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The main focus of this podcast episode is on the significance of organizational capabilities in the process of development. The guest, Mushtak Khan, highlights how the distribution of organizational capabilities distinguishes between less developed and more developed countries. He emphasizes that development requires the creation of complex and diverse organizations that can effectively implement policies. Khan discusses how the lack of organizational capabilities in developing countries hinders policy implementation and development. He argues that successful development requires incremental processes that align the interests of powerful players to support developmental outcomes.
Khan delves into the ineffectiveness of most anti-corruption strategies implemented in developing countries. He explains that traditional approaches, such as transparency, accountability, and enforcement, often fail to achieve sustainable results. Khan attributes this failure to the prevalent low capabilities and informal networks within these societies. He highlights the need for a deeper understanding of the interplay between institutions and organizations, as well as the importance of horizontal enforcement by peers. Khan argues that traditional anticorruption measures should be complemented with strategies that address the underlying challenges of low capabilities and informal networks.
In discussing the role of capabilities in development, Khan challenges the idea that market forces alone will drive capabilities development in developing countries. He argues against the notion that investors would invest in countries like Bangladesh to discover viable industries and be deterred by the risk of copying. Instead, he emphasizes the need for targeted investments and policies that build organizational capabilities. Khan explains that countries like Bangladesh cannot compete solely on low wages, as the productivity gap with advanced countries is substantial. He emphasizes the importance of learning by doing and incremental processes in developing capabilities in various sectors, such as garment manufacturing and healthcare. Khan also underscores the need for a nuanced approach to industrial policy, considering the specific capabilities and challenges of each country.
Organizational capabilities play a crucial role in development as they determine the competitiveness of businesses and their ability to contribute to economic growth. The case study of Bangladesh's garment industry highlights the transfer of organizational knowledge from a more advanced country (South Korea) to a less developed one. This transfer was made possible by creating the right incentives for Bangladeshi workers to learn and improve their productivity. The success of this transfer depended on the absence of capture of the rents generated by the quota system. Overall, building organizational capabilities and ensuring rent distribution are critical for promoting development.
Industrial policy success is not solely dependent on the policy measures adopted, but also on the distribution of power and incentives among different actors. The case of South Korea's industrial policy and success can be attributed to several factors. Firstly, South Korea had a unique historical context where the Japanese colonial rule helped develop industrial knowledge and processes. Additionally, the suppression of horizontal networks under Japanese colonialism led to the absence of rent-capturing networks in post-colonial South Korea, enabling effective industrial policy implementation. The presence of a centralized ruling system also allowed for the enforcement and disciplinary actions necessary for developing industries. These factors highlight the importance of considering power dynamics and incentives when designing and implementing industrial policies.
Addressing corruption in development requires a nuanced understanding of power dynamics and the interests of different actors. The traditional top-down approach to anti-corruption initiatives often falls short of achieving meaningful change. Instead, a bottom-up approach that focuses on changing horizontal checks and balances within sectors and organizations can yield better outcomes. This involves supporting and expanding spaces where rule-following behavior is already present, while developing exit strategies for sectors where corruption is pervasive. Fostering incremental changes based on specific contexts and engaging with organizations that have a stake in rule-following processes can lead to sustainable anti-corruption efforts. It is crucial to recognize that anti-corruption is not an add-on, but an intrinsic part of policy and project design.
One important insight from this podcast episode is the significance of sectoral rule-following behavior in driving development and reducing corruption. The speaker emphasizes that simply relying on a general rule of law or enforcement measures is not enough. Instead, focusing on specific sectors and activities where peers have a self-interest in policing each other can be more effective. This approach involves finding areas where rule violation is driven by reasonable factors, and then addressing those factors to promote rule-following behavior. By gradually expanding the number of sectors characterized by rule-following, a broader culture of rule of law can be fostered.
The podcast challenges the perspective that rule of law is a precursor to development, arguing instead that development can lead to reductions in corruption and the establishment of rule of law. The speaker discusses the importance of addressing development challenges in contexts where rule of law is weak. They suggest that focusing on solving specific capability problems and engaging in activities that build trust and cooperation in sectors can create incremental improvements and gradually lead to a broader rule of law. Rather than viewing corruption as a pathology, this approach recognizes it as a structural feature that can be mitigated through sector-specific strategies.
Another key point from the podcast is the interdependence between economic capabilities and political power. The speaker highlights how economic capabilities are crucial for development and emphasizes the productive potential of societies. They argue that violence potential is not the sole driver of social structure, and that economic organizational capabilities also play a significant role. Additionally, the podcast discusses the limitations of frameworks that primarily focus on violence as a driver of social orders, and instead advocates for a broader understanding of capabilities beyond violence potential.
When it comes to policy implementation, it is crucial to consider the specific context in which it will be applied. This involves examining the interests and capabilities of the actors involved and assessing whether they have the ability and willingness to enforce and implement the policy. Understanding the organizational power dynamics and historical factors affecting implementation is essential. It is necessary to evaluate whether the policy aligns with existing capabilities and organizational structures, and if not, consider policy redesign or capacity-building measures. Additionally, considering past behavior and activities can provide insights into the feasibility of effective implementation.
Development practitioners and policymakers need to recognize the interplay between power, capabilities, and policies to drive progress. Policies should be designed with a deep understanding of the relevant context, including the distribution of power, organizational capabilities, and historical factors. It is crucial to assess the likelihood of policies being implemented, enforced, and monitored, based on the interests and capabilities of the actors involved. Furthermore, it is essential to focus on building local capabilities that align with the goals of development. Experimentation, contextual adaptation, and incremental changes are key components of effective development.
The resulting oil spills damage the environment and cause severe health problems, but the Nigerian government has continually failed in their attempts to stop this theft.
They send in the army, and the army gets corrupted. They send in enforcement agencies, and the enforcement agencies get corrupted. What’s happening here?
According to Mushtaq Khan, economics professor at SOAS University of London, this is a classic example of ‘networked corruption’. Everyone in the community is benefiting from the criminal enterprise — so much so that the locals would prefer civil war to following the law. It pays vastly better than other local jobs, hotels and restaurants have formed around it, and houses are even powered by the electricity generated from the oil.
Links to learn more, summary and full transcript.
In today's episode, Mushtaq elaborates on the models he uses to understand these problems and make predictions he can test in the real world.
Some of the most important factors shaping the fate of nations are their structures of power: who is powerful, how they are organized, which interest groups can pull in favours with the government, and the constant push and pull between the country's rulers and its ruled. While traditional economic theory has relatively little to say about these topics, institutional economists like Mushtaq have a lot to say, and participate in lively debates about which of their competing ideas best explain the world around us.
The issues at stake are nothing less than why some countries are rich and others are poor, why some countries are mostly law abiding while others are not, and why some government programmes improve public welfare while others just enrich the well connected.
Mushtaq’s specialties are anti-corruption and industrial policy, where he believes mainstream theory and practice are largely misguided.
Mushtaq's rule of thumb is that when the locals most concerned with a specific issue are invested in preserving a status quo they're participating in, they almost always win out.
To actually reduce corruption, countries like his native Bangladesh have to follow the same gradual path the U.K. once did: find organizations that benefit from rule-abiding behaviour and are selfishly motivated to promote it, and help them police their peers.
Trying to impose a new way of doing things from the top down wasn't how Europe modernised, and it won't work elsewhere either.
In cases like oil theft in Nigeria, where no one wants to follow the rules, Mushtaq says corruption may be impossible to solve directly. Instead you have to play a long game, bringing in other employment opportunities, improving health services, and deploying alternative forms of energy — in the hope that one day this will give people a viable alternative to corruption.
In this extensive interview Rob and Mushtaq cover this and much more, including:
• How does one test theories like this?
• Why are companies in some poor countries so much less productive than their peers in rich countries?
• Have rich countries just legalized the corruption in their societies?
• What are the big live debates in institutional economics?
• Should poor countries protect their industries from foreign competition?
• How can listeners use these theories to predict which policies will work in their own countries?
Get this episode by subscribing to our podcast on the world’s most pressing problems and how to solve them: type 80,000 Hours into your podcasting app.
Producer: Keiran Harris
Audio mastering: Ben Cordell
Transcriptions: Sofia Davis-Fogel
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