Lant Pritchett on Economic Growth, Charter Cities, and State Capability
Oct 25, 2023
auto_awesome
Lant Pritchett, distinguished economist and thought leader in development economics, discusses growth diagnostics, limitations of development metrics, and the potential of charter cities for sustainable growth. Topics include the misallocation of talent, challenges in developing countries, the significance of urbanization, the role of institutions, labor mobility, effective philanthropy, and national development.
Growth diagnostics is crucial for prioritizing impactful actions for economic growth in developing countries.
Charter cities offer opportunities for policy experimentation and reform, but the credibility of the charter and enforcing functioning institutions are crucial for success.
Low-skilled labor mobility from poor to developed countries has significant income gains, surpassing the impacts of anti-poverty programs.
Deep dives
Importance of Growth Diagnostics in Economic Development
Growth diagnostics is crucial for identifying feasible actions that can lead to economic growth in developing countries. It prioritizes actions based on their potential impact and the country's capabilities. While there are many ideas about what can contribute to growth, prioritization is key. Reform episodes can lead to growth episodes if they are properly matched to the specific context and needs of the country. Avoiding growth decelerations and prolonged negative growth episodes is essential for sustained progress. The credibility of a charter city mechanism and its ability to facilitate a feasible and credible jump in institutions are important factors to consider.
The Potential of Charter Cities for Development
Charter cities offer promising opportunities for development. They can create decentralized spaces that promote policy experimentation and reform, enabling positive deviance and innovation. The success of charter cities lies in their ability to make a feasible jump from existing low-level equilibrium traps. The credibility of the charter and the strength of investor expectations around a commitment to maintain and enforce functioning institutions are crucial. Charter cities can learn from successful examples like the European Union and Dubai, where credible pre-commitments to adopt and enforce effective rules have led to sustained growth. However, the size of the jump and the reinforcing forces of existing equilibrium traps must be carefully considered.
The Positive Impact of Labor Mobility on Development
Low-skilled labor mobility from poor countries to developed countries has a significantly positive impact on income gains. Studies show that the income gains for low-skilled migrants can be up to 40 times greater than the impacts of anti-poverty programs. While in situ interventions have their merits, the gains from labor mobility far outweigh them. For individuals with less than a high school education, the average estimated gain from migration is around $15,000 in purchasing power parity per person per year. Recognizing the potential benefits of labor mobility can contribute to a more comprehensive approach to development.
The importance of reform in promoting growth episodes
The podcast episode discusses the significance of implementing reform in order to stimulate growth episodes in countries. It argues that while some reforms may not have directly led to growth episodes, they were still important in addressing other binding constraints. The episode emphasizes that most growth episodes were preceded by significant reforms, suggesting that reform plays a crucial role in promoting economic growth.
Revisiting the impact of Washington consensus policies
The podcast explores the debate surrounding the effectiveness of Washington consensus policies. It highlights that while some economists believe these policies did not produce growth acceleration, others argue that they did have positive effects in certain cases. The episode emphasizes that the success of these policies depends on whether the underlying causes of low growth are addressed. Additionally, it suggests that a broader perspective is needed, considering that some countries may not respond positively to these policies, while others may benefit significantly.
In today's episode of Charter Cities, we're honored to welcome Lant Pritchett, a distinguished economist and a thought leader in development economics. Our deep-dive conversation will focus on the critical topic of growth diagnostics, exploring the complex challenges policymakers face in developing nations. Lant will illuminate the importance of identifying impactful actions for growth, emphasizing the need for rigorous debate and evidence-based decision-making. We'll also scrutinize the limitations of traditional development metrics like the "dollar a day" measure and consider alternative, more effective approaches. We'll also investigate innovative solutions like charter cities as a mechanism for fostering sustainable growth by addressing institutional challenges.
Key Points From This Episode:
Why overemphasis on low-bar goals lead 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
