Key Points From This Episode:
- Why overemphasis on low-bar goals leads to ineffective randomized control trials in development
- How bright minds in development economics are missing the mark
- Policymakers in developing countries lack effective prioritization, not ideas, for fostering economic growth
- Tony Blair’s approach focuses on achievable priorities but could benefit from rigorous initial diagnostics for high-impact actions
- Developing countries grow fast but collapse easily due to fragile “deals-based” governance, unlike OECD’s robust rule-based systems
- Prioritizing the prevention of growth decelerations; reforms can help but need better diagnostics
- Shifting focus from economic growth blamed on the end of the Cold War and structural adjustment failures
- Weighing charter cities: positives include a focus on urbanization and productivity; challenges involve credibility and feasibility of implementing change
- Emphasizing the need for experimentation and policy diversity
- How migration from low to high TFP countries can yield 40x greater income gains than anti-poverty programs
- Labor mobility increasingly viable due to demographic shifts and political change
- Urbanization requires new approaches to ensure inclusive, opportunity-driven growth in cities
“If you think prosperity starts at $12 a day or $15 a day or $20 a day, then addressing poverty clearly is broad-based. Increases in productivity of the typical individual are the only conceivable solution, and individual nudges and tweaks and programmatic efforts are seen immediately and obviously as trivial.’” — @LantPritchett [0:04:50]
“And so what most policymakers lack is an effective prioritization device from the list of things that we don’t have to fight a ton about, would this or that be good for growth? What needs to be more rigorously debated with better evidentiary and analytical processes is what should this country do now that would be most likely to shift it onto a substantially better growth episode than it’s in today?” — @LantPritchett [0:017:09]
“Most reform episodes don’t lead to growth episodes, but nearly all growth episodes are preceded by reform episodes.” — @LantPritchett [0:31:30]
“And urbanization or something that achieves the density of the available inputs into a recipe of producing complex projects is a key part of the development process of structural transformation to more sophisticated and more complex production.” — @LantPritchett [0:45:22]
“So I worry that talk about institutions needs several objectival modifiers in front of it before it even starts to get the realm to where we can really have a useful empirical and analytical discussion about it.” — @LantPritchett [1:02:05]
Links Mentioned in Today’s Episode:
Kurtis Lockhart: Today on the podcast, we have Lant Pritchett. Lant is a development economist. He’s worked at the World Bank and later taught at the Harvard Kennedy School from 2000 to 2019. Lant then became the Research Director of the Rise Program at Oxford’s Bulvatic School of Government, and Lant said during the pre-recording of this podcast that he’s tried to retire three times but is now a visiting professor at the London School of Economics and the co-founder and Research director of Labor Mobility Partnerships. Lance published over 100 works with a focus on economic growth, state capability, education, labor mobility, among many others. And Chris Blackman has called him the Mark Twain of international development, full of folksy humor, clever quips and simple stories with deep meaning. And I’m happy to say, for our conversation, there’s plenty of all of these.
Kurtis Lockhart: Lance Pritchett, warm welcome to the podcast.
Lant Pritchett: Thanks for having me.
Kurtis Lockhart: I wanted to just start with a more fundamental question. You’re well known for your less-than-favorable views of randomized control trials, RCTs impact evaluations in Development economics, and your piece that drove this home for me was your smell test write-up. You listed the 20 most common types of impact evaluations and basically zero, right? None of them, the 20 most common RCT interventions, passed the Pritchett smell test. And so you ended this write-up with a pretty haunting question. You basically asked, why has much of the best and brightest talent of a generation of development economists been devoted to producing these rigorous evaluations about these 20 topics that didn’t pass your smell test? So you wrote that piece in 2014, now almost ten years ago. So I’m going to ask you, has your own answer to this question gotten more or less depressing over the last decade?
Lant Pritchett: I think my own answer to that question has gotten clearer, and whether it’s depressing or not, maybe it depends a little bit on your view. So let me say what I mean by that. I think the big mistake in development happened in 1990. In 1990, the World Bank wrote its flagship report, the World Development Report on poverty. And in so doing, they needed to come up with a number. If you’re going to write a report on poverty, you need to say, how many poor are there in the world? And they chose the number that now is very popular and widely used and referred to in Wikipedia as the poverty line, a poverty line of a dollar a day. Now, at the time, I was a much younger man. In 1990, I went to the head of the report and said, this is an insane poverty line. It’s just way too low. Development is not about attacking poverty at this unbelievably penurious, destitution poverty line. It’s about making people better off generally. And we need a higher poverty line. If you go with this lower poverty line, you’re going to essentially undermine everything that development is doing. Because people will say, oh, but little of this benefits the poor at this particular very low bar, very penurious poverty line. So, I think RCTs are the symptom. The adoption of a dollar-a-day poverty line is the disease. Only in a world in which the development community had sort of latched on to dollar a day as being, if not the at least one of the major relevant metrics for assessing development progress, could one even imagine that individual targeted interventions were an important part of development. So if you think someone is kind of not prosperous, and we’ll call make prosperous and being in poverty antonyms for now, if you think prosperity starts at $12 a day or $15 a day or $20 a day, then addressing poverty clearly is broad-based. Increases in productivity of the typical individual are the only conceivable solution, and individual nudges and tweaks and programmatic efforts are seen immediately and obviously as trivial. So my answer to why development economists have been doing this is that the milieu of development changed such that there was increasing focus on very low bar, very penurious levels of well-being, both with respect to money metric measures like poverty, as well as things like education and health. So if you look at the MDGs, which in 2000 were enshrined as these global goals that supposedly 190 national global heads of state had signed on to, they were all unbelievably, stupidly low and weren’t at all what even the heads of state who signed onto these really meant as development for their country. The head of India didn’t sign on to the thinking, yeah, yeah, if India could just reach these eight little very low targets, we’d be okay. And that would be enough for India. The Indian leadership has always had a vision of India as a fully equal partner on the global sphere. So, I think the disease is low bar goals. The symptom, therefore, is programmatic attempts to reach those low-bar goals. The second symptom is if you think you’re addressing development through programmatic things because development is defined as low-bar goals, then evidence about programs can conceivably be seen as important. But you can see this is a long causal chain.
Kurtis Lockhart: So, following up on this question called misplaced priorities, your conclusion is that a lot of the most talented minds in development economics are basically misallocated to pretty trivial problems. I was rereading a lot of your stuff, and when I read this paper, it struck me as really quite similar to a quote by, of all people, Peter Thiel. Like it or dislike it, he famously said something like the best minds of my generation are thinking about how to make people click ads. And he said that sucks. To alter this situation, Thiel then created the Thiel Fellowship to fund really smart, talented young people to pursue bolder, more transformational ideas. Put it to you. Let’s say some billionaire funds the Lant Fellowship. You get to select the best and brightest development economists working on transformational ideas. What ideas do you, lant Pritchett, choose and why?
Lant Pritchett: I start with three things that I’m actively working on because if you ask what I think is a priority, it should reflect my time use. One thing that I would have brilliant young minds working on is how you create and sustain economic growth at rapid levels in poor countries. I think we need one of the subsidiary effects that got the best and brightest minds working on narrow RCTs was the perception that there was nothing you could do or nothing useful could be thought or researched about how to promote economic growth. Growing out of the failure of structural adjustment. Recommendations of the 80s and 90s to really accelerate growth in the way that people hoped and were promised. So, I think we need a post-structural adjustment approach to economic growth. I think we’re close to that in the sense that I think growth diagnostics is a viable way forward that hasn’t been pursued with enough rigor and evidence and effort. I think we have a dozen or two dozen people in the world working on making growth diagnostics better, more empirically informed, more sophisticated analysis. It’s not like to follow up on Peter Thiel. It’s not like nobody’s working on flying cars. It’s just a few people are working on flying cars versus figuring out how to make people click ads. Right? So I think an effort around how do you get countries out of their current moderate to low to stagnant growth paths into higher growth paths? And moreover, how do you sustain countries in higher growth paths? People assume once they’re growing rapidly that that’s going to persist, and that often just evaporates overnight, as we’re seeing potentially in China. That would be one thing. I would have a set of fellows, and I think what we would need for those fellows is this is a metaphor that my friend and ex-colleague Ricardo Hausman uses all the time. Partly, what we need is more teaching hospitals. If you really want to influence practice, you need research applied to situations and situations applied to research. The RCT crowd has it wrong about medicine. Medicine isn’t vastly more effective today exclusively because of RCTs. It’s vastly better today because of the rise of the medical profession. The rise of a medical profession with rigorous training that involves science but also involves practice and the rise of the teaching hospital. And we don’t have anything like that in economics now. We don’t have a teaching hospital for helping countries promote economic growth. So that’s the first thing. Second thing is one of the reasons countries are stuck in kind of a low growth loop is this dynamic of low state capability. In part because no one’s really interested in much higher state capability, in part because many countries are stuck in what I call a closed order deal system in which a few favored individuals and groups and investors actually have a very nice, high profit, high reliability investment climate. But that’s because they have air conditioning. Meaning the investment climate is really crappy. If you have to live outdoors, it’s really hot and miserable, but some people have air conditioning. And so when you talk about the investment climate, it’s a stupid metaphor because it’s sort of asking what’s the temperature in Arizona versus Detroit. In fact, it’s exactly the same for nearly all the people nearly all the time because everybody lives inside with air conditioning, right? So the climate thing needs to ask the question, how do we get to a more functional, closer approximation of the rule of law and non-corrupt and effective government actions in an environment in which there’s very little political support for that because the economy hinges on people not enforcing the stupid rules there are? That’s the second thing I would have people working on, and I have something like that with my colleagues on PDIA and state capability, but that’s mostly, to be honest, been focused on the service delivery side, which is a little easier to work on state capability because there’s a little more interest. But the state’s capability to sustain a productive economy depends on having an opportunity society, which is a combination of rules being enforced, but those rules that are being enforced, being actually compatible with a dynamic and vibrant economy, which most countries don’t yet aren’t anywhere near those two things in any way, shape or form. The third thing I’d work on, and this is a little bit not development, and no one yet has acknowledged this as part of development, is labor mobility. We’re just in a world where the rich have decided to stop having babies, and more power to them. As an economist, you know De Gustavus, right? De Gustavus. Non desputata. Meaning I don’t. But it does mean there’s a massive opportunity to move people from low-productivity places to high-productivity places, and the high-productivity places now need labor. We’re moving into a historically unprecedented period of demographic transition. So I think if I had Teal Fellows and I had a billion dollars, I’d get people working on those three questions.
Kurtis Lockhart: I think that sets up the conversation well because these are kind of the main pillars that I saw in your work. So, turning to a few questions on economic growth in your experience is a key challenge that policy-making elites across developing countries just simply don’t have defensible ideas about what they should do about growth. Or maybe they just don’t know how or aren’t able to translate many of these ideas into actual implementation.
Lant Pritchett: So I think there’s a two-part answer to that. One is I think the problem with economic growth is too many ideas rather than too few and, hence, a lack of prioritization. The problem is when people say, what should we do about economic growth? And I’m going to say this in a nerdy mathy way: it’s like the way in which the economics profession has traditionally treated growth is a comparison of steady-state levels. If you say what’s good for growth? You kind of could mean, what’s the difference between your level of income at horizon infinity having done action A versus your level of income at infinity having not done action A? So it’s really a level effect of your sustained GDP per capita. And hence, in mathy terms, what’s good for growth? Is the derivative of Y at horizon T equal to finite with respect to the action is positive? Well, if we ask, in that sense, what’s good for growth, we get this long list of 50 things. Infrastructure is good for growth. Education is good for growth. A healthier population is good for growth. Openness to the rest of the world of ideas is good for growth. Protection of property rights is good for growth. And I sometimes do this with my classes at Harvard. And before they realized the trick they were falling into, they would make a list of 50 things that are good for growth. So, the problem isn’t that policymakers lack ideas about what’s good for growth. The problem is, typically, each of these things would require some pretty politically and organizationally demanding effort. And how do you prioritize those 50 things?
Kurtis Lockhart: I think you’re telling me 17 SDGs with hundreds of sub-metrics is not a good way to go about things.
Lant Pritchett: It’s a good way of going about making a long list of things that it would be good if they were done. But it’s not a prioritization exercise. When Barack Obama like it or hate it, but when Barack Obama decided to have health care reform, that was all the highest levels of the government focused on for like a year and a half. And then the World Bank or whatever shows up. And I don’t want to pick on the World Bank. They’re just the leading indicator. And I love the World Bank. I work there. They show up and write a report about what Malawi should do or what Tanzania should do, or what Nepal should do. And it has 60 things in it. No one ever says, well, wait a second. If you look at a highly capable, highly advanced, political country like Germany or France, they tend to be focused on three things, right? Maximum. And yet we’re thinking in order to be good for better development outcomes, Nepal needs to do 30 things, and it’s just not going to happen. So the answer to your first question is it’s not that people are dramatically or completely wrong about what things might lead to better development outcomes in the long run. It’s prioritizing those relative to your capabilities in the immediate context. And that is the problem. And this is why growth diagnostics, I think, is an important thing because what growth diagnostics ask is the question is, what is it that if you could do it today, would have a big impact? So if you think again in these mathy terms, what’s the action? Such that things would be a lot better off in the short to medium term if we could do it. So if you’re in a macro crisis, all that list of things that would be good for growth are irrelevant relative to getting yourself out of a very severe recession or if you just have chaotic enforcement of property rights. A whole bunch of other things that would be good for growth in a well-ordered environment are just completely irrelevant to an environment. And so what most policymakers lack is an effective prioritization device from the list of things that we don’t have to fight a ton about. Would this or that be good for growth? What needs to be more rigorously debated with better evidentiary and analytical processes is what should this country do now that would be most likely to shift it onto a substantially better growth episode than it’s in today. That was the first half of the answer to your question, and it often gets categorized as we don’t know what to do. That, I think, mischaracterizes the answer in a bad way because what politicians mostly do when presented with a very long list of things that would be good for growth is choose to do the easiest one.
Kurtis Lockhart: The shortest time horizon.
Lant Pritchett: Or shortest time horizon, or most visible. There are a whole bunch of ways of prioritizing across a long list of good things unless the easiest and the most impactful happen to be highly correlated, and they mostly don’t. So something that the difficulty like is the opposite of what you’re saying is they can say, oh look, I’m doing this thing that’s really important for growth. If that thing is on this long list, they could get a lot of credit either politically or from their domestic supporters, even a modicum of analysis over the short to medium run. This isn’t the binding constraint to a better growth episode in this country.
Kurtis Lockhart: So I agree that the prioritization does not happen. And we’ve worked with Malawi, and a lot of their ministries and agencies are all over the place in terms of priorities. And so this exercise that something like growth diagnostics takes governments through is great. So, for example, I know the Tony Blair Institute does a lot of these presidential delivery units, right, where they set up a unit in the center of government and create this whole of government approach after they’ve nailed down what the President’s top three priorities are. Is it similar high-reward dividends to that sort of exercise to growth diagnostics, or which would you prefer and why?
Lant Pritchett: I think that Tony Blair’s process is better than most, right? I have mostly good things to say about it because it acknowledges that, look, any given leader is going to really de facto be focused on three things at most, and helping make those three things happen in a practical way is a good thing. I just wish there were more plugged on the opening end of how did the leader come to have those three priorities. In the absence of a rigorous diagnostic procedure, I could easily settle on three priorities that are politically attractive but not necessarily going to be impactful. And I think, hit or miss, the Tony Blair kind of approach, if the problems of the country are obvious enough, you could get overlap between the leaders’ three priorities and actual high short to medium-impact things to do. So, I think I would plug a little more on the opening end of support to a leader in coming to a set of priorities that have the combination. I kind of am a believer in the trinity, both the metaphysical trinity, but more importantly, for our conversation to be really effective public policy and really improve development, something has to meet three criteria. It has to be correct about what would make things better. So you do have to have a complete, coherent causal chain from what you’re recommending as an action and what the outcome will really be. You have to be right about the model, and that’s technically correct. But second, it has to be politically supportable. You have to be able to put together a political coalition to do it. And politically supportable is very carefully chosen. It’s not necessarily the most popular thing, and it doesn’t necessarily mean you might not have to make some efforts to make it politically acceptable, but you have to be able to create and maintain the coalition to do it. And the third is you have to be able to actually carry out the action in practice. So lots of things that Germany does that France does and that lead to successful outcomes with the capability, organizational and human resource wise, of the government of France or Germany just should never even be tried in Nepal because you can’t do them, you don’t have the wherewithal to do them. And you would be much better off doing not best practice but achievable practice, what you actually could do. So I think if you look at the Blair Institute, it’s headed towards a vision of this trinity, which is, okay, we’re going to prioritize some things that are politically supportable by definition since we know the leader wants to do them. But the constraint the leader faces is actually carrying them out of the practice with the capability of his government can move the organizations and institutions of government to actually implement it is the key constraint. So, let’s focus on that. And I think they’re often right; I think implementation often is the key constraint.
Kurtis Lockhart: Moving on to other growth questions, what explains the pretty different growth experiences between the rich OECD countries during the 19th and 20th centuries? On the one hand, right, basically low but steady growth over long time horizons and then on the other hand, developing countries today which have much more variable growth, accelerations and decelerations and the like.
Lant Pritchett: So, let’s start on the positive side. I share and have advocated your characterization of this question because the rich countries are now rich, not because they ever grew at 6% per capita or even at 4% per capita. They’re rich because they grew at 2% per capita for 150 years. Even the Great Depression was recovered from. And World War II was recovered from. Now, I think the first is that the steady progress of the rich countries over 150 years in figuring out how to make economies and science and other things more productive has meant the potential of implementable ideas that could make you more productive relative to where Malawi is for sure, or even India today. India, a few years ago, was still at 1870 levels of US GDP. But that means that if you get your act together as a developing country, you can have very rapid growth over very extended periods because there’s just a lot of catching up to do. The catching-up process is not a natural or inevitable process. One of my most famous papers is Divergence Big Time. We had this divergence because creating the conditions for rapid catch-up isn’t that easy. There were advantages to backwardness rhetoric that kind of got it wrong. There were some advantages of backwardness. You had this stock of available things you could very rapidly grow into if you got your act together. But it ignored the disadvantages of backwardness, which is that backwardness itself meant it was very hard for you to get your act together. So the first thing is, we do have, over the last 50 years, the most rapid episodes of growth in the history of mankind by far. I mean, what China has done could have never been done by the US. Or by Germany or by France because they were so near to the cutting edge of what science and industrial organization and understanding of the way in which you generate a productive economy. They were near the frontier of it, and so they could only grow by growing the frontier, whereas countries that are now behind can grow, as we’ve seen in China, and less so, but still a ton in India, Vietnam, et cetera. You can grow very fast. The second thing is, I think the answer to why they also have much larger collapses is that fundamentally, the political contestation and political settlement, or however we describe the fundamentals, and I’m using air quotes with my hands, which I realized to the listener is not very helpful. But the rules of the game were never rules. They were always sort of ad hoc personalized deals. The problem with investors relying on personalistic or deals-driven rules of the game is that those rules of the game can just evaporate overnight, in which case everything is up in the air and in which case as you start to go downhill, as in the going downhill, the regime changes in a way that creates massive uncertainty about what the new rules of the game are. The bottom is just very far. I’ve written a paper with Eric Worker. He’s worked a lot in Liberia. Liberia was a middle-income African country. It was in the middle of the African distribution of per capita GDP, but it was sustained. And he has this work, a very sophisticated work about understanding the context and political settlement of the economy. It was based on this political settlement of exporters getting franchises that provided money to the existing ruling elite that then distributed some of that through public sector jobs, but with a negative shock to that system. It didn’t lead to a 10% decline in GDP or a 30% decline in GDP, just total complete collapse. And Douglas North and the others in the Social Orders book point this out. The problem with a growth process in the developing world, when they grow, they actually grow much faster than the OECD did. But when they collapse, they collapse much faster and for much longer than the OECD does. Somehow the countries that are now in the OCD mostly settled on this adequately contested political settlement that the rules were the rules and the rules were robust, whereas most developing countries are not in that situation. Which leads them, if they happen onto some deals that get their act together enough, they can have a very rapid growth episode. But if that order dissolves, it can dissolve into complete collapse.
Kurtis Lockhart: It was Broadbury and Wallace, I think, who compared long-run episodes of growing versus episodes of shrinking, and they found that the long-term economic outcomes were determined by the number of shrinking episodes and the duration of shrinking episodes. Not of growing episodes.
Lant Pritchett: No. Exactly. And one of my early papers on economic growth was called Patterns of Growth, where I said, look, we’re thinking of growth as a hills process. We can characterize the growth as a hill with various steepness. Whereas I was like, look, no, it’s plateaus, it’s valleys, it’s mountains. If you actually look at the GDP per capita, it’s not that some grow steadily at 2% and some go steadily at 4%. Some countries grow at 6% for ten years and then collapse at 6% for 15 years and end up behind where they were before. I think the duration of staying in negative growth episodes is the real reason why many countries don’t make more sustained progress and convergence on the rich countries. And I think fundamentally if you had to characterize why is it that countries end up in extended negative growth episodes? It’s very difficult to reconstitute a sufficiently credible deals regime after the collapse of the previous deals regime. And, it’s rare to impossible to be able to make the jump. There is no jump dynamics to rules. You can’t just say, oh, our previous government was full of corruption and we are going to be based on rules, because to have rules, you have to have credible institutions that enforce those rules. And you can’t create credibility either institutions or credibility of those institutions overnight, even if you’re the most well-meaning person in the world, and even if you’re in a position of power, you can’t suddenly constitute a rules-based regime because rules-based regimes depend on institutions and institutions are hard to create. And even if you did create them for their success, they depend on the credibility that they’re good institutions, and the credibility is also hard to create.
Kurtis Lockhart: Yeah, and we’ll chat about this a little bit more when we come to questions about charter cities. And there you go.
Lant Pritchett: I was in the middle of setting you up to discuss charter cities because I think this is a key question that gets to charter cities. Yeah, right.
Kurtis Lockhart: But I want to finish off on growth first. It was the first thing you listed on what you’re working on and what you care about. So one of the other papers that I love of yours was your 2005 paper with Ricardo Housman and Danny Roderick on growth accelerations. One of the findings was that growth accelerations are highly unpredictable. You were just talking about focusing in your head more on preventing growth decelerations and shrinking. Given the unpredictability of growth accelerations, do you tend to focus or advise to focus more on preventing decelerations or what? How do you model that?
Lant Pritchett: I think there’s a better paper than our paper now, which I don’t say that that often, but I think there’s a much better paper, and I honestly wish I could, but I can’t remember the author’s name right now, so maybe later we’ll stick in the link to this paper. But this paper basically revisits our exercise but looks in a more sophisticated way at type one and type two air in the sense of we start from growth episodes and ask are growth episodes highly correlated with reform episodes? They start with reform episodes of the standard type that would be recommended and ask do reform episodes lead to growth episodes. I think their findings are the way to characterize this is most reform episodes don’t lead to growth episodes, but nearly all growth episodes are preceded by reform episodes. So my metaphor is if you say, how do I get into a good Ivy League undergraduate institution? People will tell you you need good grades and you need good SAT scores and you need a good-looking letter saying why you’re a wonderful person. Right? That’s not wrong. You do, as a necessary condition, need those things. Having those things makes your probability of getting into Harvard 1% versus 0.1%. You’ve radically improved your chances of getting into Harvard by having those things. I am not as skeptical as I once was about reform episodes leading reliably to growth episodes. This is why I would love to have Teal fellows working on growth diagnostics. One. Of the questions is, have we just done a bad job of matching reform episodes to the reform episodes that were needed in particular in that country at that time? Because you could have a lot of failed reform episodes where you did a good reform that in some significant number of instances was actually the binding constraint and would have led to a grow death episode. But at that time the country had some other severe binding constraints that weren’t episode addressed by the reform. All of that is just saying I think Hausman, Roderick and Pritchett was a little too pessimistic about the ability to use reform to create growth episodes in a positive way, and I wish I had been more productive in the intervening years at pushing that forward. I think this paper pushes it forward in a useful way by looking at both sides. And so I don’t think the conclusion is growth episodes are just completely unpredictable. It’s more that nearly all growth episodes did have some significant reform that preceded them. It’s just there were a lot more reform episodes than there were growth episodes, which suggests, again, to shift analogies to a drug analogy; penicillin can be really effective at curing bacterial infections, but giving everybody who’s sick penicillin isn’t going to be very effective if the fraction of sicknesses that are bacterial is modest. See what I’m saying? But that said, yes, go back and answer your real question. The answer is yes. I do tend to focus more on working in places and countries for which they’re on the verge of or risking very serious downturns, or they’re fixing stagnation for which I think the answers are often a lot more obvious, if harder to create the adequate politics to implement. Countries that are chugging along at sort of 3% per capita. They’re, to me, the hard nut, avoiding growth disasters kind of I think we have better predictions and better advice about what should be done. And there it’s more a Tony Blair-like question of can we get the politics aligned to do it.
Kurtis Lockhart: I’m glad you brought up the economic reform point from that paper because I think one of the paper’s findings was that these reforms don’t really produce growth acceleration. So I was going to ask; I think there have been a few different papers in recent years, one by Easterly, about some previous beliefs this Washington Consensus policy didn’t work that he says might have been premature and incorrect, and that evidence today actually shows that they did have some significantly positive effects.
Lant Pritchett: Right. My characterization, after a fair amount of consideration, is that this is the right way to think about it. Many of the orthodox Washington Consensus recommendations are penicillin. They’re good recommendations if you have a bacterial infection, if in fact the source of your low growth is the things to which the structural adjustment is the solution. They are in fact the solution. It’s just and I had this discussion in writing this paper with Danny Roderick; in the ‘80s and ’90s, everybody was assuming that 100% of the low growth episodes were the result of this particular diagnostic, where it was only more like 15 or 20, which I think can reconcile the Easterly like findings. If 20% of the countries actually are going to respond positively to the Washington consensus, then averaged overall countries, that’s going to be a pretty positive effect. And by the way, this is in fact, again, if I trust the people who say this, who are doctors, many of the most effective medicines in the world actually only work on 40% or less of the people who actually have the condition. But if they work on 40% of the population, by God, let’s recommend it to everybody who has the condition. Thinking in this diagnostic way, I think it helps us reconcile all the evidence that’s in a more productive way than the sort of pox on all your house’s response of some economists to structural adjustment. It’s like, suppose 20% of people with severe clinical depression respond well to a given medication. That’s a massive, hugely important breakthrough in medicine to discover that thing. Leaves 80% of people unaffected by it, but it has a huge effect on the 20%. So, I think many of the countries during the structural adjustment era were, in fact, in need of precisely the structural adjustment reforms and did them well and had better outcomes for it. But that tended to this over-prescription problem. Oh, let’s just recommend the Washington census to everyone on the presumption that’ll have positive effects for everyone.
Lant Pritchett: And let’s stop looking for what do we do about the other 80% of people that remain in clinical depression even after this effective medication on 20% of the population is administered?
Kurtis Lockhart: Yeah, you’ve spoken in the past about a big concern of yours being that the international development community team development, as you say, has sort of turned away from economic growth, or at least parts of Team Development have done so. To you, what are first the sources of this turn away from growth? When did it start? Why? And then, we can talk about ideas to reverse it. You talked about 1990 and the World Development Report. Would you date it to then or before that?
Lant Pritchett: I think there were two things. One was the end of the Cold War, and one was the failure of structural adjustment. The fact that the donor community, led by the World Bank and the IMF was so complicit in the universal application of structural adjustment techniques without adequate sophistication to what were the real underlying causes of both the syndrome that could lead to the structural adjustment being a solution of overspending, et cetera. And the other many problems of base development, I think, discredited economics. And so instead of people saying economic growth remains a valid and legitimate objective of the development process and necessary and sufficient condition for higher human well-being but the dominant consensus screwed up the means to ends of how to get there, and therefore, we should have more and better research and understanding of how to get to growth. They said screw it. Because these people impose these terrible conditions in order to achieve growth, let’s get rid of growth as an objective. That’s not a completely crazy line of reasoning. I disagree with it strongly. But I’m just saying, I think the attempt of the economic profession to say no, no. All this structure. Anne Krueger had this just unbelievably awful paper at one point where she characterized the Adjustment era as I can’t remember the exact title, but it was something like little ventured, little game in which she said, oh, the main problem with structural adjustment is countries didn’t do it. And it was like, wow, if you wanted to solidify the rejection of structural adjustment when she basically said, oh, look, the politicians in these countries just weren’t aggressive enough, weren’t bold enough, weren’t courageous enough to really do this stuff. And it’s like, wow, I know a lot of politicians who put their whole heart into this and lost their reputation and their credibility because it just didn’t work. And to characterize them as the problem, I think it’s just offensive, condescending and wrong. Anyway, the first thing is any serious attempt to re-enshrine growth as an objective, the development has to take seriously that structural adjustment failed to produce what ex-ante we claimed it was going to produce and that we have a new answer of how to promote growth that isn’t just harder, faster, deeper. Second, is the end of the Cold War meant the coalition and understanding of why bilateral and multilateral donors were being supported by the rich countries to promote development changed. The US was a big supporter of development because they wanted to keep countries out of the second world and out of communist control and part of the broader Soviet coalition. And in order to do that, they wanted regimes that were committed to being part of the global liberal order or whatever you called it. To do that, you therefore, needed those countries to be on board with pursuing that agenda. So the big-picture national development agenda was an integral part of that. The US lost interest frankly, post cold war, Africa; who cares what happens to Africa. Large parts of the world it was eh better if they grow but not really super in the interest. And so you had to reconstitute a coalition for development assistance in the post-Cold War era, and I think we and again, I’ll include myself, we made a huge horrific mistake in attempting to reconstitute a coalition that was stronger but narrower. So, the MDGs were explicitly an attempt to remake commitment to maintaining the support of donor assistance on the premise that what we needed was to attract a new rationale for rich country voters to put this money. And so the quid pro quo is we’ll sustain foreign development, but only if we’re more effective at these narrower, clearer goals. And I think that was just a massive mistake. Massive mistake. Because they got a smaller coalition. They didn’t get a smaller, more committed coalition. They got a smaller coalition to where in most of the countries of the world, the powers that peed just don’t really care about development anymore. They don’t like, yeah, this is a moderately good thing. But if we’re framing the foreign policy of the United States or the foreign policy of Germany or the foreign policy of the UK, if you frame these tiny little low bar goals, it’s like that’s not what really matters to our counterparts who are the governments of Nigeria and the governments of India and the governments of Brazil anyway? So, you created a narrower, stronger coalition in the rich countries at the expense of alienating the recipient countries completely. They were like, what the hell? This isn’t our government’s agenda. This isn’t you helping me be a better country and alienating much of the real power structure of the rich countries anyway. That’s my story. I have written that up in a paper called Can Rich Countries Be Reliable Partners for National Development? To which the answer is roughly no. And this is roughly my explanation. Yeah, I realize I’m giving very long answers. If this were a radio interview, you, as an interviewer, would have interrupted me several times, saying, how about one-and-a-half-minute answers instead of five minutes?
Kurtis Lockhart: No. Hey, our podcast can reach hour and a half, 2 hours, so I’m fine. But there are some more questions I want to get to, so great. Keep answering at length and don’t feel pressured to give more concise answers. It was great. Okay, so turning to charter cities, you kind of alluded to this earlier. Trying to set me up, maybe first, just from your perspective, are there things to like about them? What’s not to like about them, in your view?
Lant Pritchett: So let’s start with things I like about them. One thing I like about it is it’s consistent with the current and more sophisticated views, in my view, of structural transformation and productivity enhancement. A lot of the question about development is why aren’t these countries becoming more productive when out in the world, there are countries that are much more productive, which means basic science and basic technology, in the codifiable sense, can’t be the answer. And I think my friend Ricardo Hausman’s answer about the complexity of economies and highly productive economies are complex in the sense that they combine lots of different inputs and lots of different things together. And that complexity requires some amount of density. I think urbanization or something that achieves the density of the available inputs into a recipe of producing complex projects, is a key part of the development process of structural transformation to more sophisticated and more complex production. And urbanization is the way in which countries around the world have almost always done that. So the focus of charter cities on cities and urbanization is huge and important and wonderful.
Kurtis Lockhart: I don’t know, did Paul Roemer share his little blog on urbanization passing the Pritchett smell test?
Lant Pritchett: I have seen that when I saw that it was an augmented Pritchett test, I hoped it was an augmented Pritchett, but it turned out it was an augmented test. But I agree with him that yes, urbanization is one of those things that would easily fit in the Pritchett test of being if we look at the four criteria of what we should expect to be associated with something that was really associated with development. Urbanization, in my mind, is clearly one of those and is the kind of thing that gets weird and lost and ignored in this low-bar thing. Because if you focus on, oh, we’re going to work on the poorest of the poor, then you’re going to ask, oh, well, how do I help the poorest of the poor increase their income by 10%? And that answer isn’t going to have anything to do with how the country is going to increase its per capita GDP by 500%.
Kurtis Lockhart: You’d focus on rural areas, which is what the World Bank did largely in the ‘70s and whatnot under McNamara, right?
Lant Pritchett: Yeah. And that’s mitigation, not solution. Okay, so first, charter cities are about cities, and more attention to how you create productive cities is an important thing and an important part of and again, I refer a lot to my friend Ricardo Houseman, but he sometimes says when we talk about inclusive growth, the question is, how do we get people included into a high productivity economy? Which means we need a high-productivity economy, and then we need to include that person in it. And focusing on keeping people in rural areas at modestly higher productivities is not inclusive growth, it’s exclusive growth. What we want to say is how do we get people embedded into a highly productive economy, which tends to be cities? So that’s the first thing I like. Second thing I like is that charter cities falls out of a correct diagnostic of the constraint many, if not most developing countries face, which is how do we get from our current deals order, and it is an order, but it’s a deals order which means it’s differential across individuals. The deal for you and the deal for me and the deal for Fulano. Ital could be completely different depending on how we’re embedded in the political and social structure. The orders are often personalistic or partyistic to where when the political regime changes, the deals change completely and hence, it’s unpredictable looking forward. And that moving to a rules-order system is a challenge. And it’s very hard. And so far, it’s been very rare because many of the incrementalist recommendations of how to get from bad institutions to good institutions aren’t really feasible paths and are very hard to do. So that we are trapped. That the reason why more countries have a hard time getting into a high and sustained growth episode. Are institutional challenges of countries being locked into low-level equilibrium? Institutional traps, I think, is a really important wisdom, right? If you don’t start from kind of roughly that vision, you’re never going to get to the right set of recommendations. And therefore, charter cities often starts from what might be a path out of a low-level equilibrium trap. And after all, if it’s a trap, it means the again, in nerdy terms, the local dynamics around the trap are self-reinforcing. Small jumps get crawled back, right? And so that leads to the third. I think in making the case for charter cities, you could go to and make a reasonable case that the second most successful tier of countries in having sustained growth to high levels of income in the world, besides the East Asian Tigers, is the South of Europe. If you look at who has had rapid and sustained GDP per capita, well, you start with earlier with Japan, Korea, Taiwan, and Singapore, but then if you look at who’s the next tier down, it’s Ireland, it’s Italy, it’s Spain, it’s Greece. My take is they roughly did it by having a credible pre-commitment to adopt and enforce the functioning institutions of the EU. And so, a pre-commitment device to jump from bad institutions to good institutions is not an implausible idea. Spain isn’t Spain solely because the EU provided additional infrastructural funding. It created this dynamic where people credibly believed that you were moving to a good set of rules that were capable of sustaining a highly productive economy because they were working in the Netherlands, Germany and France and that you had a credible path to get to them was key to their success. So again, it’s like, wow, then we need a pre-commitment device like that to escape a low-level equilibrium trap. And we have a number of similar examples of that. So, I think those are three super positive things about the reasoning behind charter cities.
Kurtis Lockhart: Now you’re holding out on me, Lance. You have to go to that part of the question.
Lant Pritchett: I try and be a good guest, at least for a while. I mean, if you go to somebody’s house and they say, what do you think of our decor? You don’t start by going, why in God’s name would you paint a wall that color, right?
Kurtis Lockhart: You’ve been an amazing guest for now. So you’ve laid out the good case for these three, I think, positive things. What’s not to like?
Lant Pritchett: So then I think there are two big questions. One big question is how big can a jump credibly be? And I think the jump from Spain to France was a credible jump. But one of the most interesting paper Danny Roderick has many interesting papers, but one of his interesting papers was this I think less-cited work of his was that he pointed out, if you look at the depth and magnitude of the post-Soviet Depression, what was peak GDP before the Soviet transition versus bottom versus how long did it take you to recover to your pre? Peak GDP? That relationship is sharply nonlinear. It’s U-shaped with respect to distance to Berlin. So places that were close to Berlin had relatively short, relatively unsteeep U’s and got back to their pre peak and are now well beyond their pre-peak GDP. So Poland, Hungary, Czechoslovakia, Slovenia, et cetera. Now, some of them did it in the same way Spain did it ultimately by accession to the EU. Right? Then the next tier of distance for Berlin are the worst cases where they basically just came apart. And the farthest from Berlin, the stands, actually, the recession was very long, but not as steep because they never shifted their fundamental deal structure. They’re fundamentally the same deals economies as they were under communism, just with a different leader. So Kazakhstan is kind of still very much an autocratic, non-rule-oriented deals country. And the further stands, I know little about them; many of them are like that. So, one way of interpreting that empirical thing is it’s great to make feasible jumps. It’s terrible to attempt to make unfeasible jumps. And if you’re really a long way away, just don’t jump. So the question is, if you’re recommending charter cities, are you recommending them in contexts in which you’re recommending a truly feasible jump? And that is a very hard question to assess exante. And it depends on the second thing. The second thing is what’s the credibility of the charter city mechanism as a coalition of credibility of investor expectations around the idea that we will get to and maintain rules. If the charter is credible, and these two obviously interact.
Kurtis Lockhart: The more infeasible the jump, the less credible the charter.
Lant Pritchett: Or the stronger the charter has to be in order to be credible. So it’s sort of like I can see a situation in which you were a middle-income country, and you made a moderate jump with a charter-like commitment. It could work to some extent. And I know you guys think more about this than I do, but, like, Dubai is a charter city. The guarantor of the charter is not a particularly wildly attractive, well-developed economy in its own right, the UAE. But it was incredible enough for the size of the jump, in part because it was jumping from not an interlocked pre-existing, low-level equilibrium trap. It was jumping onto a pile of dirt. I mean, the amazing thing when you go to Dubai, I went to the top of the Burj Khalifa, and it’s like, wow. This is the most amazing real estate project in the history, man. Because we have a bunch of dirt. And can we just create a way where people will come to this dirt and do productive things? And it worked, right? It worked in spectacular fashion. Like I say, it’s just this trade-off between the size of the jump, the power of the forces that are reinforcing the equilibrium trap with a trap. What you’re saying exante is we have to make a big enough jump that we’re not subject to the reequilibrating to the low-level forces. But that jump only works if it’s credible. If you add this up, this is not a wildly terrible critique of charter cities. It is a hard set of questions one would have to ask if one were going in that direction. Can we create a strong enough charter for the magnitude of the jump we need to make? And that’s some judgment about how strongly reinforcing are the political incentives that are re-pointing us back to the Equilibria versus what can we mobilize in terms of a commitment mechanism via a charter. Is this kind of how internal to the movement you guys think of it already? I mean, am I just reinforcing the conventional wisdom here?
Kurtis Lockhart: So this is what I was going to maybe talk about next because number one, just having listened to you and then number two, having read your stuff before this podcast, but a review for this podcast, I do think you’re inadvertently more a fan than you think you are. So here’s why I say this. I think your focus on charter cities as the huge and feasible jump is probably based on what Roemer talked about during his Ted Talk. And I think things in this space has moved forward since then. But to me, I guess, the model of a system of decentralized cities, the decentralized spaces that are open to novelty and positive deviance, as you put it, and that have an authorizing environment to engage in policy experimentation and reforms. To me, Your and Wilcock Andrew’s kind of problem-driven, iterative adaptation. PDIA approach kind of completely in alignment and complementary with creating these new cities with new possibilities. Right? These decentralized spaces for reform.
Lant Pritchett: I’m happy to believe I’m more of a fan than I think I am. And I have to say most things I’m not a fan of, I’m pretty vocal about not being a fan of. So the fact that I have never written or said anything anywhere in the public domain negative about charter cities means I’m a pretty big fan, right? When I’m not a fan of RCTs, it’s like it’s pretty clear I’m not a fan of RCTs. When I’m not a fan of low poverty lines, pretty clear I’m not a fan of low poverty lines. I’ve been more than willing to express my lack of fanship. Whereas charter cities, to be honest, they are so close to both accurate diagnostic and solution that I’ve been happy to leave them alone because I’m persuadable. I do think the experience in Honduras, the early experience, and I’m 64, so I was maybe overly jaded by the Honduras experience. And I assume things have moved on to think, well, okay, where did that go wrong and why? I’m happy to hear that you’re in a better place. And like I say, I do agree that something very much like charter cities is super consistent with lots of things. I believe we need more experimentation; we need more space. In addition to the charter cities’ arguments around Southern Europe and the charter cities’ arguments around Dubai, China, in some sense, can be seen as a quasi charter city experience. And I think Yanyan Ang’s book about how China got rich has a very much charter city-like approach with the caveat that they didn’t do the jump right. Nobody pretends that Chinese cities jumped to being good places with credible committees immediately. I mean, her view is that and again, I’ve seen her present this. I’m a huge fan of hers.
Kurtis Lockhart: She’s great. She’s been on our podcast.
Lant Pritchett: Yeah, one of my greatest regrets of my time at the Harvard Kennedy School is we had the opportunity to make her an offer and didn’t. The upshot is she is big on saying the key to unlocking the dynamic is not to fix institutions and then you get growth. It’s to get growth out of bad institutions. Which sounds paradoxical. So anyway, but again, setting up a situation in which there’s more freedom to experiment and performance-pressured diversity is the key to success and evolution. It’s the essence of markets, right? The private sector doesn’t work because private sector firms are right. The market works because private sector firms that aren’t right die. And so you need a source of variation, and you need a filter on the variation. Anyway, I’m happy to believe I’m a big fan.
Kurtis Lockhart: There’s a point that Yuan made in her book about China’s system of right. They had variation, they had selection. She called the Special Economic Zones. Niche creation. Right? So there were these environments in which diversity of institutions combined with a selective force could work their magic in these zones. You would maybe call them authorizing environments. And she called that whole system like meta institutions, institutions for choosing institutions, right, as they emerge, which I definitely see. If you have a system of these cities and there are feedback loops between the different cities, much as there was in kind of medieval Europe between a bunch of free cities, right?
Lant Pritchett: Yeah.
Kurtis Lockhart: Then you do get a sort of evolutionary dynamic happening and feedback loops between the cities. I’m a huge fan of the UN’s work, and I see a huge alignment between what China did post-1978 and the model we’re proposing.
Lant Pritchett: As a slight aside here, when you use the word meta institutions, I have to admit I blanch because I’ve been using the word institutions. But when I taught, I would start my class by taking a big piece of chalk, handing it to someone in the front row, and saying, if I ever use the word institutions, throw this piece of chalk at my head, because I’ve started into saying things that I don’t know what I’m saying and I should stop. Because my concern about the word institutions itself is that it’s sort of like my asking you, go get me some furniture. It’s a noun that’s too abstract to mostly be useful. You could come back with a chair; you could come back with a table; you could come back with a whole variety of things that are, oh, no, what I really wanted was a dining room chair. And then it’s like, God’s sake, you should have said dining room chair because that’s a pretty concrete enough noun. We could have a conversation about it. So I worry that talk about institutions needs several objective modifiers in front of it before it even starts to get the realm to where we can really have a useful empirical and analytical discussion about it. So the fact that we’re now using the word meta institutions, it’s like, oh my God, no. Meta is plenty meta. I mean, institutions is in and of itself plenty meta. Meta institutions, it’s like, oh my gosh, and now I need two pieces of chalk thrown at my head.
Kurtis Lockhart: There are a couple of other questions here. I wanted to chat because you brought up your work on labor mobility, so I wanted to touch on that for a second. You wrote a paper with Michael Clemens, too, around the place premium, I think, as well. I think the essence was you find that just by letting low-skilled migrants migrate from a poor country to the United States, it produces something like income gains of 40 times greater than the best anti-poverty program. I think you use the BRAC graduation approach.
Lant Pritchett: The graduation style program. The RCT crowd had a big science paper that implemented a graduation style, by the way, and this is one of the funniest things ever. The livestock transferred in one of these programs was actually guinea pigs. So, the RCT was using the recipients of guinea pigs as guinea pigs to study the impact of these programs. I thought, you can’t make that stuff up anyway, but it’s livestock asset transfer. But in an eight-component program. But yeah, that as the gold standard is that you spend $4,500 per household in the first two years of implementation, and the average demonstrated gain is $344 in year three. That’s the gold standard for NC-2 chronic poverty programmatic interventions, whereas the rough average of the gains across the 40 countries for which we can do the Pritchett Montenegro Clemens exercise, it was a three-authored paper, is like $15,000 in PPP per person per year. This is an estimate for low-skill migrants. So, we estimated basically the difference of a given individual type corrected for selection, where the individual type had less than a high school degree. So this is the gains to low-skill workers. So this isn’t averaging across doctors who move to the US. And gardeners. This is averaging people who move to the US. With less than a high school degree. So it’s a comparable universe of people that might be benefited by NC-2 interventions, which is important and gets back to both charter cities, another thing I’ve been saying.
Kurtis Lockhart: Yeah.
Lant Pritchett: It seems to me under-recognized that the entire theory of development in the 1960s was driven on a completely ex-post empirically false premise. The premise was we can roughly use the Solo model as a way of thinking about development. And the Solo model has A, which is productivity that’s in the air, in a place, because it affects all the accumulated factors, it affects labor and it affects all the capitals. And the model on which basically the World Bank and Development was founded was that A was going to converge quickly because A was blueprints, A was technical codifiable information. So A was going to converge very fast. Well, if A converges fast in an environment in which some countries have low K over L, then the returns to K are just astronomical. And the dynamics of growth are driven by how fast you can accumulate factors because those factors have high returns and so we need lots of investment. Basically, the Arthur Lewis statement and all the statements and the idea that we were in a world in which transfers of fungible resources from rich countries to poor countries would have these supernormal returns was model-based. It was based on a model in which A was going to converge, and therefore, the returns to K and HK were going to be very high. It was difficult to generate savings with low incomes. And so to the extent we could augment investable resources, we would create faster growth because the key constraint on growth was the mobilization of investable savings. And my friend Bill Easterly has a paper called The Ghost of Two Gaps. Right? This was the two-gap model. It was, in some sense, the dominant thinking of economics, but it was also the dominant embodiment of what organizations thought they were doing. As we’re transferring investable resources. Why? Well, because that’s the key constraint to growth. Right. Why is that the key constraint to growth? Well, because A is like how to build a dam, or how to build an electrical plant that generates electrical power, or how to grow crops, that’s all like agronomy or mechanical engineering. Now, ex-post having generated 50 years of experience and variation across countries, what we realize is that TFP didn’t converge. The reason why GDP per capita didn’t converge isn’t that we weren’t able to generate higher levels of HK ish and isn’t that we weren’t able to mobilize more savings. It was that TFP never converged. So, if you look at measured TFP, measured TFP is lower and grew slower for the most part over this era in poor countries and rich countries. Which leads you to why the hell didn’t TFP converge? And why TFP didn’t converge leads you to institutional types of explanations. And institutional types of explanations lead you to how do we break through to create an environment in which TFP can actually grow rapidly, which leads you to charter cities kinds of solutions, but it also simultaneously leads you to labor mobility solutions. Because if TFP didn’t converge, then moving a person of exactly the same productivity from low TFP to high TFP increases their output, and since it increases their output, it increases their justifiable wage. And nobody loses. To first order, there are second-order general equilibrium effects. But to first order, it’s like if TFP had converged, then the differences across countries would be explained by less K and HK. And if differences in wages across countries were less K and HK, then migration is kind of irrelevant because, oh, people have low wages because they have low HK, and if we lose a low HK person to another country, they’ll still have low HK. Their wages won’t go up. People haven’t adequately internalized to some extent that that model was completely, totally, empirically rejected by the last 50 years of experience. So we shouldn’t use it as our default model anymore. Once you break that as your default model and acknowledge these massive TFP differences, then the question of should we go to a country and tinker around with the productivity of a person in a low TFP environment or should we move them from a low TFP environment to a high TFP environment? It’s obvious that you can get orders of magnitude more impact from the latter than the former. It’s just obvious.
Kurtis Lockhart: So two things. One on the convergence versus non-convergence thing. So I read a paper by Michael Kramer and a few co-authors, and I think there were a couple more that your thing on divergence was totally correct when it was written. But in the last 20-plus years, I think it’s switched now such that we have observed convergence or at least conditional convergence. You correct me if I’m wrong.
Lant Pritchett: A, I haven’t read the paper, so can’t correct you about the paper. B, last I looked carefully, there’s the convergence. There’s the absolute convergence divergence question. But then there’s the decomposition. What I’m saying is there’s been more convergence on the accumulative factors than there has been on TFP. So you could have moved into a convergence era because HK was growing very fast, and K was growing fast, but TFP was still growing slower. So, I don’t know that this paper does that decomposition. But what I’m saying is that TFP didn’t converge. Saying that GDP per capita converges doesn’t contradict that on the face of it.
Kurtis Lockhart: Okay, so that was one. The second thing is more to the point of your labor mobility paper, and I guess the issue here, this comes back to your trinity. Right?
Lant Pritchett: Right. Very much so.
Kurtis Lockhart: Migration has not been allowed due to political issues. And so I guess one of the thinkings, and I’m obviously biased here, but so I bring everything back to the charter cities thing, but couldn’t something like charter cities or even we can keep charter cities out of it entirely and just say maximizing in-country migration from rural to urban areas like Mushvik Mubarak works on. Wouldn’t that be a viable second-best alternative? It wouldn’t get you the type of TFP increases from moving someone from Nigeria to the US. But you sure as hell know that Lagos is a lot more productive than places outside Lagos. So how would you respond to that?
Lant Pritchett: I’m less convinced of that than you on two levels. One, my very most recent paper, which will be coming out in Public Affairs Quarterly, hopefully in the next month, is precisely about is it really politically invasible to have labor mobility. And my fundamental argument is that the demography of the rich countries is changing so radically that countries have to change their ideas about having foreigners live in their countries.
Kurtis Lockhart: I’m from Canada, so we’ve got the message pretty good in terms of our…
Lant Pritchett: Canada is way far down the track. But countries that you would have thought migration was a political impossible issue, like Japan are moving very rapidly towards no, no, we need workers. And given that we didn’t produce Japanese workers, and given the horizon, changing fertility rates is irrelevant because a 25-year-old worker takes 25 years to create. Over the inner Edom next few decades, we need radically more. And Japan is moving forward very fast on creating mechanisms for attracting labor to Japan. Germany is moving very fast towards creating mechanisms to attract labor to Germany. So I think the politics of this is changing very fast because in the famous words of John Maynard Keynes, when the facts change, I change my mind. So, we were in an era in which the main political impetus was protecting jobs for our native-born citizens. And that balance was roughly correct. But what’s coming is historically unprecedented. If Italy, for instance, in the zero migration UN projections for Italy’s population in 2050, the labor force to person over 65 ratio falls to less than one. The social contract that we created around workers supporting the elderly with pensions and health insurance and et cetera, was created in an era in which the ratio of workers to participant retirees was like eight to one. The projection demography is just not a sustainable outcome, and it’s going to have to break in some very significant way. And I think of the ways it could break so that people tolerate way more foreigners in their country as the politically most likely. The second is I am convinced that all of the high-productivity employment is in Lagos, but I’m less convinced that the typical mover from rural Nigeria to Lagos would have access to that productivity.
Kurtis Lockhart: Explain that.
Lant Pritchett: Well, let’s say I’m roughly correct in my characterization of Nigeria as being an order-deals economy. There’s an insiders economy that is the large-scale formal sector, either government or private sector, which is embed with the government in some complicated way, but in a way that actually actively restricts a dynamic private sector from competing with it. That would mean wages inside this bubble, or as Erdon DeSoto used to say, inside this glass jar, there is high productivity in Legos. But whether the incremental migrant has access to those jobs is a whole different question. And I worry that in a lot of Africa, we’re in a Lewis-type model to where people are moving from rural areas to cities and the employer is low-skill, low-wage services, kind of you hang around doing odd jobs. And so, yes, measured productivity is dramatically higher in Lagos and in rural Nigeria. It’s sort of like the same thing we were saying about growth. All of the high-wage opportunities that exist in Nigeria exist in a city. But whether or not the typical mover or migrant will have access to the opportunities is an open question. Depends on how open the economy really is. And I think a lot of these economies are just dualistic economies with a formal sector, a formal modern sector that’s inside the bubble but pretty closed to new entrants. Hence the incremental mover to Nigeria just ends up scrambling around in low-productivity services as opposed to the Lewis model of low-productivity agriculture.
Kurtis Lockhart: I guess what I would say, maybe a couple of things. The main thing is to your European Western demography point and the Keynes quote of the facts change, I change my mind. I think the same logic applies to the statistics around urbanization. From the first time, human beings started settling in cities around 10,000 years ago to when the world became 50% urbanized in 2010, the total amount of folks in cities at that point was 3.5 billion. The world is set to add 5 billion people to its cities in one century, right? So, 100 centuries, 3.5 billion people. One century, 5 billion people. And so, just as with your demographic set up in the West, there’s a demographic huge, unprecedented, history-changing transition happening across the global south that I think also requires a new novel way of thinking about it.
Lant Pritchett: But the novel way of thinking about it is making sure that the growth in cities is, in fact, inclusive, that we have a process whereby there is some way in which the marginalized immigrant is going to be absorbed into the productive economy. And I think this is the first order issue for Africa. Certainly their main concern is educated unemployment, that you have all these youth, both educated in the rural areas and educated in the urban areas, who can’t find work. So I am not a doubter of urbanization. I am not a doubter of the potential for well-ordered economic environments in urban areas being the key solution to human prosperity. All for that. It’s a question, again, like the discussion about charter cities is how do we get to well-ordered urbanized opportunity societies? And what I call an opportunity society is a rules-ordered society with good rules. And that’s what charter cities is meaning to create. And I’m all for creating that. But whether or not that’s what exists in a way that there are existing incremental opportunities to radically raise one’s wages by moving to mean it could be true, but it might not be true. And it can be made to be more true if Lagos became a much more inclusive, open, dynamic economy than the dual deals economy that I suspect that it is.
Kurtis Lockhart: Okay, so I know several high-net-worth philanthropists. They regularly cite your work in influencing their thinking around where to give. Have you thought of devoting more of your time to playing the role of Schmidt Futures calls it a field strategist for philanthropists interested in economic growth? Basically, this is someone with deep knowledge in this space of economic growth who helps donors identify specific doers who ought to be funded.
Lant Pritchett: Yes, I am actively devoting a fraction of my time to that. So, yes, I do think the first move of effective philanthropy was right to stop flying Swiss cows to Africa, to give people in Africa a cow and get to more effective, cost-efficient mechanisms of mitigating the consequences of the lack of development. So I’m a big fan of cash transfers, for instance. But the second stage of effective altruism has to be, well, wait a second, mitigation can’t be our only goal. We need a bigger picture transformational view of how can philanthropy be effective at creating national development processes. And yes, I am spending some amount of my time attempting to directly influence that environment and help people create those fundable opportunities. Because the question always comes back, well, what here is fundable, what can we do? What would we do with incremental funding? And I am working with Schmidt Futures on trying to create a vision of what that might be. And I’m talking with other high-net-worth individuals, and I think this is coming along. And that said, you’re looking at me, you’re seeing that I’m very gray-haired, I’m 64 years old, Cap T is looming, right? Or if not Cap T, the dramatic productivity decrease that comes as one nears Cap T. So I think one of the tensions is it’s not going to be me that leads this thing forward. I’m helping to identify who are the right set of partners and stuff. But I would be happy to be part of a movement like that and part of a movement like working for the last few years trying to put together what’s the fundable opportunities, what’s the right coalition. So, yes, super excited about that. And working on it actively but working on it actively with the idea that I don’t think this is going to be actively led and successfully led as a global movement by a 64-year-old American.
Kurtis Lockhart: Your country has a revealed preference for elder statesmen at this point.
Lant Pritchett: I agree with one of those two words. Fair enough.
Kurtis Lockhart: But I’m just saying you got some time before you even catch up with those guys, so give yourself a break. Okay, that’s it from me on that. So thank you so much, Lant Prichett.
Lant Pritchett: Thanks for a great conversation. I’m glad to hear and learn that I’m a bigger fan of charter cities than I thought I was.
Kurtis Lockhart: Hey, me too. Music in my ears. Okay, sir, thank you very much.