident, most emotive voices that carry the day rather than the voice of reason. So I really think that we need to bring a lot more pragmatism into our policymaking as a country, but on the specific case of citing special economic zones regionally in the country, I think that's actually a very pragmatic thing to do.

Tobi: I agree with you, there's a case for investment in every state in the country, no doubt, given the overall general level of investment. I guess my point is that there should be room for a variety of approaches. You have Ondo state that is building ports, and you have Ekiti State - I've actually had Akin on the show and he says that they are going with business process outsourcing - they are going with services rather than manufacturing. I just think they should be room for a variety of approaches and that leads me to the next question which is, should decision-making on some of these policies be decentralised, either at the region or at the state or whatever unit of analysis we choose?

Femi: Absolutely. There is a very strong case for decentralising as long as we decentralise, we also simplify and streamline the process of making those decisions; so that we don't just decentralise for the sake of it and then we end up getting tangled in even more bureaucracy and more red tape, and more complexity as we decentralise. Certainly, there is a good argument for everyone developing according to their comparative advantage and focusing on where their strengths either lie or potentially could lie if they did the right thing to enable those strengths. So, yes, there must be diversity in approaches because there is no homogeneity in factor endowment anyway.

Tobi: Yeah.

Femi: Different parts of the countries are blessed differently. And speaking to the case of Ekiti, I think it's actually a very clever thing that the state has done to say it wants to focus on services as a pathway to rapid development and job creation.

Tobi: I want to hit you with a bit of a curveball here. How much influence would you ascribe to history in our political economy, generally?

Femi: Well, history does play a very important role and there is no doubt that history has shaped the political economy of Nigeria. The evolution of political economy is a historical process anyway so history has shaped it. What I quarrel with is, and I'm sort of adjusting my stance to the curveball that you have thrown. What l quarrel with is our using history as an excuse for our failure to perform, our failure to deliver and the abysmal lack of results, the abysmal lack of progress in certain areas and the abysmal deterioration that we have seen in things like the quality of the public service, in things like the quality of the educational system, in things like the quality of public health. Some of the things that should be the building blocks and part of the engine of the development of the country, we have seen significant damage done to those things. That damage we could say, maybe, was inevitable considering our history, but we can debate that for years. Certainly, I think that with all of its imperfections, one of the things that British colonialists bequeath to us was the Colonial Civil Service which became the Nigerian Civil Service and unfortunately that Nigerian Civil Service is now no longer fit for purpose in terms of its ability to deliver on a sustainable basis the, if you like, the infrastructure and the delivery framework for governance, for policy-making, and policy implementation in Nigeria.

Tobi: That's interesting and I'm just going to keep them coming, so another curveball - resource curse: does it really matter? Is it as deterministic as some analysts would have us believe?

Femi: Well, just look at [the] Scandinavia, look at the North Europeans who have oil and what they've done with the oil, it doesn't have to be a curse. The resource curse is potentially a curse when you allow it to be. It's almost like saying that you have a genetic predisposition to diabetes or hypertension, now you can beat that by subjecting yourself to the discipline of a certain lifestyle or at least you can delay its onset or mitigate its results. So the resource curse is not the death sentence that some of the influential thinkers in political economy and economic history have made it out to be. There are countries that have beaten it, that proves that it's beatable.

Tobi: Yeah, so, corruption. How much weight would you ascribe to that? Some people would argue "well, it doesn't matter". Some will say "oh, it is everything that is wrong with us". What's your reaction to that?

Femi: Corruption is huge. Corruption is a huge problem. Corruption reduces the amount of money that is available for the important things that we need to do. Corruption increases the cost of doing business. Corruption compromises our institutions. Corruption is like cancer, but side-by-side with corruption is just the frightening level of [in]competence that you see when you go into the public space. There are some amazing people in public services and there are parts of it that work better than others, and this is not a blanket condemnation but certainly, we do need to strengthen our institutions. We need to strengthen the capabilities of the Civil Service to support the development and implementation of policy, to support government, and to ensure that we achieve the objectives of government. That capacity is almost as important as the cleanliness that we need as well. We need both character and competence.

Tobi: What about ideology in our politics - do we need more or less?

Femi: I'm not a huge fan of ideology. I think we need to be pragmatic. I think many of those ideological arguments are good for the ivory tower, they're good for the think-tanks, they're good for the luxury of being outside the cold phase of making decision in government, we just have to be pragmatic and put the national interest and the interest of the people first. When you want to develop a country as big and diverse and complicated as Nigeria, and you want to develop within a hurry, you have to put pragmatism before ideology.

Tobi: But don't you think that ideology can be useful in terms of competition for dominant ideas? For example, at least, in my own, again, reading of the situation, almost every regime in Nigeria since 1999 regardless of political party or persuasion do protectionism and some form of mixed or closed economy model. So some will argue that if we have ideology enough in our politics there will be competition for some of those ideas and we would actually see better pragmatic policies.

Femi: I'm not sure the issue is one of ideology, I think the issue is about the choices that we've made. So the big choices we've made in the political economy are choices that have really not been in our best long-term interest as a people. So if we're talking about ideology, I think the debate around capitalism and communism have been won and lost. I think the debates are really around doing what works and if you look at the economic history of the 20th century in particular, there are some ideas out there that have been proven to work. For countries that are in a hurry to develop, there are some things that you do. You've got to go for aggressive, inclusive growth. You've got to go for job-rich growth. So you select the policies that help you to do that and the question really is is that what we have done? You have to go for significant investment in hard infrastructure, you have to go for significant investment in education, have we done that? And have we done that in a way that is in our best national interest? So I think those are really the issues we should be talking about rather than ideology. I think it's really about the quality of the choices that we've made rather than the ideologies that we have followed. What is Nigeria's ideology? We don't have one. We don't have a national ideology.

Tobi: Interesting.

Femi: We had our national development plans of the 70s that talked about government controlling the commanding heights of the economy and then went through a process of privatisation after the structural adjustment reforms of the 80s and the 90s and the reality is that everywhere you go, China is a communist country but China practices state capitalism. The Chinese state as elevated capitalism to an art form. Few years ago I was sitting in a seminar at Harvard University and the director of the China Centre was saying that western countries are taking delegations to China to learn from Chinese government officials how to court foreign investments and how to form strong public-private partnerships with private investors. Countries in the west after the last big economic crisis nationalised banks, gave bailout to car companies, gave bailouts to all sorts of companies. We're going through a Covid pandemic now and the countries that can afford to give bailouts are giving bailout to countries [companies]. So there is a role that government plays, there is a role that markets play and what we need to do is really to find what works for us and do it. As opposed to having this, as far as I'm concerned, fairly sterile arguments about ideology.

Tobi: That's a lot to think about. One final question which is a bit of a tradition on the show, what's the one big idea you would like to see spread all over Nigeria both publicly [and] privately? What's one idea you're passionate about and you'll like to see spread?

Femi: There's a few of them in my mind so I really don't know who wins the competition for first place among those big ideas. Certainly one is that the role of government is to be an enabler of the success of its people, its businesses and its corporations. Government needs to be an enabler rather than a gatekeeper or a gamekeeper or someone that shortens the gains against its people. Government should be opening doors and playing a facilitating and enabling role and helping everyone to actualise their potential and we need to go back to our colonial history and just fix that. It's a big mindset thing but it needs to distilled down into the values and ethos and the way that government works in Nigeria. The Colonial Civil Service was designed to exploit the resources of the country and suppress the citizens for the benefit of the crown. We have replaced the Colonial Civil Service but we really haven't taken that mindset out of government and that's a big thing that we need to do as a country.

Another thing that I would like to see us just understand is that technology has given us two pathways to rapid development. It used to be from the economic history of Japan, the Asian Tigers, China, the more recent countries that are industrialising, that industrialisation was a pathway to growth starting from the industrial revolution - what happened in western Europe, what happened in America, what has happened across the world - industrialisation is the pathway to growth, and it creates jobs in their millions and raised people out of poverty and you can do that very quickly. China has done the economic miracle of taking most of its people out of poverty in one generation and that was largely through just doing manufacturing investment. But now we can pursue new economy investment in services in addition to old economy investment in manufacturing. So we have two pathways to growth and we need to exploit them quickly because we have a few hundred million young people that we need to put to work. We have an existential crisis that is brewing. It's already upon us as a country and we are not really treating it as the national emergency that it is. So all of the unrest that we see, all the difficulty that we see, all the killings, all of the social vices that we see are really not happening by accident. We need to create opportunity by the hundreds of millions. We have a crisis but we are continuing with business as usual.

Tobi: I do hope people listen. Thank you very much, Femi Edun, it's been fantastic talking to you.

Femi: Thanks very much, Tobi, it's been a pleasure talking to you.

I had an excellent conversation with Samo Burja of Bismark Analysis. Samo is one of the most original thinkers I have encountered in the last two years, and it was great to have him share some of his ideas here. You can follow him on Twitter, read his writing, or watch his videos on Youtube. Here is Samo on Botswana and political stability - and how Rome handled the "succession problem". The manuscript of Samo's book is here.

You can find us on most podcast platforms as "Ideas Untrapped".

TRANSCRIPT

Tobi: Welcome to Ideas Untrapped and today I am with Samo Burja. Samo is a sociologist and he is the founder and president of Bismarck Analysis, a consulting firm. Samo is also an original thinker who has come up with his own theory of history that he called the Great Founder Theory. Welcome, Samo.

Samo: Thank you, Tobi. It's a pleasure to be on the show.

Tobi: Briefly please, explain the Great Founder Theory. You call it the Theory of History, can you explain it, in the most simplest form, for us.

Samo: Well, everyone has a theory of history. There are some people who believe that history is driven by technology, that technology is the most important thing that changes the world. There are others who think that it is the great people - the generals and individuals and scientists and artists. And still, others think it's driven by economic forces like capitalism and so on. So, everyone has opinions on it. Many historians have arguments on it. Many economists have arguments on it, and political scientists. Great Founders Theory which is my theory proposes that history is driven by the exceptional individuals who make the institutions that we all rely on - the founders of states, the founders of exceptional companies, the founders of religions, the prophets or the statesman or the industrialists of history - and that were you to remove someone from history where there to not be that particular individual, that exceptional and unusual individual, history could have gone very very differently. And also it's not just a way to interpret history it's a way to predict the future because it means that instead of necessarily looking at just the economic fundamentals or just the technological fundamentals of a country, you might actually want to look at: well, is there anyone in the country that might be a founder of new institutions? Because I think that be it a state, a company, or an organised religion, over time as you move away from their founding, these institutions can become corrupt or dysfunctional. So even if a country seems to be doing extremely well, if it doesn't have this type of person around who might rebuild the institutions or build them anew, 50 years from now, 100 years from now, 200 years from now, it will do worse. And a country that at first might not seem promising, might suddenly, like, shift to become the centre of the world if it had enough of such people.

Tobi: I found your theory on Great Founders interesting. One is that the conventional wisdom, if I can call it that, on thinking about institutions is not vested in people. There is a common saying that "oh, it's about the institutions and not the people", that's how you build enduring systems that can be fair, that can be just, that can order society. So, now, I think the fear...or in places like Africa where there is a long history of coups and bad leaders, how does [the] Great Founder Theory differ from the Great Man Theory of history?

Samo: Yeah, it's an important distinction to make, because not every powerful person is a great founder in this sense. They are often people who appropriate or merely direct institutions and organisations that others created. And then at times, if they tried to create an institution, they might not be very good at it. So the big distinction that I would make is that the individuals who can be exceptional - this kind of, like, far-sighted social engineers, I think they are extremely rare. I think they are not just rare in African history, they were in European history and in Asian history but, over time the fruits of their labour accumulate. An example in SouthEast Asia I think would be Lee Kuan Yew. I think that he was an excellent founder of the city-state of Singapore, which was previously a British colony and developed it extremely well. I think in Africa there are some leaders who are definitely worthy of administration, I think that I wrote an article on Botswana for Palladium Magazine where I examined the origin of Botswanan stability and how the royal family of the country actually made extremely good decisions as to how to approach decolonialisation (sic) and so on. And then Paul... I think Paul Kagame deserves, despite his critics and his critics do have a point that he is very much authoritarian in a way, I think he's done a remarkably good job of both developing Rwanda and healing the deep social wounds that the Rwandan genocide caused in the 1990s. And I can certainly relate to that because the 1990s was also the period where - you know, I'm originally from Slovenia, it's a country in the former Yugoslavia - that country was also torn apart, right? So this kind of, like, tearing apart of societies, I think that can be done by almost anyone. The building together of societies, the re-creation of them, the healing of them, the transformation of them, that is very very rare. So I think that that would be the big distinction.

Tobi: Yeah. One issue that you've written extensively about is succession, and...

Samo: Uh-hmm.

Tobi: This is a very important problem with institutions and leaders and founders as well. Two examples: you talked about Kagame...

Samo: Hmm hmm.

Tobi: I've always found Kagame interesting because Rwanda seems to be in an equilibrium where Kagame does not really trust anybody as a successor, so that's why he's been in power for so long. Some of his speeches, some of the analysis that comes from...[trails off]. It seems like he sees himself as probably the only credible custodian of that healing process, from that horrible experience; and also in Nigeria here we had a very good example when we transitioned to democracy in 1999 and we had a president who had a particularly good second term in office. There were economic reforms, and there was growth. There was some form of shared prosperity in the society and he wanted a third term because he could not trust anybody, even within a system that he built or that was built around him. So explain to us - how important is the succession problem and how do civilizations and societies that have managed that problem really well, how did they do it?

Samo: It's an extremely difficult problem, and I think solving the succession problem probably distinguishes the most successful societies or the most long-lived ones from, like, the ones that struggle. In particular, I think that it has two parts: there is skill succession and there is power succession. Where skills succession means that the next person in a position has comparable skills and knowledge and ability to carry out an office. If say, hypothetically, in ancient times, a wise king is succeeded by a foolish son, right? The song can easily undo what the father had done, they can easily endanger the society. On the other hand, you might have a situation where there is a failure of power succession where, for example, there is a wise ruler but there is another wise individual who could come into power but doesn't really have the resources to reach for that position, even if the formal position still exists, it might be encumbered or disabled. There is such a thing as a powerless president. For example, today in Afghanistan, the president of Afghanistan is best understood as the mayor of Kabul. The power of this government does not extend beyond the capital city itself, with the outline regions still - 19 years after the US invasion, they're still basically governed by the Taliban or are directly governed by, like, basically US military forces. So in that case, the power just is not there to govern the space. Now, with regard to the trust between people, the trust has to be justified on a number of grounds. The very interesting thing here is if you consider [that] it's best to have a loyal competent person work with you and work for you and eventually when you have to go, as all people do, either because of old age or because of term limits or because you want to do something else with the remainder of your life, that person is the best person to hand it off to. It is, ironically, sometimes better to have someone who is loyal but incompetent than to have someone who is disloyal and incompetent, at least when it comes to politics. So, in an interesting way, as you point out, Kagame has difficulty finding someone or trusting someone. He has this fear of political opponents and I think this fear is locally rational but ideally, it would be best for society as a whole to have a higher level of trust. There are societies that have transitioned in history from lower to higher trust setups. One example I like to bring up is in the ancient Roman empire, there was a period of the so-called Five Good Emperors. One of these is Marcus Aurelius who is very famous for his stoic philosophy.

Tobi: Yeah.

Samo: The Roman empire was in a period of crisis then, so this is not when it was most powerful. This was when it was engaged in civil wars where generals would fight each other and direct their armies against each other to try to win in these wars and become emperor. And the solution was very interesting, perhaps a little bit a matter of happenstance, perhaps a little bit a matter of design. The Romans had this institution of adoption where you can declare someone your son and you adopt them as your son even if the person was already an adult. So there was this interesting political trick that was only possible because everyone so firmly respected [not only] family but simultaneously also this kind of strange idiosyncratic practice of adoption where you spiritually make someone your son even if they are not biologically your son. Not all societies have this, only a few societies practice this in human history. So because adoption was [a] widely spread practice, when a Roman emperor who was old would declare a general his son, the idea of killing your son will just make you so unfit to rule that whoever was adopted as the Emperor's son understood that they were most certainly safe.

And on the other hand, they also understood that it's no longer in their interest to undermine the works of the previous emperor or raise themselves in rebellion because all they have to do is support the current emperor and then they get to their turn afterwards. I note for example that Botswana has a very good string of presidents where each president was the vice-president of the previous one and the vice-presidents are carefully selected for this kind of skill and partially also their friendship with the Botswana royal family, so this has helped them to avoid a lot of the troubles of other resource-rich countries. So that would be a different example than the Roman example. And a third example of a way this can be done is the Japanese practice of Moko Yoshi which is the practice of - in Japan, again there is a strong emphasis on family and there is a strong emphasis, however, also on honour and on company performance. And they well understand sometimes that your son might not always be...first of, you might not have a son, but secondly, your son might not always be the most talented at business. So the practice of Moko Yoshi is called son-in-law adoption - it means that for a wealthy industrialist or entrepreneur, they will try to find for their daughter a husband who has business sense and then the daughter marries the man with business sense but the daughter doesn't take her husband's name. Rather the husband takes this prestigious name and some of Japan's biggest companies in their past had made use of this. I think Toyota was an example and I think a few other of their household name companies.

This allowed it so that the next CEO of the company, the next head of the company had reason to trust this person because this person is their son-in-law and not only their son-in-law, [but] because the Japanese put so much on to the owner of the family name, this person would be interested in supporting it and supporting the original vision of the company. So this is another way you can produce this kind of trust. These are the three interesting examples - one is through marriage, another one was through adoption, and another one was through this long period of cooperation where you have someone that is your right-hand man, that you work with for 5 or 10 years, you are the president, they are the vice-president, and you sometimes would do interesting things where I think the succession went like this ...I mean I have to possibly check my notes on this but they [Botswana] also had some aspects of this familial bond that can overcome this distrust where, you know, basically president Festus Mogae served as Quett Masire's vice-president but then...

Tobi: Yeah.

Samo: President Ian Khama who was the son of Seretse Khama who was the first president to try to lead this effort to leave the British empire and achieve independence. So he didn't put Ian Khama directly in charge, no, he rather put Quett Masire and this gave this opportunity that, you know... if Ian was not the best selection, you could have just gone with his vice-president but instead there was still this opportunity to rely on the family connection at the end of the day because someone who was like a close family friend, it would feel difficult for them to move against the son of someone else who was once their close friend and someone who had raised them up to the position of president. So, again, the relationship had to be developed before the country became independent in an interesting way, right? This initial friendship, because then the stakes are lower. So I would say that testing and building close ties before you are in the position of power might actually be the best way to get relationships you can rely on even after you are in power. This was a long answer and relatively involved, but I hope it laid out some of these mechanisms well enough.

Tobi: Listening to that bit, I'm wondering does not democratic ideals or what we have come to define as democratic ideal not conflict with these succession strategies that you laid out. I mean I'll give you an example.

Samo: Uh-hmm.

Tobi: In party politics, for example, in Nigeria, politicians practice some kind of what you would call the "adoption system" but in social discourse, in political discourse, we have labelled it as "God Fatherism" and it is fundamentally perceived as unfair - that whatever comes out of that process does not represent the consensus of the people and so there's an instinctive reaction negatively...

Samo: Yes.

Tobi: To that. So does democracy conflict with succession in a way, the way you look at history?

Samo: I think that democracy is very interesting. I will describe democracy as something that can deeply undermine trust or can deepen trust immensely. And it kind of depends [on] how well-functioning the society is in the first place. So I would say that in a well-functioning democracy, you might have people who compete and in public criticize constructively their opponents and proposed better plans for the good of the country. Yet then, when the president is elected or when the party is elected, the two parties or the two candidates who are rivals still trust the other side to adhere to [the] rule of law and believe that at this point, now that the election is over, the best course for everyone is to work together towards a better country and then you repeat this process every 4 years or 8 years or 10 years...so this is, I think, democracy at its best - where it allows you to express constructive criticism, advancement, the public good on the basis of the social fabric of already well-developed political relations, where there is a sense of shared interest among all the citizens of the country. Now, where it works the worst...I'm going to now reference back the example of the introduction of democracy in my own country Yugoslavia (I was born in Yugoslavia, I was a kid when it broke apart in the 1990s). The best way for Slobodan Milosevic who was a Serbian to win elections was to stoke the sort of resentment and anger of the Serbians that, to be honest... some real problems...there was a real conflict between Albanians and Serbians in the province, of course. But this immediately made it so that Slovenians, Croatians, Albanians, and others felt increasingly uncomfortable, they didn't want to live in a country that was completely dominated by Serbian elites in Belgrade. Before 1980, there was essentially, like, a dictatorial system where Tito was in charge. From 1980 to 1990, there was this tentative federal balance that was non-democratic, so there was this balance of power between the various wings of the Communist party, and then this balance of power was shattered by the introduction of democracy. So what I'll say here is - democracy is extremely powerful...it's a very powerful way to transform the balance of power of a society and put to the test the trust that already exist in a society or does not. So I would say that what is popularly understood as a democratic ideal which is that democracy itself will bring about higher trust, I think this is false. It is however true that high trust, high maturity, and high sense of, like, shared destiny and responsibility among a people, and among the elites of a people of a country, that this can allow democracy to express very very good government. And in fact, if you think about it, in a well-functioning democracy, the selection process should work better than, say, in a monarchy. Again, the hypothetical example of a monarchy that's hereditary, you know... the first son inherits or the kingdom is split between all the sons of the king. These were the two methods of inheritance in the ancient Middle East or Europe in medieval times.

Either one of those systems is kind of a throw of the dice. It's sure that the successor will be loyal, at best, if they're good son but they might not be competent, and in a well-functioning democracy and a high trust system, you should, in theory, have this. But I think it's a very delicate machine, I think it relies on [the] rule of law, and it relies on elites that feel that there is [a] common ground. So even though it's a democracy and there is a will of the people, even in democracies some people are more powerful than others. I think this is a fact. If you look at modern... any western country you want to look at, some people are wealthier, some people are more powerful, some people are more influential, some people have more sway over the public's opinions, some people are charismatic - whether it's America or Canada or Germany or any of the Asian democracies such as South Korea or Japan, it works this way. The elites still matter. I think that in this sense, the best way to implement a democratic system is to first create this sense of shared purpose and shared destiny in a people, and to balance the interests of all the groups that live in the country. And I think here I would reference the work of Machiavelli who wrote in one of his books, I think it was on the Discourses on Livy - he said that the constitution of a country, be it a monarchy, a republic or a democracy is always the work of a single man, the single individual. I don't think that's quite true. I think it's usually a small group of people, organised around an individual, like say, America's founding fathers were... but I think it says something very real. I think democracy has difficulty producing the preconditions for its own success.

The question is, do you want to be friends and do you support the entrepreneurial young man that doesn't have much money to his name? - SB

Tobi: That's interesting. That sort of leads me to my next question.

Samo: Uh-hmm.

Tobi: Are there deep roots element to having a great founder? And here is what I mean: from research in cultural evolution, I think from the works of Joe Henrich and co., societies are classified as either low trust or high trust...

Samo: Hmm.

Tobi: And we know that high trust societies (they) tend to handle some of these problems like (we've talked about) succession really well. So are there cultural or biologically intrinsic elements to societies that managed to invent credible institutions or produce great founders, at least, more than other rival civilizations?

Samo: Well, there is an interesting question of what exactly is producing great founders, right? I don't think I really know the answer to that, I believe that an openness to exceptional skill is very worthwhile. So a society that values the great scientist or the great artist or perhaps be kinder to the great religious and spiritual leader or the wise and thoughtful political leader or the very productive and industrious economic leader, and importantly it will be open to what these people look like before they are successful. Like, everyone wants to be friends with Rockefeller when Rockefeller is already rich. The question is, do you want to be friends and do you support the entrepreneurial young man that doesn't have much money to his name?

Tobi: Uh uh.

Samo: I think this kindness to what the beginner's stage looks like because if you imagine someone that can go on this trajectory to shape a society - to, like, notably improve it - this person is going to be saying some very strange things when they're young. They are not going to be doing whatever everyone else is doing. His parents might be like "well, you should become a lawyer or a doctor" and instead this person has this seemingly crazy dream that just later on in life turns out not to be crazy. They might still, as part of this dream, receive a lawyer's education. But instead of, say, going to a law firm, they might create either a political party or they might start lobbying for the change of a particular law that enables a particular kind of business or city government or they might run for an office or they might spend 10 years reading books and being a scholar for some reason that's very difficult to explain to others. So there has to be in a society, I think, a desire for excellence, some tolerance for eccentricity or at least the harmless kinds of eccentricity and an encouragement or at least... it cannot be too focused on trying to stamp out creative. Now, ironically, I think some very high trust societies will actually suffer some long-term problems because they have this philosophy where, you know... you hammer the nail that stands out. I think in say modern Denmark or Scandinavia and perhaps also in modern Japan. It's actually extremely difficult to be someone that does something different. Partially because things seem to be working pretty well - there is a healthcare system, the streets are clean, the economy has been stable, everyone's been rich for as long as they can remember - so why are you being a troublemaker and saying you do everything different from everyone else? Who are you to think that you are special or that you know better?

So this actually, I think, in the long run, might make Japan, again, and Denmark fragile. And I think this is an advantage to say, some other rich countries such as the US and over time more and more China [which] actually still retain this possibility of being contrarian, not in your words necessarily. It's not respect for necessarily people who are disrespectful to society at large or loud (though certainly such people that can succeed in the United States), it is more [of] a tolerance for a very different way to approach your career and intellectual and economical life. And then I'll add some more components to this - so I had this drive for excellence, this tolerance for eccentricity, the tolerance for the beginner to choose a different life path than other talented young men and women might choose. I think the availability of local traditions of knowledge is immensely important. Where, by traditions of knowledge, I mean the possibility of finding mentors who themselves are exceptionally skilled or exceptionally successful or exceptionally insightful.

Historically, there were some universities that played this role and they didn't necessarily play this role through "well, you know, the students and the students are taught by the teachers", it's more as... if you went in medieval, times in England to Oxford, it was just a place where all the smartest scholars of Europe had gathered or say the Cervon in France. And whether or not you were a student of the university, if you could travel there, you could talk to them and you could write with them and you could listen to them. The availability of this knowledge immensely sped up progress and similar things can be said of Florence in the Renaissance. Florence is a city in Italy renowned for its great art. If you were a sculpture or a painter, your craft - your art - will progress much much faster if you could go to Florence and ideally apprentice yourself to someone. But even if you couldn't apprentice yourself, merely walking through the streets of Florence - they had the practice of having these workshops that were open to the street, you could actually just literally see what people are up to and what kind of stuff is produced. And it had this, again, this culture of critique where they would have high standards, so they would examine critically what artists are making and compare it to each other and they were quite direct and open about it much as Italians sometimes are even till today - they are quite disagreeable. So I think this availability of other experts, people who perhaps themselves are not great founders but have quite great mastery in things like rhetoric or law or human organisation or technology or understanding of the country and its issues. The availability of such people can greatly aid great founders. So this perhaps is just kind of the preconditions for this and I'm happy to comment on any specific countries or regions but each of those is like quite involved things... so...

Tobi: Let's talk about China.

Samo: Perfect. Perfect.

Tobi: Interesting article, by the way, yesterday. I read it. Packed with so much insight. And of course, China, in the last decade, has been the most important economic partner to most African economies, so whatever happens in China, the extension of its global power reaches every corner of the African economy.

Samo: Uh-hmm.

Tobi: You talked about Deng Xiaoping and how he managed to handle the succession problem and Xi who is currently torn between keeping the fire of Marxism burning or watch it die out with modernism and all. How big a threat is the internal political contradictions that China face right now? How big a threat is it globally?

Samo: Well, I think that China is facing an immense challenge, I'm very glad that you enjoyed the article. The article in Asia Times outlines my position which is that they did an immensely good job of resolving the contradiction of how to have economic growth with a Marxist ideology. But the problem is they do need the Marxist ideology to keep their political system together. So the succession problem there is driven not just by this difficulty with Marxism where it can always be interpreted in this way that actually shuts down capitalism and economic production - where if the successors of Xi don't take it seriously enough, they have no political principle with which to maintain power and perhaps this could be replaced by something like a democracy but I think that's not trivial at all. It might very easily shatter the country apart as it had numerous times in its long history. China has this long history of dividing into smaller fighting countries and then reuniting. These dynastic cycles have happened several times in the twentieth century. They had terrible civil wars at the start of the 20th century. So it's very risky to undermine the political structure of the country, it's very risky. And then on the other hand, if you take the Marxism too seriously, especially if you take the Maoism too seriously, you might end up destroying this engine of economic growth because then how can you have in a communist society billionaire's, which China obviously does, right, Jack Ma and so on.

I think that civil society enables a civilization robustness. Hyper centralised systems can seem very efficient but they can be very fragile. As soon as the centre fails, everything fails. - SB

The succession problem has an even more fundamental issue where while Chinese industry allows for exceptional and strange individuals, like a lot of the billionaires are somewhat eccentric, their academic system does not. Their scientific progress is much slower and the students are very very good students but they don't pursue bold research and a lot of the members of the Chinese Communist Party go through the somewhat academic selection process. And then there is another selection process of "well, which party member advances within the Communist Party of China?" Well, it's the one that doesn't rock the boat. It's the one that's, you know, quiet and agrees with the policy and supports the policy. And in an important way, of course, you can have someone like Xi who he is very reserved in speech, very obedient, plays by the rules and when they come into power they pursue their bold plans they had all along or they acquire and grow into [the] office and become bolder. But for the most part, this is just going to be "yes men" and Xi is the last member of the generation that saw the possible failure of the Communist system. He saw the failure of it in his youth when his family and he himself were targeted by the Chinese red guards during the so-called Cultural Revolution. For a few years, he spent his childhood exiled in the countryside feeding pigs, and that probably stuck in his memory. He understands how despite, I'm sure Xi is... I’m sure he believes in Marxism but he understands this failure part of it and then later in his life he saw the collapse of the Soviet Union.

We have to understand that for the Chinese, the Soviet Union in the 1980s was kind of the elder brother, just as in the 1990s Eastern Europeans might admire the wealth and development of Western Europeans. So in the 1960s and 70s, Chinese communists both admired and envied the global power and the technological development of the Soviet Union. So seeing the Soviet Union collapse was this big shock for the communist part of the world, only a few communist countries stayed communist after the fall of the Soviet Union - North Korea, Vietnam, Cuba, and China and that's basically about it. All of the African and European countries that had experimented with socialism basically abandoned it, it was no longer a viable system. Xi saw this again as a young man, and already on his career...so in a way, he saw both of the failures in [indistinct word].

Tobi: Hmm.

Samo: He is going to be in power for a while more and I don't think anyone who is of a younger generation has that sort of experiences. All they have is the experience of maneuvering in a Communist Party, ruling an already fairly developed China. So their intuitions and knowledge of what does failure look like for political system or how do unwise decisions come about? it's going to be in a way much impoverished. So I think there is a knowledge transmission problem here. I think power succession works fine because the Communist Party has such control over the country but knowledge succession is a big problem for them and they have a lot of difficulty solving it.

Tobi: Somehow I wonder whether these are not (maybe they are, maybe they are not) symptoms of increasing prosperity. One very important point you made in that essay was how much order is necessary to create and maintain a market system. I think a lot of people underestimate that. We all like to believe in this Hayekian vision of an emergent market. So...

Samo: Like an idealized market set of rules where people exchange goods and they, sort of, discover what's...together they discover what's the best economic outcomes through the price system and so on.

Tobi: Yeah, yeah...I mean, we've been taught to believe that. So when I look at China, people like Ang Yuen Yuen have said that Deng Xiaoping reforms were based on having a decentralized approach to policy and here you have Xi, again, who is so centralised in his approach to economic management. But if you look at cosmopolitan cities like Shenzhen and every other metropolis in China that have seen incredible prosperity in the last 40 to 50 years, isn't the current tension a necessity? That is, when people make more money, when they become more successful, they demand more rights. They become less obedient, they become less conformist, what do you think of that?

Samo: I think that there is a strong set of prerequisites in terms of enforcing these relatively strong rules that enable personal liberty in the first place. That you don't have to fear whether or not your store will be expropriated and that you can rely on [the] courts if someone else, say, double-crosses you in a business deal, those are absolute absolutely massive. It just means that people, once those two things become true, then the most rational course of action is to participate in the market and benefit from the market. Until those things are true it's very difficult. And again what is supporting those courts? What's supporting that political order? Well, that's not trivial at all. That took a lot of work in the first place. And I think that this development that we saw in China was that... the aftermath of the Cultural Revolution was a quiet realisation among the remaining members of the Communist Party because they had been purging each other (those internal fight), was that "you know, this got out of hand, I would like more security in my political career. I don't want to be killed on charges, I don't want to be imprisoned, I don't want to be exiled, I'm going to work together with the other people to make sure nothing like this can happen again. And as a side effect of this almost kind of self-interested political aspect, this enables a reformer like Deng Xiaoping to produce something that has not just given political safety to this party officials, but gives economic and political safety to everyone in the society, at least to a much higher degree than was previously available. I'm not ignoring at all the fact of how heavy-handed the Chinese government can be, I'm just pointing out that the mechanic of the change that enabled this broader liberty was partially driven by the people who are already powerful. You can't obviously have this be driven by everyone in [the] existing elite, but I think every reform of society has had one sub-section of the elite interested in change and bringing in new people as allies, who previously were not part of the old elite to become part of the new one. So, there is a change in the ruling coalition... that can happen. And I think often those can be very positive if designed well and can result in what's essentially this higher degree of safety. And I think once the safety is guaranteed, then there's more room for personal expression and this bottom-up order.

Tobi: Interesting. Interesting, Samo. So I'm just going to toss out a few theories and framework and I want to hear your reaction to that and weather GFT affirms or refutes that. Acemoglu and Robinson talked about inclusive and extractive institutions, what do you think about that framework?

Samo: I think that inclusive or extractive institutions is a good path... it's an interesting frame, right? I think that in the real world, an institution can be both inclusive and extractive. So I think there is some insight there, but I think my perspective on institutions is that they can easily combine many things that seem mutually contradictory. So I'll say it sometimes gives the correct answer but it's basically not as total as it's presented.

Tobi: Hmm. In their framework, at least they've extended their theory with their new book, they talked about this narrow corridor where... I don't want to call it perfect, but this balance between the power of the state and the freedom of the civil society as this zone where prosperity sort of exists. Is that...I find that hard to believe somewhat despite all the evidence they marshalled in their book and other research papers...

Samo: Uh-hmm, Uh-hmm, Uh-hmm...

Tobi: So what role does civil society play in GFT?

Samo: In GFT, civil society is the space where new institutions can be designed without the approval of the centre, without the approval of central power because GFT has this self component of high-medium-low...where I think civil society is the space where the middle powers can be built. In other words, to build a great successful company you ideally don't need to have that many government friends. To successfully pursue a new political ideology or new social or ethical ideology, you shouldn't necessarily have to fully wrestle with everyone in society immediately... so, again, another additional aspects of this is I think that the civil society represents this very important redundancy. Redundancy in the positive sense where if you are on an airplane and the electronics of the airplane fails while you are in the air, you really hope that there is a backup electronic system; or if you are in a hospital and you are recovering and the electricity goes out you very much hope that there is a power generator attached to the hospital allowing whatever equipment that is needed for your health to keep on running. I think that civil society enables a civilization robustness. Hyper centralised systems can seem very efficient but they can be very fragile. As soon as the centre fails, everything fails. A strong civil society on the other hand enables not only [a] healthy competition and experimentation which of course should not endanger the centre or should not endanger the coherence and common destiny and stability of the civilization or society, but it enables a backup. So if the centre fails, there is something that is not too far from being able to become the new centre.

Tobi: Interesting. Let's talk about technology for a bit, Samo. One of the things that this notion of catch-up growth is built on in economic development is that if you can facilitate technology transfer between a nation that is advanced to a nation that is behind, then you can engineer some form of economic growth. But you also have this concept of social technologies that in my own interpretation do not transfer so easily. What are your thoughts on that?

Samo: I think this is very much true. I think that it's very easy to transfer, say, the adoption of a physical technology. It's like not that hard to have the users...you know, everyone has then a smartphone, right?

Tobi: Yeah.

Samo: It's a little bit harder to have it be sold that the workers and managers exist to run a phone factory, on the other hand, that's a little bit more difficult. And social technologies play a role in this and I think the transfer of social technology is something very interesting and tricky. I feel it is important to note that naively trying to completely copy social technologies from a completely different society can have disastrous or ineffective consequences. Because, in fact, there are already social technologies in whatever society. There is no society without its own ecosystem of highly specialised social technologies. The beautiful balance happens when one is able to learn from other societies and then customise what is introduced. I'm going to use the example here of 19th century Japan. Nineteenth-century Japan, sort of, forcibly opened to trade by Admiral Perry, basically, they are behind on military technology.

They understand very well in the aftermath of the Meiji restoration that it's not just the adoption of Western science nor is it the adoption whole-scale of just Western culture and views, but they are very selective. What they do is they send their most talented students to Germany and the United States with specific missions; some of are tasked by the Japanese government as representatives to learn everything they can about how the officer system work in Germany, for example, in 19th century in Germany, 19th century Prussia? How do the ranks work? What kind of discipline and training do the soldiers go through? And they return changing the Japanese army from this relatively archaic system that's feudal, that has samurai because if you arm the samurai with the machine guns and whatever, they're not actually using the artillery, the equipment well nor are they fighting coherently or employing the correct tactics. So the army would in effect be terrible. But they copied the Western system of ranks and training - everything up from the military academies to the organisation of the provisions. They go and observe it. They participate in those armies and then they return to the country, and with the full political backing produced this transformation. And then for the ones that go to the United States, they observed the organisation of railway companies and how American companies operated internally.

And note this, of course, was a very different America. This was an America that was still at the frontier - the transcontinental railroad was barely built, so there were definitely people there that knew how to build a completely new railroad system, how to finance it, how to even deal with security issues - and then that transfer goes back to Japan. And then there are people who are in London just working for several years as basically shipwrights that return and then oversee the construction of the first ship. So these are not just technical skills, all them are learning some technical skills but they are also learning things like what does a relationship look like between a soldier and a commanding officer? What does the internal organisation of a shipyard look like? How do shipyards connect with funding and with resources? And how do they select skilled labour vs unskilled labour? How do they enforce workplace discipline? What do you do if the shipwrights come drunk to the shipyard, how do you respond to that? These all seem very trivial everyday problems, but for the most part, we rely on our social understanding, our cultural, our social technology to see what is acceptable and what are the expectations that should be set and should be respected and how to resolve various kinds of conflict and how to reach various kinds of decisions - these are all things that have to be patented. Yet, despite all these expeditions to do this learning, they intentionally combined this and pursue this strategy where they picked and choose which of these practices were compatible with Japanese society. So Japan stayed Japan and successfully industrialized… and it was unsuccessful during World War II obviously, but even after WWII, Japanese society remains distinct and actually in some ways functions better than Western societies. Like, if you go to their high-speed transit, it's maintained at a higher level than you see any western country. So they combine this with some of these strengths that they have... this very broad attention to aesthetics [and] this high level of politeness that they had inherited from that particular kind of feudal society. So yeah, you have to live in a new society, I think. You have to observe it happening, and then not only do you have to live there, you have to return; and not only do you have to return, you mustn't change everything. You must change just something very narrow that works on the strengths of the other social technologies available rather than trying to wholesale imitate something that ultimately has its own flaws.

Tobi: Economist Gareth Jones has this concept of hive minds where he says national IQ matters more than the IQ of an individual person and these are correlated with how successful and prosperous a society is. I'm not even going to ask how true or false that is but are higher IQ societies more likely to have great founders than not?

Samo: It's a very interesting question. I mean IQ is one of those things that it might not be a good measurement, it might be a good measurement in some circumstance. I think that... yeah, I think there is whatever (I won't measure it with IQ)...

Tobi: Okay.

Samo: But I do think societies with intelligent people or with greater respect for intelligence or with greater ability to produce intelligent people, I think they do have an advantage here, yeah. You require also other things because as I noted, you might have extremely intelligent people that are however doing exactly the same thing that everyone else is doing. If you imagine a classroom of very very diligent student that mostly to just do the same thing that all the other diligent students...like, that might result in like, say, some well-run things. It might like result in trains that go on time or on factories that can rely on a high level of skill of their workers but the problem is those same students would never have built the train system in the first place or would never have pushed for its creation nor would they have ever pushed for the creation of the factory. So there are additional factors here. I remember reading some articles about Gareth Jones's book, I will say where he's very very right is that if you have a higher culture of intelligence in a society, it becomes easy to not have to worry about things. You don't have to worry whether trivial everyday things are taken care of, you can focus on the truly difficult parts. Again, you can rely on the train that takes you to your class to be there on time, for example. That's like easier, it's not just a matter of organisations, [it's] also a matter of, like, the competence of the rail workers and so on... and these small everyday differences, if you imagine them just through the lifetime of a potential great founder, they make a massive difference.

I'm not sure I think that you need to have absolutely all of society be like this, I think it's actually sufficient to have a city that's intelligent in this way. Like I give the example of medieval Europe and the city of Oxford. I think it was quite sufficient to just have Oxford where there were a bunch of smart people around. I think it didn't much matter whether the rest of England at the time was very intelligent or not.

Tobi: Hmm. That's interesting. You also talked about Life Players in your book which I greatly enjoy and for the audience, I'm going to put up a link to the publicly available manuscript for the Great Founder Theory book. How can one recognise Life Players in society or in an institution?

Samo: I think Life Players are going to the people that have succeeded at very very different tasks. So they are going to be these individuals that have, perhaps, either changed careers (two or three completely different careers) and have been successful at all of them; or completely changed their interpersonal style and were as successful when they were strict as when they were jovial, when they were easy-going or people who have done intellectually completely different things. So what you're looking for is not only a very high skill in an area - again, it's very possible to be extremely skilled in an area and ultimately not be that well-adapted - what you're looking for is the combination of both skill and execution, intentionally observing their environment and success at transitioning. So (a) success at transitioning to completely new strategies and this might look like an entrepreneur that has built a successful company in one industry that [they] then specialise in a different industry and very quickly build a successful company there too. Elon Musk might be a good example where he both has created this business that's a car factory that makes electric cars - Tesla - and has also succeeded in aerospace with his company SpaceX which recently brought American astronauts to space again for the first time ever on a privately built rocket rather than a rocket built by NASA.

Tobi: Uh uh.

Samo: A different example of a Life Player and I have to emphasise here when I say Life Player, I don't mean I agree with everything the person does. I'm just observing that they have the skill and adaptability. I think Vladimir Putin has showed over the last twenty years in Russia an extreme adaptability where Russia pursued many different strategies to try to maintain its position in the world, and Russia right now punches above its weight. For example, the annexation of Crimea was completely inspired. Nothing like that had happened in Europe before...

Tobi: Uh uh

Samo: And it was done with, like, killing almost no people, I think something like three or four people died. It was incredible how they orchestrated the mere surrender of the Ukrainian army because the Ukrainian army was so confused and honestly scared with the appearance of these Russian soldiers that, note, were even not officially Russian soldiers. They were wearing no official flags or patches, so they wouldn't give any answers as to who they were. They could plausibly say that they were Ukrainian because Ukrainians and Russians (they) look similar, they speak very similar language, there's a Russian minority in Ukraine and...you know, Crimea declares independence, and then immediately after declaring independence asks to join Russia and Russia says "yes". It's kind of amazing how that can happen. Not saying it was good for Ukraine, definitely, it was good for Russia, I think. And this results in this very creative process because there is no way in the world that Putin ever planned for there to be a civil war in Ukraine, but having the fact of the civil war happen, he and his team very quickly moved tens of thousands or hundreds of thousands of people and carried out a military operation that had never been performed before by the Russian army. The Russian army has a long history, many centuries ago but believe me they've never engaged and subtle stuff. They usually had this very overt, very heavy-handed interventions in other countries. If you think about it like this intervention in Hungary in the 1950s, in Czechoslovakia in the '60s, they just roll in the tanks and, like, assert authority. And here? No no no. Much more flexible, very subtle. And because the conditions were so unpredictable, this is how we can know that this was not planned a decade in advance. This was a quick adaptation over the course of, possibly, as little as six months to a completely changed situation. So I think that even if you were within the same industry, if this company, if this government, if this organisation, if this institution adapts quickly to massive changes, that's a strong sign that a Life Player he is at the helms. Because no automated system continues working when the operating conditions changed. It stops working if it's the preconditions are not met.

Tobi: Hmm. One of your ideas [that] I've also found very interesting is the concept of Intellectual Dark Matter. How can a society benefit maximally from its intellectual dark matter - the tacit knowledge that's around?

Samo: Intellectual Dark Matter refers to this concept that makes the analogy to physical dark matter because currently when the physicists and the astronomers look at our galaxy and they count all the stars and put together all the mass, they realise that there must be much more mass there than only what's visible...

Tobi: Yeah.

Samo: Because, otherwise, the gravity wouldn't be strong enough to keep this spinning galaxy that we find ourselves in and other galaxies together. So they don't yet know what this missing mass is but they are investigating it. And with Intellectual Dark Matter, I think if we put together all the books, all the stuff that's on the internet, all the stuff that's recorded, I think we still find that there is missing knowledge. There is knowledge and skill that we have not explicitly, formally recorded - written down or put into words that deeply matters. And once you start thinking about that, it's very easy to come up with examples of stuff that is very difficult to put into words or put into writing. The skill of a heart surgeon that saves the patient's life. Like, that's a remarkable set of skills but how do you put into words how to perform a heart surgery? Very very difficult, right? Takes a lot of words. I have an article titled "How YouTube is Revolutionising Knowledge Transfer" and I point out that...

Tobi: Yeah, I read that.

Samo: I point out that for a good enough camera, recording the hand movements in these very skills, and it doesn't have to be just heart surgery, it can be as trivial as cooking or perhaps the way you treat complex machinery... recording the video and others watching this video might be much much better way to convey such knowledge. I also think that we in society, in general, like seeing the results - we like seeing the finished essay or the finished theory by a Thinker. So if I go back to the world of abstractions to either philosophy or science or whatever, we like seeing the finished theory.

What we don't see is all of the crazy or stupid ideas that this very intelligent person came up with before they got the right idea. They usually do that on their own or with a close circle of friends. So, one might be tempted to think and look at an extremely successful thinker and assume that they were always very polished, that they were always very eloquent, often this is not the case. Often they are immensely long learning period. Now, I admit I might be a little biased here because I did spend most of the last decade pursuing this kind of, like, thinking, reading, investigating and for most of this time period, people were not immediately interested in my ideas.

Tobi: Hmm.

Samo: But about two to three years ago, the material not only clicked together but I found the words to express what I, to myself, felt I had understood for several years before, I just could not really find the way to relate it and show to others in a short period of time how in fact this is useful to them. So I think all of these things form part of Intellectual Dark Matter and there is much more. There is, for example, we might not know what the exact process is that allows you...that allows Elon's team at SpaceX, engineers at SpaceX to make that rocket, and we might not even have that available anywhere because it might be classified. There are probably rules, I actually know that there are laws in the US that prevent SpaceX from simply explaining how they're making this vehicle to a company based in a foreign country. They don't want to teach all the countries how to make rockets for obvious reasons, and more importantly, SpaceX probably doesn't want to share its rocket designs with Boeing - their competitor.

Tobi: Uh uh.

Samo: So there is also an element of proprietary knowledge and trade secrets for stuff that is understood explicitly, stuff that can be put into words, can be put in a document but the person who has this knowledge wants to keep a competitive advantage; sometimes for very good reasons or the organisation that possesses this knowledge doesn't want to share it. So, that also forms a type of intellectual dark matter - it's knowledge we can't directly examine.

Tobi: Interesting you talked about YouTube. The global pandemic has seen an increase in virtualisation, are we going to see a reform in education away from the classroom and a reduction in direct instruction?

Samo: I think that we will see an increase in autodidacts - so people who know how to learn on their own. I think, however, that most people will return to the classrooms once the pandemic has died down. I don't think there will be permanent remote instructions and I think the reason for this is that the performance seems to be much worse. It seems to actually be the case that unless you are inherently interested in the material. If you're just a kid who's going to school or taking online classes because you have to take online classes or because you have to go to school, it seems your performance is going to be worse. You're going to learn less than if you physically go there. And I think that for autodidacts, there is going to be an abundance of resources - everything from recorded lectures to tests made. So it's going to improve those chances of those who are seeking knowledge out of curiosity primarily, or out of self-development and professional development; but for the majority of people learning, I think this transition is going to be temporary. I don't think it will be a permanent shift.

Tobi: So, Samo, it's kind of a tradition on the show to ask this final question. What's the one big idea that you want to see spread globally?

Samo: That's a great question. I think if there is one idea that I would like to put in everyone's minds or everyone's hands, it's this realisation that...I think that the surest sign of good knowledge is the ability to act on this knowledge. So I think that there is some deep confusion as to when knowing things and when doing things - how do these two relate to each other? And I think if only we understood that there are many things that have the appearance of knowledge, such as eloquent speech or perhaps particularly good writing that don't carry the substance of it. We should always observe the practice of the individuals and organisations claiming to have knowledge. For example, the WHO...I'm sure it's made of many excellent experts - they individually know many things about the coronavirus but the organisation as a whole despite claiming to know, in its public communication seems incapable of relaying that knowledge. So I think the result should be "well we should take them less seriously on the coronavirus". And if this map between who is believed to have knowledge and who actually has knowledge, if we improve that map, as a species, I think that our ability as human beings and our societies would really rise. It will be a remarkable thing to see and I think the societies that went through golden ages, I think they basically had these happy periods where the two coincided. You know, times like the Renaissance or whatever.

Tobi: That's a great idea. We're sure to help you spread it over here at least.

Samo: Thank you so much for having me on the show.

Tobi: Yeah. Thank you so much, Samo.