Charter Cities Podcast Episode 49: A Framework for the Elite’s Role in Development with Stefan Dercon

In today's show, we get to delve deep into Stefan Dercon's elite bargain idea, the impact of effective altruism, the need for self-awareness within governments, and how far lessons from certain examples can be applied to other states.

Listen:

Stefan Dercon is the author of Gambling on Development, in which he details his theory of the elite bargain framework for development in low-income countries. Stefan is a Professor of Economic Policy at the University of Oxford, and also serves as the Director of the Center for the Study of African Economies. Prior to his current academic posts, he has extensive experience in the world of policy, as the Chief Economist at the Department for International Development and as an advisor to the UK’s Foreign Secretary. In our conversation with Stefan in today’s show, we get to delve deep into his elite bargain idea, the impact of effective altruism, the need for self-awareness within governments, and how far lessons from certain examples can be applied to other states. We also get to talk about political settlements and how his framework fits into the context of current popular theories and explanations for economic growth. So to catch all this and a whole lot more, be sure to listen in to this great chat with Stefan Dercon!

Key Points From This Episode:

  • Stefan’s perspective on the different skills needed for policy implementation and idea generation.
  • The challenges of communicating the need for policy experimentation to politicians.
  • Some key ingredients to effective government meetings and common mistakes that Stefan has seen.
  • Examples from Stefan of the kind of practical implementations he has seen used well in governance.
  • Stefan shares some examples that underline his book’s main thesis about successful development.
  • An approach to determining a country’s emerging development bargain.
  • Our guest unpacks the three conditions for development bargains noted in his book.
  • Why a certain model for development cannot be expected to have the same success in a different context.
  • The impact that studying Asia later in his career has had on Stefan’s frameworks and philosophy.
  • Stefan talks about his findings on possible lessons from urbanization in China.
  • Issues that Stefan has with the idea and terminology of political settlements.
  • Contrasting Stefan’s argument with the thesis of Why Nations Fail.
  • Suggestions on how to motivate elites to engage and gamble on development.
  • Stefan’s personal perspective on economic growth and its role in poverty alleviation.
  • Why meaningful progress is dependent on a certain amount of risk.
  • How Stefan would suggest spending money on growth interventions and lessons from Africa in the 1990s.
  • What the situation in Sri Lanka right now teaches us about investment in people.
  • The danger of consolidating authoritarianism in countries such as China and Rwanda.
  • How the mobility of a burgeoning middle class can impact the development of a state.
  • Stefan weighs in on the potential scalability problem in a technocracy.
  • Some of Stefan’s reflections on his time at DFID and its challenges.
  • Looking to the horizon with Stefan and his forthcoming projects.

 

Transcript:

Kurtis: Welcome to the Charter Cities Podcast. I’m Kurtis Lockhart. On each episode, we invite a leading expert to discuss key trends in global development in the world of cities, including the role of charter cities and innovative governance will play in humanity’s new urban age.

 

For more information, please follow us on social media, or visit chartercitiesinstitute.org.

 

 Kurtis: On this today’s episode, I talk with Stefan Dercon. Stefan is a Professor of Economic Policy at the University of Oxford, where he also serves as the Director of the Center for the Study of African Economies. In addition to this academic work, Stefan has served in the policy world as well, both as the Chief Economist at the Department for International Development and as a policy advisor to the UK’s Foreign Secretary. Stefan recently published a great book called Gambling on Development, about the importance of an elite bargain in low-income countries for kickstarting growth and development.

 

I hope you enjoy the show.

 

 Kurtis: Stefan Dercon, welcome to the podcast.

 Stefan: Well, thank you for having me.

 Kurtis: Before diving into the book, you’ve had an interesting career in international development that straddle both academia as a professor and researcher at Oxford, as well as a policymaker and policy adviser, I think, most prominently is the Chief Economist at the UK’s Department for International Development or DFID. I had a couple of questions about this first. First, idea generation and pushing the frontier of knowledge that’s involved in the research side of things requires fundamentally different skills than those required for policy implementation and you’ve done both. I wanted to ask, in your opinion, which is your comparative advantage?

 

 Stefan: Yes, I’m glad you asked for comparative advantage, not through absolute advantage. Though, look, I was always interested in applied science. As a researcher, I was an applied researcher. My first job was in University of Addis Ababa. I ended up spending a lot of time in Ethiopia setting up a longitudinal study. I’m applied. In a sense, once you deal with the real world in an applied, an empirical sense, I think the gap going towards talking to a policymaker is a bit less. But it is a different skill set and I admit to that.

 

Also, when I first joined DFID, that was quite a tough learning curve, where suddenly, it’s not about on the one hand, on the other hand, maybe this, maybe that, hedging your bets, the typical academic thing. It’s actually, okay, what do we do? It took definitely a year at least, to actually get used to that.

 

 Kurtis: You had a good story. I think this is at the beginning of the book, where the new DFID secretary of international development, or Secretary of State for International Development came in, and she had said to the media or something, “Why am I getting this job? I don’t want to do this.” You had to as either chief economist, or policy advisor at the time, sit down and give her the whole summary of international development thought in one fell swoop and had some recommended readings and stuff. Can you tell that story a bit?

 

 Stefan: Yes, it is a true story. In the book, actually, I cleaned up the language a little bit, because she allegedly, and I say allegedly, when she was offered the job – the UK has this funny system, where the Prime Minister is actually not that strong. His main power, the main power of the Prime Minister is every six months, moving his or her ministers around. This happened, was one of these moments, we have a pretty good minister, and then she was in another department.

 

This was Justine Greening. Actually, I can give her name. Justine Greening was called with the Prime Minister and offered a job to be the Secretary of State for International Development. She said, “Well, I didn’t go into anything politics, to actually give money to poor people, or something to the effect.” There’s a few versions in different newspapers, but they got toned down over time a little bit in the way what exactly said. She seemed to have set that. Once you hear that, because there is a couple of hours between you knowing who your new boss is going to be, and this person arriving in your department.

 

There was this total panic in the department. There is this new minister coming in, and she clearly doesn’t want to be here. She has no clue. It was already established. She’d never been to a developing country before. Suddenly, is going to run our department. There was all this panic. I remember an email into her by one of the ex-generals, or the policy director, it was actually and he said, “Can you please give some readings that she can skill up in the next few days and so on?” There, we were just purely coincidentally standing in the office next to hers, and he had this pile of books in his hands and I stood there as well.

 

Unknown to us, she actually turned out to be standing behind us. Suddenly, she was there. The only thing he could say, “Oh, minister. Maybe you should read all these books.” It was a pile of 10 books from the , Stiglitz was there, I’m sure. Anything, all these people you could name. Yeah. I said, “Or maybe, I will just give you a tutorial on this.” She clearly come her face, which initially was total shock. I have to really go read this now to this relief to be able to be given a little session.

 

I gave her a couple of sessions on basic development economics. Yes, indeed, the first chapter is more or less still the same structure as the lecture I gave to her. It’s really interesting, because there’s a minister, she actually turned out to be really good one. I mean, she was willing to learn. It’s one of these nice moments. This is not someone who came with formed ideas. The fact that I could give these tutorials to her was actually quite important, I think, both for me, but also for her, actually.

 

She stayed for something like five years, very, very long for a minister in the UK system. She was excellent. She learned on the job. She went more. She would ask advice, and yeah, so that was a good time for DFID .

 

 Kurtis: Throughout the book, there’s a focus, I would say on the importance of policy learning and experimentation. On my experience, speaking with some public officials, and government officials, policymakers and their bosses, they don’t often really like the advice that says, “Hey, you should experiment. We have a rough idea, but we don’t really know what’s going to work in this context, so we got to try stuff out.” Also, “Hey, this experimentation may span more than one electoral cycle, so you may not be able to run on it in the next election.”

 

On this point, and in your experience, how have you communicated the importance of policy experimentation to political elites, when that experimenting may not really be among their top interests?

 

 Stefan: I think very unsuccessfully, is what I was going to say. I mean, just exactly for the reasons that you say. It is actually a really tough thing for policy. I mean, there’s a couple of things really that’s really hard when dealing with politicians. First of all, they come from a world where you can’t show any weakness. You have to have a clear sense. Ideology and political narratives are central. You need to find an entry point in their narrative, to actually help them to think slightly differently, without challenging and saying, “You are totally wrong on all this.”

 

It’s actually much more to do with keeping alert to what are the windows of opportunity, either through to coincidences, stuff that happens, or actually, even in the political narrative, to actually find ways of encouraging them to try to think in a slightly different way about something. I’m a strong believer, that it’s the officials, the technocrats that actually, very carefully need to prepare. Some, in fact, change needs to be prepared. Change cannot come simply from a conversation where you convince someone. Then actually, you find that entry point, when actually change can happen.

 

I think, the politicians that I admire, and probably also the ones I admire, to some extent in the book, are the ones that recognize something needs to change now, and then are willing to take the advice. Maybe it’s in that senses that some of the most successful cases where growth and development seems to be happening with some clearly changes in policies is from politicians supported by the technocrats, taking the opportunity of maybe a crisis, or some real deep point where change clearly everybody agrees something needs to change, to actually willing to try it out.

 

This whole very Chinese way, where you can seemingly learn all the time is probably still much more to do with particular moments, at least at the very top, particular moments that they take the opportunity, and then periods where something can happen. Yeah, have I ever succeeded with UK politicians? Probably in the bigger scheme of things, not necessarily. It is also about helping them when these moments happen, not to do the stupid thing. Not the bad decisions. I think this probably has a bigger role in terms of stopping them to do the wrong things than all the time being able to lead them on some path for the right things.

 

 Kurtis: Last question before we dive into some specifics about the book, but I mean, as we’ve alluded to already, you’ve been in a lot of government and policy meetings. What are the key ingredients to an effective government meeting and what in your view do meeting runners most commonly get wrong?

 

 Stefan: What they most of the time get wrong is that they think that they need to – this is actually what academics so often gets wrong in general, is that they are there to supply something without thinking about what the demand is. You start from the demand side. You start from thinking about, what are they thinking? What are the questions they’re asking themselves? What is it that they do? A successful meeting, whether it’s with the finance minister, or whatever, or vice president or something in the country, or even just the technocrats in a government setting, is to actually understand as much as you can, what are the issues they’re thinking about?

 

It’s always about these entry points. You cannot go there and suggest somehow, do something totally different, without understanding, no, we’re going this way. We’re going in this direction. You find these entry points. That’s the one thing that – I mean, I’ve seen also others operating very effectively in these kinds of meetings. These are the ones that very well know how to judge, what is your audience judging? What are they thinking? What are their questions? Then you just find your entry point, and you take them on a journey. Then maybe by the end of it, you’ve convinced them to go somewhere slightly differently, or even consider something quite seriously different.

 

That’s the biggest mistake. We are all the time thinking, it’s all about just, they would love to hear our ideas. That’s not really true. They have their ideas. They would love them to be confirmed by us as academics and advisors. You need to know how they’re thinking. If you want to change anything, first understand what they think.

 

 Kurtis: Is there a particular minister, or public official to you that stands out as just an absolute rockstar at great, fantastic meetings and pushing an agenda forward?

 

 Stefan: Well, let me actually turn it slightly differently, is that because most ministers are smart enough when they have a visitor, not to be pontificating too much. The ones who pontificate, there’s no point in starting with anything. The ones that are the smart users of your advice are the ones that ask you questions. That I always found very interesting. Okay, so one that I worked with as a policy advisor was Rory Stewart in the UK. He’s a well-known commentator as well, and there’s all kinds of history of it. Because he was smart enough, he just knew exactly how to handle a bunch of academics coming into his meetings.

 

I mean, he had the strong views, and he wasn’t necessarily going to change his mind. He was a bit of a master. That’s one thing in terms of the demand side, on the minister side. It’s maybe also interesting, who have I seen over the years that are really effective in giving advice to governments? The one that I’ve learned probably most from in terms of style, I’m not going to say in content, but it’s actually Paul Collier, who people are sometimes surprised. I say that for actually, every African leader, every African government of all the democratic, or the  side, they all seem to love him, and he seem to like it.

 

Every single Prime Minister in the UK, they seem to have in the last 15 years, have links with Paul Collier. It’s a lot to do, because he is very, very smart in very quickly sussing out how his audience, how they’re thinking. It doesn’t come across like it and looks, and it will feel sometimes as if he pontificates, but he’s really very smart to very much picking up what are they saying? What are they thinking? How do they ask me the question?

 

Maybe then the other part of it, why they’re always like him, is he is one of these masters of, and these are the three things you need to do. Which is another clever thing by always being propositional. Anyone, when you go into a meeting, if you don’t in the end, if you simply give commentary, it’s been useless. If you propose something, even if they don’t take it, people who took the meeting will find it quite satisfactory, because you actually are willing to propose something and say, “Oh, something to think about.”

 

He was always smart. You have three things, of which one, probably was absolutely something they couldn’t do. Another thing was actually something a bit challenging. A third one was very obvious. They felt comfortable, because there were obvious things that they could do. He was clearly probably focusing on the middle bit. The one that actually is a bit challenging, but probably is quite interesting. These leaders, these politicians come out of meetings with him thinking, “Oh, wow. This was really useful.” Yeah, he agreed with us that we should be doing that. This is worth thinking about.

 

 Kurtis: Yeah. I remember just on maybe an example of a less effective meeting you talked about in the book, and the book is just great for this insight in and of itself is just like, insight into a bunch of government meetings you’ve been part of throughout the years at the high level. I think when Hernando de Soto and his thing about really, the centrality of property rights, and he was invited, him and his team to the UK to present on property rights and what they’re working on. When asked like, “Okay, Hernando. What do we specifically need to do then? What are the policy priorities?” He said, “Well, you just hire us for hundreds of dollars in consulting fees, and we’ll do it for you.” Less effective approach.

 

 Stefan: Absolutely. I must say, he probably has such a thick skin that he will not have remembered it. I mean, it was so embarrassing. It was so embarrassing, because, of course, he was representing an ideology as well, that fits so well with the politicians in the room. They have set it up as this big meeting and getting to see the prime minister and all the kinds of things, and that was all he could come up with. Actually, it was just embarrassing. I hope for him that it’s not the way he usually works, because it’s not the way to do it.

 

 Kurtis: Yeah. Okay, lesson learned. Go Paul Collier’s route, not the de Soto route. Okay, with that, let’s jump into some questions about the book. The book, Gambling on Development, it makes the argument that some countries are successful in attaining good development outcomes, because their elites has come to a bargain that commits them to growth and development. On the flip side, other countries fail because that elite bargain towards development is absent. This development bargain is a key to explaining the take-off of some countries and a stagnation of others.

 

I think, maybe in order for us to make this concrete for listeners, it’d be great to start with a few examples. You write in the book about sitting in two sets of meetings in 2013. One set of meetings was in the DRC, the Democratic Republic of Congo, and the other set was in Ethiopia. Both presenting their respective national development plans. How does your framework of a development bargain among elites play into the plans, the development plans that were presented to you in the DRC and in Ethiopia back in 2013?

 

 Stefan: Yes, it was incredibly striking in the way it went about. First, I was in the DRC. We’re sitting in a room, this is in the prime minister’s office. We’re sitting in a room, and they present the perfect plan. Actually, for every sector, agriculture, investment, climate, infrastructure, education, health, and I sit there for three, four hours in these meetings. One after the other, they present their plans and they say, “Look, this is actually really brilliant.” I mean, this is really good. Whether you were a World Bank official, or an academic you said, “Look, this is actually – not saying it’s perfect in everything, but it was very reasonable, sensible, from the context they have.” Something that you say, “Wow, that would be amazing if they could pull this off.”

 

I remember coming out of this meeting, and saying to a colleague, “Wasn’t this an amazing piece of theatre we’ve seen here? Like, one big show.” He agreed. The reason was, of course, that the DRC, and in fact, we had only a few days before we had had a few meetings. The DRC, rarely, if ever even approves its budget. We were at that time in month 11, or the 12 on budget cycle. The budget minister had the day before told me like very excitedly, “We may get the budget approved by the end of the month.” One month to spent your whole government budget. None of these things matters. There’s nothing there.

 

In contrast, in Ethiopia, sitting in meetings, and arguably, this was more high level. There was the Minister of Finance there, there was the governor of central bank, several of the Prime Minister’s Economic Advisers, and they were all mixture of technocrats and political players. This was actually a meeting and in fact, we were with a few others. Lant Pritchett was there, Justin Lin was there. Paul Collier was actually there as well. Very diverse setting. It was actually an event, a couple of days that they had wanted to organize, to get it scrutinized by outside experts, getting some comments in a closed setting.

 

I remember each of these bits and pieces are very imperfect, in a sense of even basic economic understanding. In many of the things, different – not always that we always agreed as the outside of, but many things in really, do you really think this will work? Will this not get your vestibule climate? Are you really going to do this? Is this really going to help, that legal framework there? That form of industrial policy, that intervention in agriculture?

 

It was all, let’s say, a lot of tinkering. It was definitely not by any type of, sort of economics mainstream. It’s not just about what is neoclassical IMF or World Bank, but Lant Pritchett, or Justin Lin. All of us were all the time wondering about what is. I remember coming out of the meeting, and we were talking amongst us and thinking, gosh, it was actually quite tricky. But you know what? They’re going to do this, and they’re probably going to succeed.

 

All four of us thought this is actually quite amazing. They’re going to do it. Of course, in that period, that decade of 2010 to 2019, it was one of the fastest, if not the fastest growing economy in the world. Now, what is really striking is clearly, not the words, the exact plan, but how it fits in the framework is that why we were so convinced Ethiopia were going to do it? Because that was fundamental to this government. They were fundamentally behind it, and they were all going to do all they could to make it work.

 

Yes, they were tinkering and making not always the best economic decisions, but we knew already by then that if things derailed, they will try to find a way of correcting it and doing it and yes, not simple, either big bang liberalization, or simple state led development that were tinkering all the time. It was that confidence we could have, that’s fundamentally, this is what this leading elites actually wanted to do.

 

While in the DRC, the entire government is actually show. The entire government is show, because the game is not played in government, not an economic policy, not in Parliament. It’s basically, who controls what they get from the mines and from the big mining contracts. That’s the only game in town, because the rest of the economy, the government now doesn’t care about, or just distorts it and disrupts it all the time. You have 56 government departments that are allowed to actually collect taxes. Government departments that are allowed to do this in various ways.

 

There’s just all right kleptocratic and otherwise, definitely very predatory extractive thing. That’s to do with, because, yeah, they’re not interested in growth. They’re just interested in distributive politics, trying to get to the rents from the mining contract.

 

 Kurtis: A few practical questions. The first I wanted to start with that I had while reading was around, I guess, how to identify, especially early on, the places that have a nascent development bargain emerging. You had this great analogy that development funders and even private investors in low-income places could be more like Warren Buffett and engage in value investing in poor, but high potential countries. How do you determine on a practical level, whether a country has or doesn’t have an emerging development bargain and is therefore, undervalued?

 

 Stefan: Maybe we should ask the question to Warren Buffett as well, because clearly, he succeeds and most of the others don’t quite succeed in doing what he does. If you think of the way he invests, he’s not going to invest in obvious disaster areas. Firms are clearly going nowhere. One thing that you always observe in his portfolio, and his idea of value investing is to say, well, you invest for the long-term, but you invest in a team that appears to be interested and willing to start making certain decisions. It’s these two things coming together.

 

Clearly, a team that has a long-term objective that clearly wants to achieve something, in this case, it’s actually growth and development. Then actually, there is a sense that they do in the early decisions to do so. Now, the question back would be, surely, why don’t I go and invest in the DRC, because they have all the perfect words and the perfect plans? You clearly need to have bits of sense of actions. Behaviors and actions do matter.

 

It’s not the first time that I’ve been asked the question, can you really know? When can you know? Are you not going to be too late and doing that invasive things? The more I think about it is to first of all, you’re not going to say, this is a place where there’s a nascent development bargain, if the only thing they do is the low-hanging fruits. This low-hanging fruit stuff, I definitely don’t subscribe to it, because, of course, you should do this. A low-hanging fruit is typically the fruit that don’t disturb any of the other branches and nothing gets disturbed in the whole thing.

 

You need to be willing to say, “Look, I’m going to try to reach for one of these higher branches, and I may crack a few others in the way and to do something.” Or put it differently, a country that begins to say, address some of its vested interests, some of its structures and starts to dismantle it, even at the expense, not of its enemies, but some of its friends, is probably a good idea. A country that say, for example, take seriously mining contracts, but not the mining contracts that are held by the firms that support the opposition, but actually, the ones that actually are more linked to yours, and it’s things like that.

 

You look for a small number of things that actually seem to be suggesting you’re actually quite serious, because you are taking a bit of a risk here, because you are actually trying to change something a bit more fundamental than something self-evidently easy.

 

 Kurtis: I guess, a related question to identification of an emerging elite development bargain, I mean, just putting on our social science hats is, are there datasets out there that try and proxy for, or measure the quality of the elite, or something like this? I was thinking about this. A few things came to mind, like data on perhaps, flights out of the country right before an election or something. This is assuming only elites in low-income countries can afford an international flight, which I think is vaguely right. A few other things related to this, perhaps the level of, or proportion of elites that opt to get health care services, for example, in Europe or North America, or the proportion of elites that send their kids to private schools in rich countries. Are there data sets like this to try and proxy for elite quality, or an emerging elite bargain?

 

 Stefan: I don’t think there are. I mean, actually, it’s really interesting, the examples that you mentioned. I was actually in another conversation. I think this was when I was in Abidjan talking. Actually, someone mentioned exactly this is that, what are the plans of the children of the elite? Are the children’s of elite both getting their education, but especially not coming back? Is everybody in London from African elites or in Paris, are they actually coming back and trying to do things? There are things. I don’t think that these datasets.

 

Someone else, I have a great interaction from Nicaragua actually said, “Look, I’m actually on the back of this.” He’s designing a little survey. He’s actually almost and clearly, I should put on Twitter so all these questions, because we had a conversation about what could you actually ask to exist in elites in terms of where do you see your future? I think, it’s definitely a sign of an emerging elite bargain, at least for growth, and probably for development is, if some of your diaspora linked to the elite, not the poor ones, but for the elites, actually been able to come back.

 

It’s very striking that I would date say, for example, in India, what happened in the 1990s, partly with the economic reforms, but also all the political parties buying into the idea of growth and a developmentary became much more serious in politics in India, it’s actually in the northeast, you suddenly started getting far more of educated Indians deciding to actually, I can just as well go to Delhi, or Bangalore and make a career of my future. There’s definitely something like that in the picture of I could look at.

 

 Kurtis: I’m thinking too here, you could even get – because you hinted at in your previous answer, a part of gauging whether there’s an elite bargain or not, is this divergence, I guess, between rhetoric on the one hand and action on the other. You could even in those questions or surveys that your Nicaraguan friend is conceiving of, early on in the survey ask like, what’s your opinion on the children of elites to do or something? Then what are your actual kids doing? So you get an opinion answer that may be more rhetorical, and then a revealed preference later on, or something like this.

 

Okay, so you said that these development bargains among elites, they have three preconditions. One is credible or durable politics. A second is a mature, sensible state. Mainly, this is getting at a state that doesn’t overextend itself, I guess, in the Lant Pritchett premature load bearing sense. The third is mechanisms for learning and correcting mistakes over time. Can you just elaborate on these preconditions a bit?

 

 Stefan: If I start with the first one, this whole idea of requiring credible politics, I mean, it partly talks to its – that it should just not be ideology and big national statements and narratives. Another part of it is that if you think of it, well, this minimal precondition of the state, these underlying credibility that you want to keep peace and stability is actually quite important. For me, that credible politics, and this online shared commitment, a big part of it is to make sure that different players in the elites are not using it to destabilize, using their opportunities they have.

 

It’s very striking, I find that that we see this across the world. Elite players will find it always extremely easy to destabilize. Fragmented elites, they can very easily stoke up trouble. You could get mobs on the streets, and it’s actually not so hard if you want to cause trouble. It’s that first thing that you really need to be committed to actually keep that peace of stability. Then this idea of the self-aware state, the state doesn’t overextend itself. I think, it’s really important, because there’s so much still naive discussion when I go to different countries to say, “Oh, it should be market led, or state led.”

 

I must say, the technocratic institution like World Bank and IMF don’t help that much, because they seem to translate it all the time a bit like this, and they don’t seem to have a language to actually capturing better that state capabilities and the histories of the state and the way the states are set up in different countries is so fundamentally different. In some countries, you could have the state doing more things. Other countries, you really should have ask them to do more things, so it becomes very context specific.

 

It’s not about an ideological position about the state versus the market, but actually, being self-aware. Let me clarify this with very quick example is that China, state-led development. Once you start thinking about the history of the state in China, you can see well, yeah, surely, if you do it anywhere, you do with there. 2,000 years of centralized structures, central taxation, and a meritocratic bureaucracy historically, for a very long time. Say, that’s the way state and its servants, its bureaucrats, that’s how it was set up.

 

Now, if you had to make some choices, well, you made the choice to do with stately development, you had a reasonable chance to get it to be successful. If you do this in Malawi, where the state is built up fundamentalism and independence as a job creation scheme for whoever is in power. There’s some good civil servants there as well. I’m not saying they’re not, but fundamentally, it’s clientelist. It’s all patronage-clientelist based. It’s not set up with meritocracy. How do you think with such a short history of the state, and then the way you build it up, that you actually would do state-led development? It becomes, there will be places where you need to do it in one way or another way.

 

This is, in the book, I talk a lot about Bangladesh, because I find a fascinating example, because this wasn’t clearly to the outside world, but also for a lot of people internally, this was for a long time, and maybe still is quite a dysfunctional state. It’s definitely quite corrupt. It’s definitely quite clientelist in the way it’s set up. It’s actually been very smart in his development since the 1980s. Not to do it state-led.

 

I was in Dhaka not long ago. I was pressured on this and said, “No, the government took really good policies,” and ask them where are these policies and said, “Oh, it actually stopped intervening in the fertilizer market. It stopped doing this. It stopped doing that. It undid the nationalizations and so on.” I said, “Well, that’s what I mean. You were smart enough that that’s the other route would not have worked.” Of course, it’s active decision making, but you at least don’t overextend yourself.

 

Then the final thing about learning, learning as an element of being willing to recognize that you make errors, or maybe, I talk a little bit, and maybe I could have done it more in the book. It’s actually also a lot to do with accountability. It’s actually finding, learning usually needs some system of accountability, either internally, if it just an internal learning process, like in China, internal accountability within the party. If you don’t deliver, you will be pushed out of your post. You are really under threat and whatever.

 

That’s internal accountability. There, it can’t function very well. Or you have external processes, where in Ghana, it didn’t work through the way democracy got established and started functioning with transitions of power, correcting as a result, any excesses, because there will be a new government coming in that had to clean up what happened before. Ghana has as a result, in the last 25 years or so, actually being quite steady in its growth. Yes, getting in trouble, like at the moment as well, we have a certain confidence that there is an external accountability process that can help to correct it there as well.

 

 Kurtis: Yeah. I’m picking up on the point you raised about the likes of China with a strong history of the state, they’re going to be able to do things a different way, than Malawis of the world, without that same state capability and state history of statehood. This comes up all the time. CCI, we’re interested in new city developments and special economic zones and charter cities. Obviously, China used zones to great effect and learnt from those zones and did policy experimentation and then scaled them up.

 

Those zones were really state led. They were devolved to the local level, but they were pretty public sector-led. Then people wonder why at special economic zones in Asia and China, in particularly, have been so successful, but SECs in Africa have been so abysmal. My thing is, well, China has this history of the state, and they were public sector led zones. When you attempt to do something public sector led in a place like Africa, it’s probably not going to work out the same it did in these places with that history. If a zone regime has a higher likelihood of success, it’s probably going to be because they’re either through some sort of public private partnership, or private sector led.

 

 Stefan: That’s absolutely right. It’s, of course, it’s something people all the time forget with, as is as well, even in China. Initially, it was a way of overcoming not just an infrastructure problem, but also, a governance problem. It’s like, you needed to find a way in a protected space to actually do a governance in a very different way. I mean, the soft infrastructure to give all kinds of attention in other things are much less to ideology. I totally agree with you and it’s that thing about thinking that we can just take China and then we’ll just make a flat-pack version of it and we can do it everywhere, where you just really, really forget it.

 

Now, it’s really interesting on SEZs and I wanted to just mention. It’s not in the book. This was the one SEZs I ever went to on the continent was, of course, in Rwanda, where the state in a very different way, established total control. You have this perfectly clean, very subservient managers from that government department, the authority there serving these firms. Of course, the other side, you have to it, given where Rwanda is, the park was half empty, because there’s not enough opportunity then to do it. It’s not as they did smartly in China, initially, near to a demand area, or to the coast. It’s far away then as well.

 

It’s so exceptional. The underlying governance idea is so central in all these things. Yeah, we just forget that when we keep on wanting to translating something that seems to have worked in one place. If we don’t think the underlying political governance and the way that the underlying soft infrastructure. We can’t copy them simply into other places.

 

 Kurtis: The other point that I always bring up too, and again, this pertains to, I guess, cities and urbanization and zones, but it’s not just history of the state, but it’s the timing that these things occur. I always go over the history of urbanization in different regions and countries and say, for example, the US got 50% urbanized in 1920 at per capita incomes of 7,500 or 8,000 UStefan. You had South Korea, 50% urbanized in the late 70s, around 4,500 UStefan.

 

DRC today is careening towards 50% urbanized. I think, they’re at 46% per capita incomes of something like $550. While the state via these higher incomes might have much higher capacity in the US to deal with this rapid urbanization, when it was undergoing urbanization, that is not going to be the case in DRC, or some other African countries that are urbanizing a lot earlier in the development trajectory.

 

 Stefan: I absolutely, absolutely agree. We love and it’s this semi-silver bullet idea. We love somehow to say, there is an essence of an intervention, and we cannot put it anywhere. Actually, the way to think about Chinese urbanization, industrialization, it’s like a bundled intervention. We just must make sure we remember, there’s lots of parts of that bundle that we can’t transport a lot of these bundles are non-tradable. We can’t simply move away and we can’t display. I can’t like my flatback idea. Always like, as if you can just reduce it to. You can’t build a beautiful piece of furniture simply in that flatback version. It may seemingly do the same thing. But in practice, it’s just so hard to put the flatback up in Malawi, or in Zambia.

 

 Kurtis: Yeah. We’re going back and forth between Asia and Africa here. This is actually one of the great things I loved about the book is these comparisons and contrasts between those two regions. In my opinion, this is way too rare. I think, you are mainly an Africanist at the beginning of your career, and the Asian work came later. You can correct me if I’m wrong on this. How did this exposure to Asia a little later on in your career, inform more, or changed your mental models that you’ve built up about Africa?

 

 Stefan: This is a great question. It’s something I increasingly also am reflecting on. I’ve been incredibly lucky, because I started in the worst places, and then started seeing places where change actually was happening. My first country in Africa in the vistas, not even in the book was Burkina Faso. It was, we’re talking the mid-1980s. It was dreadful. It was drought. It was nothing there. It had just come to political upheaval. They have murdered this president. Everything was going wrong there. It was so, so impoverished.

 

For me, progress was then going to Tanzania. That was my PhD. In the middle of rationing, where the entire economy was employed in the late 1980s. I remember being excited, being able to go for a weekend to Nairobi, because there was a supermarket and I could actually stock up on something, and I could buy something. It was an amazing thing. Then go and teach after the end of conflict, after my PhD as a first job in Ethiopia. I had these some of the worst places, seen the worst governance and economic management almost of the place, but also, just the deep, deep poverty and work in rural areas made it very different.

 

I’m actually still very glad about it, because when I was taught in Oxford, everybody would always start with India, and then they would compare it to Africa. It’s actually not that helpful. It’s especially, and similarly then later on going to China, it’s actually really helpful to say, well, what can I do with these places in Africa, in a place I know well? Rather than a lot of these people who did their careers first working on poverty issues in Asia, and then thinking we can now transplant them into Africa.

 

I think, it’s actually, that’s too rare that people who know Africa to start with, and working on other areas. It gives me definitely another lens on as I start the book and saying, coming into China, realize that there’s actually nothing really fundamentally beyond the underlying shared commitment of the elite for development. There’s nothing else that I can take away from China, that I can actually find useful for Africa. That actually take away the policies, or the practices they did in Asia, or I can just take them to Africa and apply them. No, no. That’s not the way to do it. It’s just start with something else.

 

 Kurtis: Yeah. Although I’m going to push back on that, because you did write a great paper with IGC cities about comparing the urbanization in China, and drawing lessons on that for really rapid African urbanization. I love that paper. It was fantastic. I know, it’s not strictly about the book. Because urbanization is such a huge mega trend this century, and it’s something CCI really cares about, could you talk a little bit about your findings from that IGC cities paper?

 

 Stefan: Absolutely. I also want to tell you a little bit about the background of the paper, which was actually one of the most fascinating collaborations I’ve been involved in. This was actually came out of a partnership initially as from the UK when I was chief economist, managed to set that up. Then later on, others, different academics in the UK were involved, with working with the Development Research Center, which sounds innocuous. But actually, it is the think tank of the State Council of the Chinese government. This is the most important thinking place. They will have prepared President Xi’s speeches on international issues to do with development, or trade like he did at Davos at the time. These are the guys doing it. They’re very influential. These would have been the people that were very involved in the original reforms in 1979.

 

Anyway, so we set up a collaboration with them, and what the Chinese wants from there, and so actually, this whole idea of what can the world learn from China? What we thought and there was actually, at that time, small amounts of money from UK government, why don’t we also use it as helping them and taking them on education? Actually, by us also working with them and writing things, very politely and very, not deeply critical, but actually taking them on a journey than saying, the way you think of the rest of the world. It doesn’t look like China, actually. You need to start thinking better about these countries in Africa. They appreciated that. This was not about critiquing one or the other.

 

We got this paper, and the background of it, at some point that they said, “Look, we’re quite happy to do it,” because they were the commissioners. The Development Research Center, they were the commissioners to us on paper. They have told us, we would love to have a paper on urbanization and work on industrialization. We thought as we would do, okay, so we have two teams, one was going to write a paper on industrialization, the other was going to write a paper on urbanization.

 

We end up at a pre-paper writing meeting in Beijing, where we will discuss the concept in it and so on. There is these officials on the think tank, they said, “Look, this is awful,” they said. How don’t you get this, that you want – I have a paper in industrialization, and then you have another – I was going to do on industrialization. Then another group of people was going to do on urbanization, the cities that work people will be the same.

 

They said, “Look, how can you even think that is right to do it like that?” Because urbanization and industrialization are two sides of the same coin. I only sat during this meeting. Actually, let’s be honest, we didn’t know. We thought, this is actually not the way most of the academic literature these days would write about urbanization, or about industrialization. They kept on saying, here in China, that’s always was two sides of the same coin.

 

Arguably, for some of the conversation, we were just having in terms of what’s been happening in when did they industrialized? Where do you set the special economic zones and the whole thing? It was really fascinating. We have this one paper now on the urbanization that talks also about where do you put your special economic zones and so on? Because we would never have written it if they’d haven’t told us.

 

Now, that paper is trying to actually say, okay, what can Africa learn from urbanization in China? At the same time, we want to say, what’s going on at a moment in urbanization in Africa that looks different from how it’s happened in China, which was the will, the path that we want to do as a bit of an education? We can say bits and pieces that we like best. Actually, if you read it carefully, like everything you need to do, because it was published in the end by the Chinese government as a working paper as well, you have to be a bit subtle. We actually wanted to tell them, “Look, you guys, your firms that are funding urbanization, and that are funding special economic zones in Africa, they’re not talking to each other either.”

 

They’re actually getting the special economic zones, easily five times as far from the urban cities. As you have them in China, you have them – place them in a very different way. Same with urbanization, you don’t do it as an integrated urban development plan, but you actually do it, oh, I’ll do the monorail and I’ll have a big contract for the sewers. I don’t care that they don’t work together.

 

We actually wanted to write this paper and say, urbanization, that’s what we’re wanting in Africa is not even – even though you are doing a big part of it, it’s not even happening in any way, in the way you like to tell the world that it is happening. There’s a lot of layers to that paper. I don’t know whether that’s what you liked about it, but that was definitely, for us a really interesting thing. Again, how can we try to influence in the Chinese government bit of their thinking, by actually subtly explaining, by the way, what you do is very different from what you think in Beijing, that you actually are doing in Africa.

 

 Kurtis: Yeah. We could go on and on on this topic,and maybe we’ll come back to it towards the end, but I have some more questions about the book. This is related to what we were just talking about. I want to maybe propose, I guess, a variant of your development bargain framework and just get your reaction to it. This arose both because of my work at CCI, but also, because, I think, throughout the book, Special Economic Zones stood out as policy tools used in the takeoff of several other cases, and including – we just talked about China, but also, Vietnam, Ethiopia, a few others.

 

You also mentioned at one point in the book, concentrating resources, or aid in these pockets of excellence within the state. Is there something to the notion of a clustered bargain, or a clustered development bargain, right? We had Deng Xiaoping, or Kagami, or Zenawi in Ethiopia, or others, they didn’t have all of the elites onboard before launching their reforms. I think, they opted to, in most cases, cluster those elites oriented towards growth in the right positions, or in the right organizations, or in particular places, like the Rwandan development board, or in special economic zones, or this special delivery unit or something like this.

 

Then on top of that, it’s often necessary to cluster and concentrate resources, just because these countries are so severely resource constrained at the beginning and you got to prioritize necessarily. These clustered bargains then I guess, provide a demonstration effect. They show a new way of operating is possible in this delimited space. They demonstrate what works and by doing that, open up the door for larger national or regional level reforms. The cluster bargain, does this jive with your thinking? Or why or why not?

 

 Stefan: No, no. I find it really, really interesting that you use that language. There’s a number of things that we wouldn’t have an argument with. It’s very clear that in the early stages of this progress to growth and development, if you do for example, what Malawi always do is that anything, anyone suggest we will do it, you’re not going to get there. Any project, any outside project, or as a research project, or World Bank or international organization project, they always say yes. You’re not going to go.

 

There is something there also in my experience in Ethiopia, I thought it was always fascinating is that projects that donors were offering to Ethiopia, you often would – they would actually first look at it and saying, “Can you just wait before we do this? I like this, but we want to check whether we want to make it a priority. Because if it’s a priority, we do it with our own money.” The donor’s got all of the marginal projects. I that better. It’s like you’re prioritizing, you do your own stuff, and you really focus on that.

 

There is something about that aspect. I think there’s also a political economy, or politics part of it, why you end up doing something, what you call clustered around a few things in the way that you set it. Find the bit of successes and show that it works. Because as I write in the book, these development bargains moving towards a much more growth-oriented, development-oriented lead bargaining is longer term, and it actually is a gamble. Elites may lose their position, so you need to find places that you actually do it and you can’t rock the boat with everybody. You need to find a few places.

 

Often, they’ll do it in something that no one else is really embedded in, and you’ll find something to do that nobody else is doing, or actually, there’s not too many vested interests that are at stake, and you’ll begin to do it. Also, you need early successes. Early successes, why you need it? Because you need legitimacy for doing it. Because otherwise, there will always be someone who mistrust you, finding a really good excuse to destabilize the elite bargain. You need to be able to play that game, so I can see that you do it in certain things. I do it, class that in the way you see it that it will be always best with a special economic zone or whatever. It’s not quite how Bangladesh did it. I don’t think that’s how Ghana does.

 

You look for something that works for you. Of course, Ethiopia, Rwanda are the two countries that used as a model what Korea or China did, and put their eggs in their basket. I would actually say, in Ethiopia, the special economic zones, by the time actually, unfortunately, the political bargain actually unraveled wasn’t really that successful yet. In fact, a big part of their success have been through infrastructure and agriculture. Even though they all talk about the industrial zones, but actually at that moment, until recently, it was costing largely a lot of money, and got growth through the investment of infrastructure, but it wasn’t really earning that much exports.

 

We know that, I think this year, they may get 4 billion exports. But there was a time that was less than a billion. We talked about in the hundreds of millions for exports. That’s very little for a country like this. Yeah. You will want to see this a bit, I think, in Ethiopia case, as also looking for legitimacy being very clearly going into this other route.

 

I agree with this, that you can’t do it all. You better get a couple of things, especially economic zones have a – if you can pull it off, if you’re in the governance of them can pull it off in the discipline that you can have it – that you know and you can focus your energies, well, it’s obviously one way of doing it. Because you create – lots of people would say both in the bureaucracy and in the economy, you need some pockets of excellence, so you increase the chance of doing it. I’m definitely not going to say, don’t do it, but I’m not convinced that that’s the answer for Kenya, or for Tanzania, in the obvious way.

 

 Stefan: Just moving on, there are a few other views in the institutionalist vein that are related, but distinct from your elite bargain framework. How does your development bargain framework align with, for example, the work in political science on political settlements by scholars like Mushtaq Khan, and how does it differ?

 

 Stefan: Actually, I spent a week in Bangladesh not so long ago, and actually, Mushtaq was there as well. We had endless opportunity to debate. Both of us got and all the time challenged Bangladeshi academics who kept on asking about Lenin and Marx, which was then other kinds of things. In this kind of discussion, I think there is an element of this commonalities of commonalities, of course. I don’t use the terminology of political settlements, probably for two reasons, because I don’t like the word political as the only word and the word settlement. Actually, the terminology worries me a little bit.

 

The political part of it is that it risks understating that the economy is so central to this and not just for rent-seeking behavior, but also the economic, the way you run your economy, manage your economy, and not just about the distribution of rents, but more than that. There’s a bit more economics into it. There’s also a little bit on the settlement, and that’s just on the language, that it makes it sound as if it is settled, okay. There is something a little bit more potentially unstable, or stability that needs to be confirmed on the idea of a bargain, that somehow is that equilibrium going to keep position or not.

 

Where it probably differs a little bit, but then again, the literature and political settlement goes in all kinds of directions in the way, what they consider in it or not. But where it differs a little bit is the emphasis on the numerous sets of paths by which this can be maintained, but also, this clear sense that at any moment in time, there are actually multiple equilibria. There is not just a single equilibrium. The settlement idea has a little bit. I remember at some point examining a PhD thesis on a particular country, and if I said so, the person will be upset.

 

On a particular country, where we have a big argument, and the argument was really, that particular coup was the only political settlement possible at that time and that thing. There’s endless coups that succeed, because of some coincidences, or they just managed to succeed or not, or forces move against them, or they’re just lucky that they succeed and whatever. I mean, that’s not the way we should look at that. There’s at any moment in time, clearly multiple outcomes. We can in most bits of history, there’s a lot of agency that other schools have been obtained. The settlement idea, there’s that single equilibrium, and now it’s stuck and everything will be there.

 

Yeah. No, it’s definitely. Obviously, I should actually say, a lot of research was funded by DFID when I was chief economist, so I knew all the time about where we’re commissioning, discussing it. It was very active if we used inside DFID in a very applied way. I’ll definitely acknowledge that they influenced it.

 

 Kurtis: Another related book is North, Wallis and Weingast, Violence and Social Orders, which is also, I mean, predominantly about elite bargaining. To me, their book was more about sustaining long-run growth, whereas yours very, very much focuses on kickstarting takeoff growth, which are two fundamentally different thing. That’s settled. Let’s turn to Acemoglu and Robinson’s Why Nations Fail, about the centrality of inclusive institutions. How is your argument distinct from theirs?

 

 Stefan: When you read Why Nations Fail, it’s excellent work and the research behind it. Of course, there’s lots of interesting stuff there. The way they treat institutions, and that’s a bit of a way institutions are often discussed in the literature, they are discussed as things that are shaped through history that have this longer term, slow formation. Especially if you read Why Nations Fail, then it sometimes feels a bit like if you didn’t have British history, or a derivative with IE American history, you’re stuffed. That’s it. You have the wrong history.

 

What I find unsatisfactory about is that what is demanded of institutions is an enormous amount of settled rule of law that is perfect to governors, that is in a particular form a political system that takes a particular shape, everything. It’s a bit of as a flavor of Fukuyama kind of, it’s all settled, it’s all sorted. The only advice you then can give to a government, like in Bangladesh is to tell them, “Well, I’m sorry. You should get yourself a better history,” because your institutions are imperfect. I think, my argument is that we can get quite far in growth and development, not necessarily in a society that I would find wonderful, but in growth and development, within all that imperfection.

 

I think Leonard Wantchekon when he gave the Christmas lecture at Yale, he actually have a very simple point. He said, it’s 50% history. The situations we have in particular countries, 50%, history and 50% agency. Actually, I want to emphasize within these historical constraints that every country have, and colonialism, probably the biggest constraint that they have. There is agency. Some countries, maybe 40% only, or 30%. Other countries, 60% or 70%. Actually, to understand the here and now, it’s agency, and it’s about actually empowering the current elite, or telling the current elite, you actually can shape it. You can’t hide behind history, which I get the impression in Why Nations Fail.

 

 Kurtis: Yeah. Part of the reason why our podcast with Leonard went on for – I think we chatted for three and a half hours was because he was reiterating this point over — he’s very animated and passionate about this point that political agents and actors have agency in the present. It’s not all about predetermined history. Which is ironic, because he’s written some of the best economic history papers of mistrust in the slave trade and stuff.

 

Just a slight push back, couldn’t one say – you were saying maybe one of the critiques of the Acemoglu and Robinson thesis is all they need to do is get a better history. Couldn’t one say a similar thing like you’re saying, all one needs to do is to get better elite. That’s not quite as hard as getting a better history. I mean, it’s still pretty difficult, right?

 

 Stefan: Yes. The advantages that you can get yourself somehow actors within the elite, could actually get a better elite. We can’t put time back. I agree with you. This is actually, when I was writing the book, I got actually more puzzles. Actually, and especially more amazed by the fact that actually, quite a lot of countries seem to be shifting in their lead bargain over time.

 

The cynic in me would still say that because they probably knew that they needed legitimacy one way or another, and they needed to adjust and adapt, and that’s maybe – maybe there is a little bit of Fukuyama in me as well, in terms of there is somehow a push of history that actually, you can’t keep in power, unless you find some form of legitimizing behavior on the part of the elite, and actually doing this via growth and development, also, for example, may well be easier than doing this by giving political power to a new way, or abolish inheritance rights that keeps you rich if you have a rich ancestor in the 13th century.

 

There’s maybe ways that you can actually move and actually think I can sustain. Of course, there are these papers. Recently, I forget the authors now, where it was like, democracy by mistake, or by chance. This idea that somehow elites at some point, allow certain things to happen, thinking that it’s a way of containing the current situation, but actually change the course of history. Of course, we see that in Britain, for example, after each of the wealth wars, so we actually get very big changes happening in general suffrage and in the setting of the national health service.

 

Very important changes in the direction of the country after first and now expecting the Second World War. Actually, you’ll get these moments that the elites make these choices in ways that they haven’t really realized how it changes your country. There is something there. It makes me amazed that actually quite a lot of them do it.

 

 Kurtis: That makes sense. I think, I’m partial to your explanation over Acemoglu and Robinson. Because my reading is that it’s the people behind the law and the institutions that give those laws and institutions meaning and life and teeth. I mean, this comes from some experiences, by way of example, we at CCI are in the middle of a review of global special economic zone laws from around the world. I reviewed as part of this, Shenzhen’s SEZ law, expecting this beacon of legal clarity and rationality. It was horrible. The law was vague, lots of aspects remained unclear, many important factors were just completely absent. Shenzhen itself was a huge, huge, astounding country changing success story. What I took from that is that all of that legal code, the so-called letter of the law mattered less than the people animating the law, the spirit of the law, which I think is maybe a key distinction between your book and Why Nations Fail.

 

 Stefan: Which is actually striking, because the way Douglas North originally was describing institutions by talking about the norms and values and that whole thing, somehow on the way, that got a bit lost, because norms and values are only there as a collective action equilibrium amongst people that are living now. You can’t go back to history with your norms and values and those following UK politics. These are these what happened in recent times, where actually, it was all the time about, can we keep up these norms and values in public life and in politics, and how do they get challenged?

 

The law has no meaning, because it’s not totally clear about many of these things. It’s the norms and values of the way you do politics and the way – Yeah, I’m not surprised to what you say. I find that yeah, a bit surprising that that doesn’t come out more in at least the Why Nations Fail. In a more recent book, there was a bit more of that.

 

 Kurtis: Yeah. The Narrow Corridor brings in culture. Yeah.

 

 Stefan: Exactly. There is a little bit more in that. I probably should have acknowledged it. I’ll be honest, I haven’t fully read it by the time it was – I was writing this.

 

 Kurtis: We’ve talked about this a bit, but I wanted to – because it’s important about the factors that make the emergence of a development bargain more likely. We talked about the preconditions, but factors are driving emergence are distinct. One you mentioned is this window of opportunity created when a country is coming out of a conflict, or some other extreme event, like you met Britain in the wars, or the Cultural Revolution in China, the Rwandan genocide. A second is the quest by elites to gain legitimacy, which can usually stem from conflict, or these extreme events.

 

Then a third factor you mentioned is just the foresight that a better, more lucrative elite bargain is possible for elites that opt to pursue growth, especially over the long run. This last one struck me as similar to some points made by Yuen Yuen Ang and a few others. And in her 2016 book on how China escaped poverty is absolutely fantastic. She talked about profit sharing and franchising the Chinese bureaucracy, where the CCP actually connected those bureaucrats who exceeded growth targets with money in their pockets, essentially aligning incentives by basically paying them off.

 

You could say, the pay for performance is a scaled down version of this, or countries like Singapore, simply paying bureaucrats much higher salaries than is typical for the public sector. What’s your stance on this, to get elites to gamble on development in the first place? Should we just pay them off? Does this make the gamble more enticing?

 

 Stefan: Well, this can go in a couple of different ways. There is an issue here about not putting the cart in front of the horse, because in China, if we go back to China, the lying deep commitment of the leadership to make this successful was there. They wanted to just find ways of structuring it, and then the profit-sharing idea is that we take everybody along in this. but I’m actually pretty sure that many of these officials had also an underlying commitment to be quite successful. It’s a bit like, you do the action and there is a payoff for it.

 

I don’t think the way I would think of it is that the entire system was only everybody in the whole system was deeply selfish, and not wanting to have actually that longer term success, and the only thing they were interested in, in their pay pockets. It’s a bit like these contracts pay for performance are usually quite incomplete. You’ll need something to make them complete is probably the argument I want to make.

 

If you then go into Indonesia, I don’t think it would have worked. Clearly, you needed alternative ways to keep the whole elite to still be aligned. Now, actually, there’s maybe an element of it is that if you go to Indonesia in the early 70s, you seem to have this very striking thing of the old elites that didn’t give legitimacy to Suharto when he got power, because they were very much still in favor of Sukarno and they really didn’t like the fact that independence here, or have been kicked away. They were allowed to be still quite corrupt in their handling and the management of state-owned enterprises.

 

Meanwhile, space was created for a new elite to emerge. To actually create something that is productive, so in some sense, the system was set up that there wasn’t a productive path to it as well. To actually getting the incentives to get people to do it from quite legitimate activity when you put it like this. Just paying them off, I’m not entirely sure, and say in Singapore, was a bit of a scary place as well. It was not just, you’re going to be paid an awful lot of money from now.

 

You just think of the contrast. They did that recently in Indonesia. They thought teachers were not performing, because they were not paid enough, and it became one of the election campaign issues. After the election, they got something like, they were promised double, but I think in practice, 30%, 40% increase in the salaries of the teaching salaries. Actually, performance hasn’t changed at all. This is just purely a windfall. We should just be careful of that’s the way you do it.

 

I’m still actually quite convinced, you will need somehow another, a clear, something that drives them. You can’t simply pay them to do it. It needs to be, you drive them either. Maybe it’s the fear of losing power, or the genuine commitment that we’ll need to do something else, or maybe link to that after coming out of conflict, or indeed, a real sense. This is not enough for us. We need to really build this up. I think the building up needs to become before, I think, just pay for performance is just going to happen.

 

I don’t know. I want to think a bit more about it, but I find it a little bit too easy that simply say, as long as we sit in every country paying performance in it, and it has to do with that incomplete contracting. We know that all these forms of payment by results. Why is it in the end, typically only possible in very specific niches, is that most of the articles are not easily measurable, not easily contractable in the end. You need somehow, and I think that’s the underlying model, I think of my book, it’s to do with the objective functions. There’s nothing in the contracting itself that can overcome, that the objective function, if that objective function is totally screwed, there’s no contracting that will change that objective function.

 

 Kurtis: Yeah. I remember listening to Lant Pritchett and Chris Blattman called him the Mark Twain of development people, because he comes up with these great pithy sayings. It’s true here, because he said, you can’t make Pinocchio a real boy by adding more strings, which is this great way of saying like, sure, there’s extrinsic motivation. If you don’t have the intrinsic motivation, nothing’s going to follow.

 

 Stefan: Exactly. I will steal that from now on. It seems to be exactly right. This is what actually I tell all the time also in audiences, like in the DFIDs and so on, and in the aid business as well. There’s no amount of conditionality that will change the objective function of leadership, of leaders in country. Either you have it or you don’t. There’s no amount of conditions, preconditions being by results, whatever results they find is that fundamentally will change them.

 

 Kurtis: Okay. So you write in the book, and I’m going to quote. “High levels and fast growth of GDP per capita have no doubt made broader progress and development more achievable, but in themselves, they are not sufficient. But no societies appear to have achieved sustained reductions in poverty without substantial GDP growth, suggesting GDP growth is necessary.”

 

Against this, I just talked about Lant Pritchett. Against this, Lant Pritchett just published a new paper that basically says, only economic growth is both necessary and sufficient for poverty alleviation at scale. I guess, given the quote, why do you think Lant is incorrect on this point?

 

 Stefan: It’s an interesting thing, because he makes an empirical statement. I’m actually making a principle statement, is that that countries will have done things. There’s no country that will have been able to sustain the longer-term growth, either by actually also doing some of these other things. We know the research that if your inequality gets too high, too extreme, even the IMF has a paper that basically says, then growth will not be high, and so on. There is not there.

 

I think, it’s that use of necessary sufficient. It’s like, there’s a bit of the Lucas critique argument you can make, or Lant’s thing. If we empirically see this, it doesn’t mean that the right policy advisors only pursue growth. I don’t want to now go to DRC and saying, as long as you now extract at a higher rate your natural resources, everything will be fine. That’s probably where I’m alluding to, is to actually saying, “Look, you can’t just – You’ll have to do other things as well.” I think, Lant’s point is, yeah, it’s actually, I would apply the Lucas critique for the fact that he empirically have seen, doesn’t mean that the next country that only pursues growth will indeed achieve his results, because I think all the countries that have pursued it, realized that actually to pursue it, they better kept some other things going as well.

 

I have to keep political economy arguments going, or to get your health education, your workforce over time, and so on. There’s enough functional reasons to do some other policies than just focusing on growth. He goes against actually much more. He used to be really cross. He liked DFID. Anytime we asked him, he would come. Of course, lant is the great entertainer of applied development. If you bring him in, he motivates people, he excites people and makes them interested. The one thing he would every time he came, and he would come easily once or twice a year, talking to all the economists. He would always say, “But you’re totally wrong by prioritizing your money on poverty. That’s wrong. That’s wrong. That’s wrong.” I think, that’s in a way, his mission.

 

He’s right and wrong at the same time. In any case, a country could never do it by where we agree, by just focusing on poverty reduction or something. You’ll need to get that growth going. We’re not that far apart. I would question using Lucas’ critique that his policy advice here is not sensible.

 

 Kurtis: Yeah, and I should clarify too, you in your book, you’re obviously fans of economic growth as probably the key thing that can alleviate poverty at scale. Yeah, you’re closer together than others. I think, this is and back to Lant, he has critiqued other things in development, including this focus on RCTs. This focus on growth is in contrast to many of the you could call them, RCTers, or randomnistas out there. I remember listening to a podcast with for example, Esther Duflo, where she was asked about growth, and she responded that she actually doesn’t think that much about growth, which was just pretty surprising to me coming from one of the world’s foremost development experts.

 

One of the reasons I think this focus on intervening in RCTable programs and interventions is it inspires philanthropy and other funding entities, like a DFID, to maybe in some instance have the blinders on and focus only on those RCT-tested programs. I’m thinking, for example, GiveWell, and some of the other global development side of effective altruism. I don’t know if you’ve read some of the effective altruist readings out there. They focus a ton on RCTable interventions in health, but I think too little on accelerating economic growth. I know you’ve done RCTs in the past, but you also pretty resoundingly favor increased growth. How do you recommend funders proceed with this trade off on which to prioritize?

 

 Stefan: Yeah. So pretty schizophrenic, isn’t it? Because most of my ongoing research has nothing to do with growth, really. It’s largely to do with doing RCTs. There’s a lot in the things that you said. It’s actually helpful to understand why for funders, so RCTs proved very attractive. There was something. I come out of a tradition of doing empirical work before we really started thinking about identification and causality and so on. They did a quite a remarkable job and the Nobel Prize winners are . Also, that was very important.

 

Actually, we should raise the bar as a research tool in terms of saying, does A lead to B to C? It’s an important endeavor. The science often makes progress by answering small questions really precisely. That’s in the sense that you’re doing.

 

The jump to policy is the one that I found much harder to take. With all due respect to Esther and others on it, is that I saw the political economy that playing inside agencies. It’s a very, very interesting thing, because there’s nothing better to go and tell to your politician, to say, “Look, I found something where I have really high-quality evidence that it works.” You’re not taking any risk with all that strange money that you’re sending to Tanzania, or to Uganda, or let alone to the DRC, places you only are scared of, you have no idea and in Parliament, you get attacked by. So no. We’re going to only spend money on things that work.

 

There’s nothing easier to tell a politician that kind of giving, that confidence and arguably, Angus Deaton and so on. At times, I would say and gives you false confidence, because to do that at scale, and again, they don’t travel that well that easily. You have evidence about something that may well be feasible, then you make the point is that it will be feasible in every setting you do it is the heart on the sign of liberty and the consolation. There is that stuff. I can see that strangely on philanthropy, despite the fact that they should be the big risk takers with their money, because they don’t need it anymore. They’re only accountable to themselves, really.

 

They turn out to be even more risk averse than your traditional donors in practice. Very strangely, they usually have made their money not based on any scientific evidence that their investments would ever work. Now, they actually are the most risk averse, because they need to have full evidence on what it is. There is that kind of unfortunate thing. I wish we should recognize that big progress will come from taking some risks, okay. Someone should be willing to de-risk progress in some of these countries, okay. Maybe in the end, it needs to be the multilateral institutions, or whatever, and to doing it.

 

I understand the difference. I talk to them. I provide them with information and this organization, so I can recognize it. We may be able to do a small intervention and say, “Look, doing this now at scale in that country that we tested it. Yeah, actually, why not?” Of course, it’s not transformational. This is probably where, again, the difference between, and I’ve been trying to think about finding ways of articulating it is that, when you read, even in poor economics introduction, they have this line there where they say, “We can do a lot of good things in places with bad institutions, just as we could do a lot of bad things in places with good institutions,” is the quote.

 

We can do a lot of good, but good is not necessarily transformational. Growth is what will transform, if we could get that. I’m also very cautious about what outsiders can do. I don’t have an easy advice to say, as an outsider, as a philanthropist, you’re going to be able to get growth. I really don’t think philanthropy, or the big international agencies in themselves can do it, for the reasons again, it has to be coming in the first instance from countries that you really want to do it.

 

I’m quite happy for A to do good things. If we then go and spend on girls education, I rather have it spent on things that we have a bit of confidence that may well actually get children to learn, than things that we actually have evidence that it doesn’t get children to learn. There is a role of that stuff, but call it doing good. GiveWell is GiveWell for good. This is a bit of the problem is altruism. It’s great, but it’s about, I want to do good things. It’s good. Of course, in every girl that you teach something, it’s great to every child that you have the want. It’s praise and then so good. But it’s not the transformation that you want to have. It’s probably what I want to talk about.

 

I want us not to give up on the whole idea that what we try to do in development is to transform societies, that they start growing, having large scale poverty reduction and so on. It doesn’t mean that I say, you’re not allowed as an NGO, or as a small organization to do some good things. It’s fine. I wish we don’t forget that the big game is the former and not the latter.

 

 Kurtis: Yeah. Even in effective altruism, there are parts of the EA movement that are supposedly more taller – higher risk institutions that are willing to back supposedly higher risk interventions. Still, the focus, at least in the global development and health arm of this movement is more on these one-off health interventions that as you said, do good, but it’s more of a level effect, rather than a growth effect. I think that might be changing. I’ve heard tell that I think sometime this year, they might be really thinking about switching to one of the cause areas being economic growth in the global south. That would be fantastic.

 

 Stefan: It would be really interesting. It’s interesting, where we would put that. It’s also maybe some of the things I learned from the book and also beyond. I actually also have heard it, and I’ve had several of the effective altruism people are in Oxford, as you know. There is an old link here to this. Indeed, I’ve had conversations with them as well, not that they necessarily should listen to me.

 

What becomes interesting is then, you ask yourself, so where is it that the outsider can do the big change? It’s interesting. For example, I begin to think of wow, if you could get the global altruism people to actually start thinking into spaces where they could have influence, and give an example, illicit finance, a very unlikely topic. But actually, quite an important one, not simply because there’s no money. The money is flowing out of these countries and should have been taxed. Actually, it’s a big source of a lot of odious political finance.

 

Say, look, if it’s to do with these things, well why don’t you find maybe the rate of return to actually changing something to both book firms, both box firms in Delaware, or this is financing from London, actually could be fantastically bigger than actually some of the small do good things. Yeah, it would be interesting. It will be interesting to ask yourself, where would be the ones that you actually could do growth? Because, of course, that’s the other path. As outsiders, we don’t have that much good evidence that actually we can influence it.

 

Beyond maybe, I’m coming back to Lant. I always loved his paper. It was always slightly made up, I think. But it was a really fun paper. Because he basically would argue that the best development aid ever given was the support to think tanks that were interested in trade liberalization in India in the 1980s. That’s a rate of return to data investment massively outweighs any other spending we’ve ever done in India. There is something to that that thinking that in the end influence people in Congress first in India, or Congress Party in India, so Manmohan Singh and others, and then later on, all the parties.

 

Yeah, it did make a huge difference for development in India. I liked this idea that there are bits and pieces, maybe that in expected value, have a similar rate of return in economic policymaking, then spending on R&D, on Golden Rice, type of things, which is, for every Golden Rice that was produced, there is endless failures in R&D and agriculture. Just like this in economic policymaking, there’s endless failures in influencing the thinking of policymakers. Maybe it’s what we should be doing. I would love to see what they would come up with, because something in expected value may well, actually be some more surprising things to focus on.

 

 Kurtis: This is interesting. Let’s dwell here for a bit. I mean, you’re one of the global experts. You just wrote this book on growth, or at least how to accelerate growth, or make it more likely that it accelerates. You’re given a boatload of money from the EAs to look at what kind of growth interventions you want to spend that money on. Let’s brainstorm here, what are the top maybe three things that you would recommend that money be spent on?

 

 Stefan: It’s an interesting thing, because you’re expecting me to say what, and I will want to spend it on the how and the groups that will make it happen. It’s actually more in the following sense, is that probably the most important, the most useful thing that we spent money on in the 1990s in Africa was probably the support we gave our central banks to build up their capacity, which is very strange. I’m not usually a big fan of capacity building.

 

That one was central, because we suddenly got a whole bunch of technocrats in central banking in Africa, that actually were very influential also in the countries that were quite successful to actually start doing sensible macroeconomic policy, okay. It’s that example. I would say, okay, where would I spend it? I will probably look country by country, and it’s probably actually the same advice I’ll still give to DFID, or actually will these days, is to actually say, okay, where are the people within influential roles, that if I were to find a way of strengthening their position, I get the chance of making fewer errors in economic policy and basically, not doing stupid things, and actually starting doing some better things?

 

I would look at the people, the people that’s inside or outside that could actually be influential. I would look at maybe the units inside and outside, that actually would put the resources on, in the spirit of agricultural research centers that do apply to search to invent a crop that works for drought resistant places. I would basically have, who would be the ones that I could get back, including get some diaspora, be back and set up shop in their places, but helping them.

 

Then I would probably look for – and that’s where I’m less precise. Those things that need to be de-risk. Some kind of attempt. You would say, maybe a special economic zone, let’s actually help to de-risk, that we’ll get some of these things that are successful, or some serious work on anti-corruption. Let’s find a way of de-risking that, because that we actually –

 

 Kurtis: Creating a space for de-risked movement.

 

 Stefan: Exactly, a bit of that. Exactly, exactly. It could be certain investments, actually firms. It could be certain people that are clearly doing a bit of gamble with their own process. I was the other day talking to the Deputy Finance Minister of Uzbekistan, and we agreed that where he should focus on is something, and maybe get some support for is things that could help the president get legitimacy for the reforms that we’re doing. You could have spent some money on some low-hanging fruits that there is something that they can say, “Look, we actually are making progress here, while we’re doing some tough things.”

 

You have in mind, how do I can get these things to think to move in these places? It’s not the what exactly, but there is something there very context specific, where I can do it? I’ll give you an example, given I was today spending a bit of time trying to think about it. I hope, I won’t say something really stupid. Of course, while we’re recording this, Sri Lanka is unraveling. The president, prime minister are going to resign in the coming days.

 

I was reading a bit about what did they do. One thing they did recently is a very crazy bit of agriculture policymaking. Two years ago, they banned all the imports of chemical fertilizers. Basically, they managed to get – all the way going to do it and they have an advisor from India and let me not name the name, but she’s influential and an anti-globalist, and so on and, and has written pieces on saying, the problem with Sri Lanka was debt and chemicals was one of the pieces that she’d written. Basically, encouraged to stop overnight to go for organic farming.

 

Of course, agricultural output and estimates vary, but up to 50% was lost. Meanwhile, the tea exports have greatly suffered, because it is apparently a multiple, more expensive to try to do organically tea when you’ve never done it. It takes a lot of time. Basically, this is what I would do in every country, sensible investment in people that actually can go against stupid advice. I’m not trying to promote  consensus. I’m very happy to get more organic farming in places and natural capital. But basically, invest in places, so that actually, you can debunk the worst possible bits of advice that you actually keep in sensible. These are the things that you want to do. You probably need quite a big team to do this, because it becomes context specific. That’s what I would do and this is where we can probably help these countries to make progress.

 

 Kurtis: Again, we could talk about this all day, but a few things I wanted to touch more upon with the book. The East Asian tigers, China, Rwanda, Ethiopia, they’re all either autocratic today, or were autocratic during their takeoff. You do write that, I think, while there’s some evidence that democracy helps for longer run growth, it’s not clear whether it’s an important ingredient to spur take off.

 

Do you worry then with your development bargain framework that as the authoritarian regimes in, say, China, or Rwanda, or others continue to deliver growth, that this could only serve to consolidate authoritarianism, and that this gives maybe these regimes more resources to perpetuate autocratic rule and limit freedoms?

 

 Stefan: I worry all the time. I worry all the time about things like that. I think, I wanted to make the statement at takeoff. I don’t think the evidence tells us that one is really better than the other one. When we say for the long run, these Acemoglu, Robinson paper in German economy and places like that. There is Nic Cheeseman work on from political science side and so on and would argue that. I can see all the arguments why you would want to have it, but I don’t think, and there is work invested in courses, that actually in terms of the mean of economic performance amongst poor countries. One is not superior to the other one.

 

Autocracies have – tend to have a much higher variance in performance. You have some really good ones, and you probably get the China’s and so on in the world on the good ones, in terms of economic performance. Of course, it also means there’s a tail on the other end, and it can go really badly. There is an argument for external forms of accountability via democracy, or open press, or whatever it is, because it at least will stop the excesses. That’s an old argument that even Amartya Sen makes in the 1980s already on famines.

 

I do worry that it can be used. The language, no, it was an interesting thing, I was in Bangladesh, where we have such a moment, where initially during the 1980s and ’90s, there were clearly two parties that balanced each other out and kept some political balance. It was never a functioning democracy, really in a deep sense, but it was functioning enough. Then it was lots of sensible policymaking going on as part of that thing.

 

Now, people say, it’s gone quite a bit more authoritarian. Even though I was reminded the other day, the international community and the NGOs that appealed for much tabled government 15 years ago, now they have it. Now they all complained, because there was, of course, a lot of instability in the politics as well. There is that sense. The language I would use is that, if you then have not a very self-aware governments internally, and autocracies will find out a bit harder, the China model is a tricky one to refer. I’m not entirely convinced Kagami has it. But there is enough internal accountability that including knowing when something went right, or something went wrong.

 

You may need these external processes again, and you’ll have it. Development bargains don’t last forever. Bangladesh is very much in a phase where they need to renew it. This is works very well. If more than 90% of your export is readymade garments, and you fail to diversify, that growth is not going to keep on going forever. If you come to more complex policy issues like urbanization and so on, you’ll need to have a better functioning government and you need all kinds of things. You need to renew that elite bargain and new things need to come.

 

Autocracies are not very good at that renewal either, because they were called to position. It may help to actually explain why it may be peter out at some point. One of the things I want to do is, and lots of people have asked me that, how does this what I’m saying relate to middle income trap? I think, it relates to it, but it would be quite interesting to look at it in terms of when your system becomes more complex, will you need maybe, unless you have this amazing, exceptional Chinese state, historical state, maybe you do need that internal and external forms of accountability to keep it going.

 

I would find it quite interesting to read a bit more to be honest. I don’t touch on Latin America at all, because I don’t know that much. One of the things I want to do is tweak a little bit more and see, is there something there that actually is helpful to think about?

 

 Kurtis: Yeah. I brought this up, because this is often a critique raised about charter cities and new city developments, because these new city developments, they tend to be pretty overwhelmingly and autocratic, or at least semi-autocratic regimes. My belief and let me know what you think, that the status quo in many low, or lower middle-income countries, especially across Africa is that government is often the only game in town.

 

Stagnation doesn’t change this. Once growth takes off, this growth empowers other non-state actors in a country. A nascent middle-class can emerge, or a merchant or business class. These new emerging actors as growth continues can increasingly make demands and often do increasingly make demands and concessions from the regime, or the elite bargain can open up and include them over time. Again, it’s a thing that can happen. Sometimes it does, sometimes it doesn’t. Barrington Moore had the thing, no democracy without the bourgeoisie thesis. I’d be curious to hear your thoughts on that.

 

 Stefan: It’s, again, the causality is here. You already qualified it saying, it’s sometimes may or may not happen. Unfortunately, so this is a bit where I’m thinking is this renewal processes need to be there, even an autocracy will have to renew whatever its own internal elite bargain is. Think of it in China, it’s an interesting phase, where as seen from the Communist Party, elite bargain is more restrictive, more power is now listed in President Xi than it was. There is something there is say, that everybody will look what will happen in the autumn, whether or not a successor will be shown as one of the new of the seven people in the central committee if we don’t get the number right.

 

They’re thinking, is a likely success show in there or not, and that will be quite important. Because for observers on China, that’s a sign that these elite bargain can still renew and change. I’m thinking of North Africa. Tunisia, you have amazing stuff happening during autocracy. Yes, a very much a corrupt regime and so on. But they were actually growing and there was actually, call it a middle-class that was growing, and then a new commercial class merging and with tourism and whatever. It ran out of steam, and they didn’t manage to renew it. It all got very stuck. We feel like, there are a lot of commitment of different players, actually do want to make something and so fragmented that they can’t get an elite bargain together again.

 

It is this hard thing is that I see it more in terms of, you need to find a way that works in your country. Now I don’t know what the empirics will tell me about. Can you do this? This is where I’m probably more sympathetic to Acemoglu-Robinson type of point is to saying, when the state gets more complex, it becomes harder and harder to innovate in general, and that includes to innovate in your elite bargain and to actually let you do this.

 

We’ve seen Indonesia, by no means a perfect democracy. But over time, so half the regime come close to ’97 and of course on post, democracy had to keep it together, because otherwise, these elite bargain wasn’t going to be kept together, either. You needed other things. there is something there, but I think it’s probably – my terminology would be, you need to keep on finding ways of renewing that learning process. That probably links to the internal and external accountability mechanisms. Either you in your own system, if you can. With Kagami, what will happen when he goes? Could you actually renew that? Then the external one probably needs to play a role, because very few states are like East Asian states, historically.

 

 Kurtis: I guess, related to this topic of whether the type of political regime is important. You could argue, you’re focused on elites and bureaucrats and technocrats favors a technocracy, at least at the beginning of takeoff. I’m pretty partial to technocratic governance at the beginning stages of growth. One potential downside I see is that the core group of highly trained technocrats in a low-income country at the early stages of its growth takeoff is going to be very small.

 

Unless significant time and resources are put into training up more highly educated technocrats, this core group will only be able to help resolve so many problems and bottlenecks for foreign firms, for example. I guess, is what I’m saying is that there’s a scalability problem with technocracy in low-income places. Would you agree, disagree? Is there an example that pops to mind on this?

 

 Stefan: I find it an interesting point you make. It’s not necessarily quite what I make, because actually, look, I was a chief technocrat in a government department in the UK. I will say, we are essential in the running of the UK. Actually, to be honest, I think it is crucial and having been a civil servant, a public servant for 10 years, and sitting there in a technocratic position, there is a real key role they have to play, even in much more complex systems. Think of our regulatory authorities and so on. We’ll get to get more and more of them.

 

Actually, my view is that you probably need some good technocrats at any stage of development. I’m not going to make it link now. I think, the autocratic point probably has more to do with the complexity of the economy that you need to handle. It’s probably more to do with that, that why it may run out of steam, why it might may more easily captured and why you get in an autocratic system for a decision-making all the time without some checks and balances, because it gets more complex.

 

Let me think back on Ethiopia. I find that actually, found quite interesting over the time that I work there. Since the early 1990s until now, so it’s 30 years. When they got into there much more determined phase off more state-led, or directed to government, or government state-led growth. As around 2005, I’ve worked with them already for a while. Initially, they clearly haven’t quite found that technocratic balance. Actually, they gave them very easily to the IMF and World Bank in the mid-1990s. Actually, they will say, they took really bad advice on some liberalization and tend to agree with them, that it was all a bit big bank stuff of liberalization, agricultural markets. That was actually a bit tricky there.

 

Anyway, they slowly decided to do this. Come 2005, up to about 2020, you had easily something like 7% growth on average per year. Now 7% of growth means that you double the size of your economy in 10 years. This is one and a half times bigger economy that they were dealing with by the end. You could see that after 2015, the economy was getting more and more complex. They were actually really struggling with that kind of tinkering, their approach to policymaking, where all well, we’ll try, then if it doesn’t work, we’ll try something else. It was actually, it became too complex.

 

There is something there that I’m also not surprised, that their state-led run development model with actually still quite a weak state, they have run out of steam, and so they have to do it. Now, the political liberalization that happened in 2018, well, even though everybody likes to look very negatively at Abiy. Ultimately, he liberalized politics in a dramatic way, and opened up a lot and opened up a lot of cans of worms.

 

At the same time, the technocratic leadership was beginning to understand, we actually should liberalize as well here, because we’re not going to be able to do this. They were quite independent processes, in some sense. They could have liberalized with the autocracy. There is something to do with the technocrats. You run out of technocrats to make it acceptable in exceptional spaces. I think, you’re probably right, is that that is somehow then.

 

But make this political as well, that you’re going to get the political liberalization necessarily to follow. Actually, some would argue that Abiy, if he hadn’t liberalized politically, there would have been not been a war. He would have been able to keep it. In fact, there was an argument for economic liberalization with a bit more autocracy still, in his case, if you want to take the point of view, I think was important he tried, but he did it in a wrong way.

 

I’m very conscious that I’m not particularly precise, or in answering your question, but it was a train of thought of technocrats, you’ll need them. You may and with an agreement that you can’t assume that a number of technocrats is able to do it, if you fast grow, or that you won’t run out of steam, and that you may have to do find another way of remaining a self-aware state.

 

 Kurtis: I mean, it comes back to the gamble part of the title, right? It’s a gamble. You roll the dice and you got to be on your feet. I guess, do what Deng Xiaoping said and cross the river by feeling the stones and adapt and change over time. Because you mentioned the last bit of your time as a policy advisor at DFID, I guess now the FCDO, was quite traumatic, I think was the word you used. Now you’re out of it. Is there anything you would LIKE to say now that you are free to say it, about that experience and the traumatic nature of it, especially at the end?

 

 Stefan: I mean, yes, there’s lots of things that I would like to say. Many of things nobody will not necessarily listen to. My concern in the period was, is that in this 10 years of working, and I’ve worked all the time with what are conservative governments in UK, so center, right governments and whatever. I’m not even British born, don’t have a party card that’s never asked for one and so on. There is an underlying respect for advice, and for technical advice, and for what you’re actually doing.

 

In these recent times of the – over the last prime minister, I was actually getting quite terrified how ideology became more important than quality advice. That’s to do both in the civil service, where people were second guessing your advice, what they wanted to hear, and then taking stronger, not very evidence-based point of views. For me, the trauma is actually to do with some of the big decisions, especially more recent times, are not terribly – we’re losing that bit of actually being a civil service that can be impartial, that can give evidence that is evidence-based.

 

I said to the foreign secretary of some point, the old cliches that advisors advice and ministers decide, which is often say that in the UK, and that’s actually the role. We are meant to be an independent civil service. That’s I worry about it. Then, of course, it was dramatic in the sense, my job. I agree to join. I was asked by the foreign secretary and I grabbed. They treated me really perfectly correctly. Not necessarily a big vision man, a very much a small question guy and not necessarily having a big vision on the government. He was, at some point part of the government have merged DFID, a very high-quality organization, I think, into the Foreign Office.

 

Politically, I can understand it. They have the right to do it. They’re elected politicians. I am not. I agreed to come in as an advisor. Of course, within days or weeks me being there, they take 5 billion pounds, so $7 billion of the budget, or 30% of the budget. I spent my year. That’s another part of trauma is basically, I’ve been spending my year the first year cutting people’s budgets. All this thing about what is the better way of spending or not, we do not have the information. I basically made decisions on tens of millions of pounds taken away from one country from another thing, from programs and projects. You couldn’t do this deeply evidence base.

 

I don’t want a job again, where I need to cut worthwhile public spending by 7 billion per year. That’s the trauma that I also have. I wish they take more advice and actually, value technocratic advice. On the other hand, I don’t want the job again, where I come into it, and I basically make decisions on shall I cut on the nutrition program in Yemen, versus shall I take away from an education program in Ethiopia? I mean, there’s people there, and it’s not about the implementers, but actually, lives are affected. There, I think, lives are lost by decisions you have to take without good information.

 

 Kurtis: We’ve talked a lot about the book. Last question is, what are you working on now that the book’s finished? When can we expect to see it?

 

 Stefan: The book actually got published very quickly, in the sense that I only really finished it in September. It came out very quickly. That was, of course, still until two months ago, I was working as an advisor in the government still. The first thing I’ve been doing is actually, resting a bit. It was a very traumatic time to work in government, and two last foreign secretaries and this whole government imploded. It was very intense.

 

I’m actually almost traumatized by the experience, because it was so dysfunctional in the last couple of years in politics here. My plan is now, I have a sabbatical coming up. I’ve decided, with my wife who just going to, rather than being a visitor at Yale, or whatever, or somewhere hanging out in Boston, sabbatical, we’re going to spend time in at least five, six countries I don’t know well yet.

 

There’s a lot of actually, material that I have, actually for the book on some different countries. I’m wondering about it. I may be interested in this middle-income trap stuff. I may be interested in saying, “Look, should I take a couple of these kinds of countries that are a bit further and actually see what’s going on?” I am trying to think a bit about it. Because to be honest, I’m a bit surprised. Also, of course, I’m pleased how well the book was received. Because a lot of the work was actually internal DFID notes, back to the office reports, if I wrote all the chapters on countries that the first draft was essentially something I wrote simply for internal use. Maybe less with the anecdotes, although some of them are there, too, in what I used to write.

 

I just find interesting. I’ve got another 30 of these back to the office reports that I never did anything with it. I’m just thinking what I want to do. Then, of course, there’s academic papers that I’m still working on. I’m still working in Ethiopia and Kenya, in other places, including actually RCTs that we were trying to finish. There is something about, that I real have an appetite on his big picture stuff. I didn’t realize that I had a relatively unique perspective, simply because I was so much insight that working in government, and not many seem to have done this thus far. I should do a bit more of that.

 

More writing to come on Myanmar, on Senegal, on Mauritius, on Tanzania, and so on, probably in coming months. That’s probably what I will end up doing and. How I’ll bring it out, or just a book, or just single postings, I’ll see what I do.

 

 Kurtis: Well, if it counts for anything, my vote is transforming what can Africa learn from China’s urbanization story. I just see paper into a book, because I found it fascinating and selfishly, it relates to my interest. That’s my vote, if it counts for anything.

 

 Stefan: No, this is interesting, because actually, we still have quite a lot of work on China and Africa ongoing. Also, made some good connections with the UN. We’re talking a little bit not necessarily to work together, but just having a broader group of scholars that actually know China well. There is actually lots of interesting work. The work got a bit stalled, because of this real global – changing global geopolitical relationship. Of course, we can’t travel now. For me, it’s the I used to travel twice a year to China in the last 10 years. It’s not been happening. I would love to pick it up and geopolitics, it is what it is and behaviors are as they are. There is something about we shouldn’t forget to – China will be there in all these countries, and better understand both what’s been happening in China, in development and what it means and what it doesn’t mean for developing countries.

 

Now, I find it actually still the thing that excites me more so. I’ll take this advice, actually. Let’s, let’s think a bit about doing a bit more on that. Because, again, because I had such an inside track, sitting days and days on end with these very high-level advisors to the Chinese government and being – we were very open and fascinating to understand how they think and find ways of translating that. There’s still something worthwhile, or worthwhile to do. Yes, maybe. I’ll do that, something like that. Lots of things to do.

 

 Kurtis: Well, Stefan Dercon, that’s it for the podcast. Thanks so much for coming on. This has been fantastic. I appreciate it.

 

 Stefan: Well, thank you so much, Kurtis. This is a great podcast, and I’m just very glad to be on it. Thank you.

 

 Kurtis: Thanks so much for listening. We love engaging with our listeners, so please always feel free to reach out. Contact information is listed in the show notes. To find out more about the work of the Charter Cities Institute, please follow us on social media, or visit chartercitiesinstitute.org.

 

Links Mentioned in Today’s Episode:

 

Stefan Dercon

Gambling on Development

Stefan Dercon on Twitter

University of Oxford

Department for International Development

Justine Greening

Rory Stewart

Paul Collier

Warren Buffett

Mushtaq Khan

Why Nations Fail

Leonard Wantchekon

Violence and Social Orders

Francis Fukuyama

The Narrow Corridor

Yuen Yuen Ang

Lant Pritchett

Chris Blattman

Esther Duflo

Angus Deaton

Nic Cheeseman

Amartya Sen

Barrington Moore

Deng Xiaoping

Charter Cities Institute

Charter Cities Institute on Facebook

Charter Cities Institute on Twitter

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