Economist Ricardo Hausmann and Yascha Mounk discuss the impact of globalization on social stratification, counterintuitive effects of brain drains and immigration on growth, and the overrating of corruption's economic effects.
Building a capable state is crucial for economic growth, emphasizing the importance of diversifying knowledge and expertise.
Societies collectively have more knowledge than individuals through collaboration and knowledge networks.
Fighting corruption alone does not build a capable state, as effective governance and strong institutions are essential for state capacity.
Deep dives
Building a Capable State and the Importance of Knowledge
Building a capable state is crucial for economic growth, as societies thrive based on what they know how to do. Natural resources alone do not make a country rich. The key is diversifying knowledge and learning how to do more things, including more complex tasks. The process of growth involves spreading knowledge and expertise throughout society. Immigrants and diasporas play a significant role in transferring knowledge and fostering economic development. Corruption should not be the sole focus when building a capable state, as capabilities and effective governance are equally essential.
The Role of Knowledge Networks and Collaboration
Societies have the capacity to accumulate knowledge, but individual capacity to know remains limited. By distributing bits of knowledge among different people, societies collectively know more than individuals do. Society's nature is inherently collaborative as individuals are interdependent and inept individually. Collaboration and knowledge networks are vital for using and sharing knowledge effectively. As societies connect and interact with more diverse knowledge networks, they develop a deeper sense of 'us'. Capitalism requires broader and deeper policies that can accommodate larger markets while ensuring a shared and deeper understanding.
The Connection between State Capacity and Corruption
Fighting corruption alone does not necessarily build a capable state. Corruption is a broad concept that needs further differentiation. While corruption can distort incentives, the larger challenge lies in building state capacity and capabilities. The focus should be on developing effective governance systems and strong institutions that monitor government agencies and generate social feedback. Eliminating corruption does not automatically create a capable state, and combating corruption alone may result in new transaction costs that hinder performance.
The Relationship between Democracy and Economic Growth
Democracy is integral to economic growth, evident by the fact that many of the world's wealthiest countries are democratic. A capable state requires a social process where society can offer feedback and influence policy management. While China has achieved strong economic growth despite being non-democratic, its specific form of governance includes elements of meritocracy and responsiveness to economic needs. However, China may face challenges due to restricted political engagement and concentration of power. Democracy provides a mechanism for public engagement and more effective management of economic policies.
Policy Implications for Economic Growth
To stimulate economic growth, policies need to focus on building a capable state, fostering knowledge networks, and promoting collaboration. Creating a diverse range of public goods that cater to specific industries and sectors is crucial. Establishing effective governance systems, supporting research and development, enhancing educational systems, and facilitating knowledge transfer are key policy areas to prioritize. Society should strive for democratically engaging governance structures that allow for social feedback and the management of public issues.
Yascha Mounk and Ricardo Hausmann discuss development economics and how globalization has changed the nature of knowledge.
Ricardo Hausmann is an economist and the founder and Director of Harvard’s Growth Lab and the Rafik Hariri Professor of the Practice of International Political Economy at Harvard Kennedy School. Hausmann has also served as Minister of Planning of Venezuela (1992-1993) and on the Board of the Central Bank of Venezuela.
In this week’s conversation, Yascha Mounk and Ricardo Hausmann discuss the effect of globalization on social stratification; how “brain drains” and immigration can have counterintuitive effects on growth; and why we may often overrate the economic effects of corruption.
