Conversations with Tyler - Dani Rodrik on Premature Deindustrialization and Why the World is Second Best at Best

Episode Date: October 1, 2015

Tyler and Dani Rodrik discuss premature deindustrialization, the world's trilemmas, the political economy of John le Carré, what's so special about manufacturing, Orhan Pamuk, RCTs, and why the world is second best at best. Read a full transcript enhanced with helpful links, or watch the full video. Other ways to connect Follow us on Twitter and Instagram Follow Tyler on Twitter  Follow Dani on Twitter Email us: [e-mail] Subscribe at our newsletter page to have the latest Conversations with Tyler news sent straight to your inbox. 

Conversations with Tyler is produced by the Mercatus Center at George Mason University, bridging the gap between academic ideas and real-world problems. Learn more at Mercadis.org. And for more conversations, including videos, transcripts, and upcoming dates, visit Conversationswithtyler.com. Not long ago, a journalist called me up and asked me, whose papers do you look forward to reading more than any others? And my answer without really hesitating was Danny Roderick.

So he's our guest today. He's arguably the world's leading and most important economist on trade, globalization, industrial policy, and lately the prerequisites for liberal democracy. His new book, which I'll mention again, Economics Rules, that's spelled R-U-L-L-E-S, why should I not read my own blurb? Quote, the best economists make the best methodologists. And Danny Roderick is both. His economics rules is the single best source

for explaining the strengths and weaknesses of economics to an outside audience. So we're going to start this conversation with some questions about some of your recent papers on this topic of premature de-industrialization. I find this one of the most interesting themes in your work. The notion that a mix of automation and competitive trade with wealthier nations

might mean that poorer nations today will not be able to industrialize and follow the path of South Korea or Taiwan or Singapore. Now, if this is the case, if a lot of economies out there are deindustrializing prematurely before they've built up a significant middle class, what do you see happening, for instance, for the future of Africa, the parts of Africa which do relatively well, but let's say they do not industrialize, what does that future look like in your vision? I don't think it means that there's a very bleak future. for the countries of sub-Saharan Africa.

I just think that it's going to be very difficult, if not impossible, for them to replicate the very rapid convergence experience of the East and Southeast Asian countries. If you look throughout economic history, the countries that have made that very rapid leap into middle income and beyond that advanced country status, starting from sort of the non-Western countries first, Japan, from the late 19th century onward, and then after the Second World War, South Korea, Taiwan, and then eventually,

of course, China, along with a number of countries that did more or less the same in the periphery of Western Europe, closer to Western Europe, the one thing that's common in all of them is very rapid industrialization. And with very rapid industrialization, and with very rapid industrialization, you can get growth rates on per capita basis of four or five percent per year, on an ongoing basis for decade after decade. And that's sort of what's made, you know, sort of South Korea, what it is today in that kind of rapid growth. But that's a very sort of, if you will, a very exceptional kind of experience.

I think if the possibilities of rapid industrialization are no longer there, as you suggest, I think, are in fact no longer there. What we're going to get is sort of slower growth, what I call growth that's based much more on sort of the steady and hard sort of work of accumulating basic capabilities, human capital, skills, institutional improvement, all of those things that are required for the long run, but don't produce the kind of 4%, 5% growth on a per random basis, as we've seen in those rapid growth countries.

But say, let's think of it from a political economy point of view. So South Korea has done very well exporting, and that created for them a set of interest groups, which were willing to fund that infrastructure, bring the whole country together, so to speak. You end up with a middle class being built rapidly. That middle class is the foundation for a democracy. and the special interest groups behind the infrastructure. It's clear who they are, and they win almost every political battle, even without a democracy.

You see some version of the same in China. So the countries that don't industrialize, could you imagine them having an ongoing kind of ramshackled existence where consumer goods flood in at cheap prices? They grow at 4% instead of 10%. But Lagos in a way always looks a bit like current Lagos and never looks like Seoul, South Korea. And what's even a developed country?

in some fundamental psychological sense changes? Yeah, I think what matters here is probably less the quantitative side, how rapidly you're growing, but sort of the qualitative things that are happening during the growth process. You have to bear in mind that, you know, sort of are archetypal, successful, industrialization,

growth, liberal democracy kind of countries, in fact, never experienced the kind of growth rate that Japan and South Korea or China did. in the aftermath of the Industrial Revolution, you know, the Great Britain was growing at rates that we would scoff at today for any emerging market. So it wasn't the growth itself that enabled the development of the middle class

and the emergence of and the spread of liberal values and the creation of a liberal democracy, but the kind of the transformation of the economy and its social structure. in a particular kind of a way, you know, if you will, the spread off of, you know, bourgeois liberal values, you know, the restraints placed on the state in terms of how much it could do and under what kind of circumstances. And you're right that in countries like Nigeria and many others, which have had very rapid population growth, where the urban areas have swollen with people from the countryside.

I think sort of managing these kinds of tensions, especially, when you're in a sort of open economy and the markets are being flooded by cheap consumer goods from elsewhere. Managing these transitions are very difficult, especially since these countries in Africa, of course, particularly

so, are torn apart by a number of additional cleavages of ethnic language, regional, tribal, and so forth. And so those are all things that are making it very, very difficult for these countries. I'm not so sure that rapid growth would necessarily have illuminated these kinds of problems.

In some ways, it might even aggravate them. Think, for example, that the Arab Spring, the kind of troubles and the riots that started the Arab Spring arose not in those parts of the Arab world which had had the least amount of development. but in fact in those countries like Tunisia and Egypt, which had had the most rapid development. And it wasn't just GDP growth per se. Tunisia was always an exemplar of improvements in human and social development.

Civil society. Civil society. Improvements in health, improvements in education. Of course, it was an authoritarian regime. But, you know, it would be, you had the UN development program, the World Bank sort of touting the Tunisian example

of sort of in the Middle East as an Arab country that had done very well. So I think it's less the rate of growth and then sort of what is happening sort of underneath that in terms of the overall structure. And there you have many, many different paths that are possible. So I really believe

in sort of one of my favorite economists is Albert Hirschman and for a while. Two years I occupied the chair was named after him at the Institute for Advanced study, and he coined the term sort of possibility, which was the notion that as much as in social science you think you want to generate theories, sort of deterministic theories of, you know, sort of you have the industrialization and then the urbanization and then the bourgeoisie,

and that's going to generate capitalist democracy and so forth. A lot of what happens is just you know, sort of maneuvering around the kind of constraints that geography and history have bequeathed and doing things that otherwise might not have seen possible. But that's, you know, if 50% is driven by sort of exogenous conditions, 50% is still basically in your hands. It's one way of looking at it. So I always look for sort of things in how you can sort of manipulate and maneuver the context in which you find your, you find yourself. in, and I think those possibilities always exist. Let me try to pin down a fundamental aspect of your thought that I see running through a lot

of different papers. And that's the idea that there's something special about manufacturing. So as I understand you, if you do industrial policy and you get the right kind of manufacturing that puts you on a better path, your papers on productivity conversions. Once you're started in manufacturing, according to your data, you get bigger ongoing gains than you do an agriculture. up and agriculture is especially slow. Now I find this intuitively plausible, but if we try to ask at the most foundationalist level,

what is it exactly that's the difference between agriculture and manufacturing, which accounts for this? What are the micro foundations of where that comes from? I think a couple of things. One is that manufacturing technology is much more easily transportable across international. international borders. So it's much easier to adopt and adapt manufacturing technology. You can take a, you know, sort of a textile and clothing plant and sort of, you still have to tinker it with it, but it's much easier to transplant. Unlike many agricultural technologies, so we've seen that, for

example, in the case of the Green Revolution, it required a lot of underground adaptation because the weather and soil conditions can be very different. So if you will, the non-traded component of that technology transfer is much greater in agriculture. And for that matter, it's also in services. So, you know, you can figure out how to run a hospital system or education system in an advanced country, you're never going to be able to just take that and transplanted in a developing country because, you know, technically speaking, the non-traded component of that technology is, or the latent, adapt, you know, part of the technology that requires adaptation to local

So it's about the people and the culture? No, I wouldn't say in the case of agriculture is the soil and the weather. So it's not, I'm not saying, I don't want to say that some people are lazy and therefore or they're culturally not predisposed to this. I'm just saying it.

But that we see it in services suggests the weather and soil may be part of it, but they can't be driving it. Well, what I'm saying it, no, no. In services, I'm saying a lot of services have been very difficult to transplant. For example, mobile telephony has been very easy. That just sort of stands out as one area.

But, you know, most of services are basically, you know, think about, you know, figuring out how to do education and health systems. Or good health care systems. Exactly. But that seems to make it culture. If you want to talk about culture, let's sort of open up a big, you know, sort of parentheses and get into that. Because I don't know exactly sort of where, you know,

institutions and organizations and incentives move into sort of a domain where we sort of start saying, you know, calling it culture. You know, sort of culture is back in economics. I still have to be convinced that it's actually adding a significant amount to what we learn. But I mean, get back to the question about manufacturing. So one thing I said is that, you know, it's much easier to move technology. If you've seen the way that Toyota manufactures cars, in Japan or in the United States or in South Africa, it's exact, more or less the same. And so that is possible. The second thing, which I think is sort of the microeconomics of why it is that manufacturing

is so special, is that manufacturing standard traditional manufacturing, like making cars or garments or toys or wigs, has the feature that you can absorb. a lot of very unskilled workers into that because you know being a production worker even in an auto factory and certainly in a footwear factory doesn't take a whole lot of skill so that means that you can absorb a lot of people off the countryside in a much more rapid way than you could in a lot of other activities where technology and skill are actually highly complementary so I you know sort of I heard once a Chinese entrepreneur

sort of tell me that when they were, you know, she was running a footwear factory, and she was hiring people from the countryside when the industry was starting. And basically the only skill that was required to get that thing was going was not whether they could, you know, read, not whether they were numerate, but basically whether they could just do this with their hands. So if, you know, basic eye, you know, sort of, you know, hand coordination is all the skill that was required. And you could. And you could, could put thousands of people into these factories. So the fact that you can absorb a lot of people,

you can increase their productivity three-fold, four-folds, off the farm by putting them in these factories, is an opportunity that very few other economic sectors provide. And the third, and I'll just mention a third thing, which is very important in manufacturing, is tradable. So you don't have to develop a whole industrial complex. You can import inputs, and then, then export the output. So you don't require domestic demand to take off. So you don't require

an economy-wide productivity revolution in order to have consumers to whom you can sell your output. You can simply sell it on world markets. What that means is that it's enough to develop mastery in one segment of manufacturing at a time, and that provides the kind of engine that you need. Compare that with the kind of transformation you need in services where most of the output that has to be sold domestically, you need basically everybody's incomes to grow, every sector to experience a productivity increase, so you have a large enough market that you can sell. Otherwise, any service sector that is doing really well eventually is going to experience very rapid terms of trade deterioration domestically. So those things, the transferability

of the technology, the fact that it can absorb a lot of unskilled workers traditionally, this is what's changing of the country. side or out of informality and tradability, I think, is sort of what makes really manufacturing historically has made it special. A question about industrial policy. Now, I think we would agree in a number of the East Asian Tigers, industrial policy has worked out pretty well.

But take the case now. There's premature de-industrialization going on in many countries. It might be hard to reverse. Richard Baldwin writes of the splitting up of supply chains. So South Korea and Japan had relatively integrated supply chains. Now the supply chains are all around the globe. In a time like this, where manufacturing is changing rapidly, and policy itself is subject to a status quo bias, as we know from your own writings, what do you think is the new role for industrial policy,

if any, and should we today perhaps not be more skeptical about it than we were, say, when Singapore started it? I think the answer to your last question is yes, although I wouldn't say we should be more skeptical, I think we should expect lower return to it is what I like to say, simply because I think the possibilities of industrialization in the sense that you could put, you know, in the old days, you know, 30, 35 percent of your labor force into manufacturing, that is not going to happen. You know, sub-Saharan Africa will not get there. So what that means is that the returns to even successful industrial policy these days is is less. So that has a couple of implications. One is that

increasingly I think maybe we really need a different term. We shouldn't say industrial policy. Maybe we should talk about a structural transformation policy that your perspective in terms of how do you get rapid transformation, you should move away from a little bit at the margin from manufacturing into other parts of the economy. So I think you should be thinking more about services as well. A lot of services are tradable, so to some extent, you know, some of the advantages might exist in tradable services as well. The other thing, which I think a lot of a common mistake in industrial policy

that low and middle income countries do, which is to look at industrial policy or, you know, criteria for success of industrial policy in terms of output, exports, innovation, R&D patents, and things like that, whereas I would put a lot more emphasis on actually employment. The question is, are you generating adequate employment in these more productive industries that are oriented into world markets? Because the kind of industrial policy dance ends up generating profits, investment, and R&D, in a low-to-middle-income country, but at the same time, your employment is shrinking is not going to be the kind of high-return industry for return activity.

for the economy as a whole. So I think you're basically right that I go around these days a lot less sort of advocating for very forceful industrial policy in large parts because I do think that the returns to it have fallen.

And I think also we need to think through a lot more sort of what it should look like in a world where in fact we're concerned at least as much about services as manufacturing, even in the middle-inked. or low-income countries.

Let me introduce one of your best-known ideas. It's sometimes called Roderick's Trilemma of the World Economy. Here's how one of my readers defined it. According to this theory, democracy, national sovereignty, and global economic integration are mutually incompatible. We can combine any two of the three, but never have all three simultaneously and in full.

Given that, which I would agree with, if we take the Eurozone today, day, something clearly isn't working. I don't mean just Greece. But every now and then we hear of an ascent recovery, and the recovery is over before it really has even gotten underway. The Eurozone is now sliding back to deflation. France, Italy, seem to be slow growth countries permanently. Let's say it's up to you. Given Roderick's Trilemma, what should the Eurozone do? Well, you know, academically it's very easy to give an answer. I think, you know, And it's what the trilemma suggests,

that Europe's policy makers should decide whether they want. Oh, but they ask you. They were about to decide, Professor Roderick. Please tell us which one to give up. Well, Tyler, as you know, we're very good about laying. Our job is to lay out the trade-offs, but not to decide where we want to be on those. But you as a citizen.

Say you're a European burden. I'll tell you that too. So let me answer the first question. And the first question is, I as somebody who cannot put my, you know, if I cannot put myself in the shoes of the European electorate, European citizenry, I say the choice is very clear-cut, either more political integration or less economic integration. So that's the choice that, you know, assuming that we don't want to give up on democracy. if we want a sort of subject to the constraint that we want Europe to remain or regain its thriving democracy, then this is the choice, this is the inescapable choice that the Trellama points to, which is to say you have to decide that whether you're going to politically integrate,

and if you're not going to politically integrate, you have to figure out a way of economically beginning at least some of disintegration. and that means losing the monetary integration in particular. Now, you ask me which would be my preference. My preference certainly would have been before this crisis or well into the crisis, a year or two into the crisis, would have been, this is the opportunity where you just basically sort of go to your electorates and say, this is why we need to federalize Europe.

This is why we need to politically integrate. This is why we need not just bank, integration, but we also need significant amount of fiscal integration and the creation of pan-European political space. So that's your first choice. Full-steam ahead with integration. Full-steam ahead with political integration to back up the significant amount of economic integration that already exists.

But now you've seen three or four more years. We know one of Roderick's principles as economics is almost always about the second, third, or 17th best. And what do you choose today? I'm afraid, and I say this very, very reluctantly, that I do think that for a number of countries at least, that a loosening of the restraints of monetary integration, of a common currency. So you create a graceful path out of the euro. Well, of course, that's the difficulty, because it's very difficult to figure out if in fact that

graceful path exists. But yes, you know, sort of laying that aside, you know, those transitional costs aside, I think, you know, at this point, I just do not see the kind of, you know, European integration was always an elite project. European integration was never something that the people demanded. And then, you know, the leaders said, okay, we will do whatever you ask. But it was always an elite project when the governmental leaders sold to their population, to their electorate. I think what happened with the Euro crisis is that somebody like Merckar, instead of going out and saying, look, this is not a crisis of sort of, you know, it's not a moral issue that, you know, a moral issue that, that here you have a profligate country that is that we need to sort of discipline.

But this is really a crisis of interdependence, that it was as much as a German problem or German banks that are the source of the problem as the Greeks who borrowed or the Spaniards who borrowed. That line was never put forth to the German population. It was always became sort of the moralistic narrative of the North versus South. that's where the political elite failed in Europe. And I think with that, it's very difficult to see now how you're going to undo that in Europe, unfortunately. So let's say you're China.

You're on the ruling council. They haven't even discarded democracy yet. So maybe they're sitting in Broderick's bi-limma or dilemma, whatever it would be called. And they're trying to maintain capital controls, but there's more phony invoicing all the time, exports running through Hong Kong, A lot of chicanery, people trading money out through Bitcoin, a lot of leakage.

In the last few months, they've spent three or four hundred billion of reserves. It's real money. Trying to keep the value of their currency up. It still doesn't seem to be working. In the past, you've argued eloquently capital controls often make a good deal of sense. Their capital controls now, should they double down and defend the value of the yuan at all costs? Or should they let it go, open up the capital account? and see what the new value of the currency will be.

You know, I don't think, you're in charge, again. Yeah, no, I would not do anything hasty on the capital controls front at all. I don't think that the Chinese have mismanaged this as badly as often it is described in the financial press. I agree with that. And I think, you know, that there was a run-up in, in the stock market and they were sort of they did a bunch of things to try to prop the bubble and eventually they did and maybe sort of it went a little bit too far and so but you know but they did more or less the right things in this whole process and they've allowed the currency

in the last few years to to move more freely so I think you know they're true to their policy roots which have paid off very handsomely over the last three decades. I mean, I think the last thing that we outsiders should do is second guess, the wisdom of Chinese economic policymaking. You know, we're talking about the country that has engineered, you know, the history's, you know, sort of most miraculous poverty reduction program ever. And let's say another $300 billion of reserves go out the door to keep the peg. Your phone rings in Cambridge, may as? Starting from $300 billion.

You know, it's nothing. It's just a drop in the bucket. Why did they accumulate those reserves to begin with? So obviously, yeah, I mean, it's not like they're running out of reserves. It's not the issue. And if they weren't losing some reserves, I mean, that's part of the optimal adjustment. I mean, it's not, you know. I don't see any reason.

I think there is, you know, if you ask me, sort of, you know, tell me why I should be worried about China. I can give you real reasons why I should be worrying about China, relating to the fact that they, in fact, have both a huge political transformation ahead of them, as well as a huge economic transformation. The political transformation being the one of having to open up eventually, become more democratic, and we have no idea how they will manage that.

The economic transformation, which they have not really gotten underway seriously. They've started, but they're at the very beginning, is how to turn into more of a domestically consumer-oriented, sort of less investing, more-consuming kind of economy, and less dependent on the world market. Those are hugely challenging problems. Managing, you know, sort of the currency right now, the financial, sort of, you know, there's the stock market, which is a tiny, tiny part,

of the Chinese economy. You know, it pales, I think, in comparison to those bigger issues. Let's take Milton Friedman's dilemma, which is, in a way, an early version of Roderick's trilemma. So Friedman argued there was a natural tension between high levels of immigration and the welfare state.

And you see this quite sharply now in Western Europe. In some ways, you see it in the United States, even though our immigration has not been up lately, but the tension is there. So if politically it turned out that you had to choose, you know, at the margin, cutting back immigration or cutting back the welfare state, you as a citizen, the economist cannot say. But what are your thoughts on that? Well, I would, you know, I start from the supposition that borders matter.

Borders have moral significance. So I find, so I accept the need. notion that, let's say, we as a democracy or our citizens won't necessarily put the same weight on somebody on the other side of the border as they do somebody who's their neighbor or share their same political system. But you can if you choose to. But I can if I choose to. So the question I ask myself is this.

let's suppose that the trade-offs, let's suppose, is as you've put it, which is that I can bring, we can allow some people to come in and those who are coming in are going to be better off, potentially at the cost of some of my own co-nationals being worse of. My answer is that at the margin, this is a relatively easy question to answer because I say, okay, how much? weight would I have to place on somebody on the other side of the border relative to somebody on my side of the border for me not to let that person in. And if you do the calculation,

which I've done recently, which is to say, sort of, let me just be careful about, let me be clear about what I'm saying. I'm asking the question, under what kind of weighting of outsiders would it be a bad idea for me not to let someone? more people to come in. And the answer is that I would have to put a weight of less than one-fifth of somebody on the other side of the border compared to somebody here. And then I say, look, you know, I might understand that it's reasonable to say, okay, you know, it's, I maybe I care twice as much as somebody who's my neighbor as somebody who's not, but five times as much, I'm not so sure. So that seems like excessive. So given how restrictive and how high

these barriers are at the moment. At the margin, to me, it's a relatively easy answer, which is to say, yes, at this point, it makes sense for rich countries to take in more people from the poor countries. And to put it in a somewhat, to draw an analogy between the trade regime, what has happened in terms of trade globalization and the migration regime.

The migration regime today is more or less where the trade regime, where the trade regime was back in the 1950s. And back in the 1950s, the global gains from further liberalizing of trade relative to the income distributional costs within countries and so forth was relatively huge. And I think the migration regime is somehow sort of back there.

And we need to sort of rationalize it and liberalize it a little bit more. I'm evading the tougher question, of course, which is, where would you stop? So it's easier for me to answer at this point, you know, the regulations are too restrictive. But where would you actually stop? I would certainly stop at a point where the integrity of public institutions

and the welfare systems of the advanced countries would be seriously threatened. But I don't know where that is. I would say today, Germans are a relatively, relatively cosmopolitan people on the world stage. How well will the absorption of 800,000-plus Syrians go in Germany? What is your opinion? Well, I mean, I think they have absorbed more Turks over the sort of 1960s and 1970s.

And look at the German national team. How well has it gone, in your view, Turkish absorption into Germany? I mean, I think it's gone actually remarkably well, and there's certainly, you know, some lessons that could be drawn from that. I think it's, you know, I don't know anybody who would sort of would say that this has been, you know, a terrible mistake for Germany. I think they've certainly have enriched, I mean, leaving it aside their economic contribution, they've enriched German life. So I think that's the most direct comparison and analog is what happened with the Turkish inflow of the 60s and 70s. And that was huge.

I don't remember offhand what the numbers are, but certainly it was huge, and it's worked quite well. Now, you were born in Turkey, you grew up in Turkey. I have so many questions about Turkey to ask you, but let me just try two or three. Let's take the Turkish city of Kenya. I've been to Kenya. outsiders sometimes call Konya the Bible Belt of Turkey.

I'm not sure that's a good comparison, but it's a more religious city than Istanbul. It's a kind of heartland city in Turkey. And just the simple question, I would put it this way. Do you trust the median voter in Konya? So if you think about Turkey's troubles, if Turkey were truly ruled by the median voter in Konya, to what extent would things be fine, or to what extent is the problem it's not really done? democratic enough. Do you see what I'm asking? Because in some obvious ways, the current regime is not very democratic, even though there are elections of a sort. But do you trust the median voter in Kenya? I do trust the median voter in Kenya, as I would trust the median voter in any country. However, I think when you think about democracy, it's not just about the median voter. I think, and this is why I'm working on this topic, on the question of liberal democracy.

it's that the things about democracy that we really care about are just a two-fold. One is that we want the median voters' views to be reflected. The second is, you know, we don't want to allow the median voter to do whatever he or she wants to the rest of the population. And that's why I think the constraints that liberalism or the liberal institutions, the rule of law, the constraints on the... of non-discrimination, of minorities, of ideological, or ethnic or religious sort,

those are equally important parts of well-functioning democracies. And one thing that has happened in countries like Turkey, which is actually a very widespread phenomenon around the world, is as the franchise and elections have spread around the world, by the count of sort of the polity, which is sort of this group that keeps track of this, we have now more democracies than autocracies in the world. But they're all electoral democracies.

Their democracies precisely in the sense that you meant, which is that you have elections regularly, and they generally free and fair. But what they do, however, is that they allow the winners of those elections to more or less freely temple on the run. rights of those who are not part of that winning majority. So the liberal element of that democracy is really what's missing.

So I'm all for empowering the median voter in Turkey or elsewhere, but all in the context of rules and practices that ensure equal treatment of minorities of all kind. And that's really the part that I think, for example, the whole political economy literature on democracy has missed out on, because essentially it's just thinking about it in terms of elections and the median voter, not thinking about it in terms of these restraints on what the median voter can do.

So thinking in terms of minorities, if we go to the Eastern Mediterranean in times past, today's Izmir was once Smyrna. It was a fantastically cosmopolitan city. Greeks, Armenians, people from all over the Middle East, Westerners lived there. It was for quite a while in harmony. The earlier Ottoman Empire was quite a cosmopolitan place in many parts.

Again, by its time, a fair degree of harmony. And in the early part of the 20th century, that changes very fundamentally. You have some very violent events, and it's never gone back. Do you think it's possible for the Eastern Mediterranean to be an area where these civil minorities have protection? or do you think the more monoglot version of Turks plus Kurds, now plus refugees, is simply what we're going to have? How do you think about that whole change?

A great, terrible, unfortunate development or somehow it's a bit like the European 17th century, great human tragedy, but a clearing out that enabled nation states to in some way move forward? Yeah, so it is, you know, the big change, of course, was nationalism and the creation of the nation's, state. And, you know, I don't think, you know, that the old order was a particularly desirable one. It is one that, of course, significantly circumscribed what the Greeks or the

Armenians or the Jews or the other minorities were allowed to do in these multinational empire. So, you know, it's not like, you know, this wonderful ancient regime that that we can't resuscitate. And of course, the forces of nationalism and the creation of the nation state moved us into this new world where, I think what happened in the Eastern Mediterranean, as in so many other parts of the world,

was that you had the mobilization of the masses under sort of a nationalist, brick relatively early in terms of historical development compared to Western European countries. For example, in Western Europe, you had sort of liberal ideas developed before the franchise became a mass franchise. So in fact, in Britain and Western Europe, you know, sort of the liberals didn't want liberalism existed before democracy came into being. Whereas, of course, in the Eastern Mediterranean places like Turkey, we're trying to create liberalism after you

at a nationalist mobilization and the creation of democratic-like regimes based on the mass franchise. And that's harder to bring those ideas of tolerance, the separation of powers, the rule of law and so forth, relatively later in the game. And that's what's happening. But it is not impossible. You know, one of the places that I'd like

to talk about, in fact, talk about this in my latest paper on liberal democracy is the case of Lebanon in the Eastern Mediterranean. Lebanon until 1975 was a fascinating example of, it wasn't exactly liberal democracy because it was sort of based on these different groups. They each had their shares in power and constitutionally they were each allocated. It was five feet out. But it was, you know, The political scientists writing about Lebanon in the 60s and 70s talked about it as a liberal democracy. The reason was because you had so many different groups, so many cross-cutting cleavages. You had the Muslims and Christians, the Christians were between the Greek Orthodox and the Muslims between the Shi'i and the Sunni. So there were so many of these cross-cutting cleavages that they essentially had reached a modus operandi.

that no individual group had this notion that if simply they could prevail, then they could rule forever. And when you don't have that expectation, then you work out bargains with alternatives because you're afraid of what the other side is going to do to you when they come to power if they have a chance of doing that. And of course, how that system came to an end

is also interesting because, you know, once you had the massive influx of Palestinian refugees from Jordan, that balance was upset. So you now have one group that can potentially can see itself as having a majority for an indefinite period of time. So no longer has to essentially keep on with that basic compromise. And that's how the Lebanese consortial system came to an end after 1975 with the Civil War.

But at least that gives you an idea of the policy. I don't think this is cultural. I don't think this has anything to do necessarily with Islam. You know, it's not in the water. You know, these things can happen, but you need this experience of sort of learning to compromise and to think that you need to be sort of moderate in your policies because it might be that some other group will rule after you, so that, you know, you have this, if you will, these repeated game incentives to basically not discriminate against those not in power and very much. And I can certainly come up with scenarios for Turkey where this might have developed over time.

And I would have to blame sort of a successive sort of mistakes made by political leaderships at different times as to why this process has so often been short-circuited. First, of course, the military by intervening, you know, sort of, you know, repeatedly and therefore short-circuiting this process of building up these habits of, you know, regular change in power and therefore moderation and compromise developing. And of course these days with the government of Erdogan, who basically has just, you know, chosen the tactic that, you know, do anything to remain in power, including, you know, sort of aggravate all the cleavages. on the basis of sect, on the basis of nationality, and so forth. So what then is the equilibrium with the Kurds? They're scattered across several nations. It's a burning issue in Turkey.

Even within Kurdish circles, there are multiple languages and different points of view. Do you see that as headed towards something like Lebanon in its more vital feisty or time, or do you see it going very badly wrong? The Kurds, Turkey, and to some extent Kurds and Iraq, Will there be a Kurdish state? And is there any equilibrium at all? I don't think, I think it's very unlikely that there will be a redrawing off the borders formally.

I see that as a very remote possibility. You know, I think there was a possibility that the Turkish government, you know, would have reached a modus Vendee with the Kurds and some kind of resolution in the same way that the sort of the Basque problem in Spain was resolved. And I don't know, they're not asking for independence. I mean, it's so, you know, and there's not terrorism

in the streets every day. So I think in that way, I think, you know, it's been, in that sense, it's been resolved. Whereas the problem with the Kurdish problem right now in Turkey is terrible. I mean, it's, you know, terror, you know, sort of violence has flared up again. and so forth. So we're back to some of the worst kind of conflict. But I don't think there is something

deeply structural that prevents the kind of compromise. I think the, you know, sort of the Kurdish nationalists, in Turkey at least, are very clear-sighted in understanding that, you know, that full independence is neither in their interest nor something that they're likely to get. And And the kinds of things that they do want realistically are not things that the Turkish national government could not give up. So there is no fundamental problem as to why that cannot be resolved if it is not being exploited for political reasons. Right now, for example, what's happening is that Erdogan is exploiting the Kurdish problem as a way of building up his own nationalist base. And that's sort of is being used. That particular cleavage is being used for political purpose.

But one can imagine all other political strategies, other winning strategies that would involve compromise. Rahan Pamuk, by far the most famous Turkish author today. Overrated or underrated? What's your take? You know, I have to say I have never been able to finish one of his books. This is not true. There's one that I finished, but this actually wasn't a fiction. It was his memoirs of Istanbul. And I did finish that because he grew up in the part of town, which is very close to where I grew up too.

So I could associate. But his novels, I have to say, are, you know, I find convoluted and sort of going around and round in circles. So I'm not big Orhan Pamuk fan. I love his older brother, by the way, who's an economic historian. It's a very distinguished economic historian, Chef Ket Pamuk, and I finished a lot of his books. So who's your favorite novelist?

You know, I love John Le Carre. I think I've read probably every one of his novels. I like Ian McCune a lot. I'm reading Johnson Franzen's book, Purity, right now, which I enjoy. I like sort of he draws you in. If we take Le Carre's vision of how a spy agency works, is that Roderick-esque political economy? Or does it force you to revise your views of politics?

No, no. It's very human, right? I mean, it's just the mundane and the small things that happen. So it's a very good way of actually putting it, because there's probably, I had not thought of this until you said it entirely. So it's a great point that there's a lot of political economy. in John Le Carre's description of how these sort of bureaucracies operate and the personal relationships and so forth. So I have to think about it. But no, I mean, my view of sort of, you know, I've never had this starry-eyed view of, you know,

how government agencies operate. So, you know, it's not one that is jarring with respect to my own worldview. If I think of your work as a whole, I always like to ask this question about thinkers. What's the underlying current which ties a lot of the different parts together? And one thing that struck me going through your work, by the way, this pile is a small fraction of your work, and I feel sorry for my assistant who had to print it all out. But even a lot of your papers that don't mention turkey at all, I guess personally, I read them as asking the question, Why hasn't Turkey become a fully free and modern society?

So even if I think of your work on prematurely industrialization, if I think of Turkey in the 19th century, a big theme for my understanding is that Turkey is then prematurely industrializing, and that's why the Ottoman Empire becomes the sick man of Europe. So I read a lot of your papers as looking at this elephant from different sides, even if not about Turkey at all. Would you respond to that? Do you think that's a fair characterization?

I think that's very perceptive. I mean, I think from my first foray into social science, I mean, I think that has been the question that I've been motivated by. I mean, just to back up a little bit, I mean, when I was growing up in Turkey in high school, of course, social science was probably the last thing on my mind just because of the way that social science is taught. in Turkish schools, sort of wrote memorization and so forth.

So that wasn't fun and just, and like all Turkish kids of my generation with, you know, with some academic pretensions or at least relatively good in schools, sort of my, you know, my goal was to do engineering. So I came to Harvard as an undergraduate to study engineering, only to find out that there was actually no engineering major at Harvard. And not yet. Right. Right. And then I discovered the library and the books, and the fact that they had more books in Turkish on Turkey and Turkish history in Widener Library than I could ever possibly find in Turkey.

And then I started taking courses in political science and economics, and it just opened up to me what it meant to be sort of like thinking about these social, economic and political questions. But the one thing that sort of motivated me always was this question of why was Turkey relatively poor and not developed and the rest of the world and the United States or Western Europe developed. So that is where, given this motivation, let me ask you for the simplest, crudest version of your answer. We all know, boiling things down to a sentence

is a horrible oversimplification. And you above virtually all other economists are about the complex and the multifaceted. But nonetheless, if you, you had to give us the super boiled down version of why hasn't Turkey become a more or less fully free and modernized society, what would it be? Well, let me give you the answer. The answer, the super short, and then we'll give you follow up. I'll give you the general answer to that question, not for Turkey, but for countries like Turkey.

And my general question would be 50% structure, 50% agency, which is to say, you know, you start with a lot of initial conditions that aren't very favorable. Going back to the 19th century, you start on the wrong end of the global division of labor. Everybody else is industrialized, and you're not. Plus, then the British come, and they open up your trade regime. You have to, you know, all the craft industries you have in the 18th century,

just decimated because of imports from Britain and other Western Europeans. And then you get defeated in a world war. So you start with very inauspicious circumstances. And then, you know, agency, you know, 50%. You know, what happened, for example, under Mustafa Kemalatatatir, who was sort of the leader, you know, who made Turkey, who took Turkey from, you know,

the ashes of the Ottoman Empire, erected the Turkish Republic on top of that. You know, he did a lot of very good things, and a lot of, you know, very silly things, and we're still living with the consequences of many of those things, including the good things. I mean, the fact that Turkey is a relatively secular country with a large middle class, to a large extent,

is, you know, the result of his top-down, extremely brutal, extremely, you know, sort of, you know, narrow-minded view of what it meant to be a modern nation state, basically take, you know, the Swiss civil code and the French criminal code

and just, you know, the German commercial code and just, you know, apply it. And part of, and, but also a lot of the problems that we are having are also the residue of the fact that, you know, in that rigid view of how to modernize, he pushed out a lot of the people who need to be included back into the Turkish polity, including the

conservatives, the religious conservatives, and a lot of others, and the Kurds. But if I look at Europe as a whole, there seems to be a line somewhere. Maybe it's at Slovenia, Croatia. You can debate where the line is. But east of that line, you don't see full development. And that at least suggests to me, it's not mostly agency. There's something structural, because to think the leaders or the citizens in these different countries all made the same mistake, it doesn't quite fit my other views about the world. So if you're comparing Eastern and Western Europe, again, this isn't only about Turkey. It's not about Ataturk. You could say the same about most of Eastern Europe, except possibly Poland. What's that fundamental difference between West and East that is giving

rise structurally to whatever percent of the explanation you want to assign to structural forces? You know, I would go back to people like Barrington Moore who tried to explain sort of why is it that, you know, Western Europe, Britain sort of developed democratic institutions and it became very difficult elsewhere in Central Europe to do the same. I think a lot of what he said had to do with the nature of sort of, you know, how did market forces and social structures interact? In particular, what was the mode of commercialization of agriculture?

So if you had, you started out with kind of peasant agriculture, small-scale farms, and landlords that weren't interested in labor-repressive agriculture, who diversified into commercial businesses in urban areas. As in Britain, you got a very different. kind of path of industrialization and political development, where you got sort of, you know, large sort of commercial estates, large landlords,

you know, absentee or not, interested in sort of labor repressive, you know, methods of farming, who did not diversify, you know, to a large extent, into industry, into commercial enterprises, allied themselves with the state so as to be able to, you know, continue the repression of the agrarian sector. So your free-word answer would be structure of agriculture, if we had to boil it down.

Yeah, I mean, it has to be agriculture because that's where everything started. I mean, so that's where everybody was. So that's where the wealth was. So if you go back to the subject. But not ideology. So you're an economic structuralist. No, this is where, no, this is again, I think the fact that, let me put it this way, if France was,

was not in Western Europe, but in Eastern Europe. I don't think it would be the kind of democracy or the kind of industrial economy it came to be. I think being, you know, sort of, you know, having the Netherlands in the North and Britain to the west, I think both the competition, the benchmarking and the ideas, and I think that sort of made, I think in that way,

geography made a difference. But geography because it sort of enables the transfer of ideas and sort of who are you looking at as sort of what kind of a country you want to be. And so in many ways, France had the initial conditions that would have made it look more like a central or Eastern European country than a Western European one. But the fact that it's part of Western Europe,

I think, has to do that it was so much closer to Britain. You know, I think you see the same, you know, But why is it that Vietnam has developed in the way that it has after it sort of opened up its economy? I think if Vietnam was located in Latin America or Central America, I don't think it would have been half the miracle that it was. But keep in mind, Vietnam is still poorer than Bolivia, which is the poorest country in South America. So Vietnam has yet to show it's a success. Wouldn't you bet that in 10 years it won't be? No, I wouldn't bet.

I'd say it's an even money back. Okay. Let's go to a short question and answer part of the talk. I'm going to shout something out. Ask you whether it's overrated or underrated. You give me a short answer. You're free to pass if you want to. As an economic method, going back to your book,

your book, this book, Economic Rules. Randomized control trials as an economic method. Overrated or underrated. Today, overrated. Give us a quick why. that's the only thing that students do these days, and I think that's not the only way we learn. So it's crowding out, I think, a lot of...

It's not... I mean, you know, I think it was a fantastic contribution to the economics literature. But I think it's sort of, you know, it's... You know, I think it's... the marginal contribution of... I think the...

the way that I think about it is internal validity is not the only thing. So the good thing about all these RCTs is that they're very good about being able to identify causal effects. But they're very poor about saying anything about, you know, why is it that we get these effects or in fact whether, you know, these things also

the same effects would occur in other contexts, in elsewhere. So it worked here. We don't know if it's going to work somewhere else. And it's crowding out the kind of work. Political economy, because it's hard to do an RCT on political economy. But even in micro things, I mean, I think even, you know, in the kinds of things where we've applied RCTs, I think we should be thinking a lot harder conceptually and theoretically.

So there was a time, you know, when I came out of graduate school, you know, if you were doing development economics and you were doing something, empirical, you could never get a job. Because all the, you know, probably in development economics at the time, you couldn't get a job, period. But the point was that, you know, doing empirical economics would not make you sort of rise up. And I think that was terrible. And I think sort of we've now sort of, you know, basically moved all the way to the other extreme where empirical work also means just sort of, you know, doing something where you put 100% weight on identifying internal validity, but very little thought. And we should, you

of external validity or the basic theory. And I think, you know, we just have to correct some of that balance. Rumi, the 13th century Persian poet and his Sufi mysticism, as you know, he wrote some in Turkish. Overrated or underrated? Not enough known. Nazim Hickmet, Turkish poet, famous left-wing figure, flirted with the Soviet Union. Fantastic poet. So underrated.

Underrated. Underrated. The Iran nuclear deal, overrated or underrated? I think just right. Just right. The idea of an independent Catalonia. A lot of my friends will hate me for saying this, but overrated. And why?

You know, I... Again, my... My Californian friends are going to hate me for this. But, you know, when I ask, what is it that they... want to get out of independence, it seems that that basically is just very much a, you know, sort of a sense of having been treated very badly by Madrid, that there isn't, that, that, that it's almost like a very, you know, sort of a 19th century sense of, you know, of, you know, nationalism that is driving it. And I sort of think that we should be beyond that.

I think that in a thriving European Union, hopefully we get there, that basically a lot of regions can do a lot more of things that they can do on their own. And I think the right sort of devolution of political authorities is up for grabs. And breaking up Spain, I don't think is going to really help that bigger goal of having a politically richer and deeply democratic Europe. So I don't see what the upside really is except for this deep sense of 19th century, Rissontimo, if you know. What's the country right now investors are underrating and a country they're overrating in today's world? Well, given your understanding. Brazil, I think, is deeply underrated right now. I think that it's when you look at what's happening, on the one hand, in Brazil, it's sort of, you know, it sure.

shocks you that there is this widespread corruption with petrobras that seems to go all the way up. On the other hand, when you look at how they're dealing with this situation, it's incredibly impressive. It's something that even in an advanced country you wouldn't think would happen. You know, you have these, you know, prosecutors and judges who are actually following the rule of the law. There's real accountability. Real accountability. This is not being used to settle political scores in the way that it would happen, anywhere if it was happening at all.

And, you know, they have industrial policy. And industrial policy isn't great, but, you know, they're at least, you know, they're trying to do something about it. So that's a somewhat separate issue. So I think, so to me, when I look at Brazil, they're demonstrating political maturity in the way that their system operates that is, you know, decades ahead of even the advanced industrial countries.

And I think the fact that they're dealing with this and that is going to have a behind them, you know, five years from now, eventually, is going to put them, you know, I would put in the long play for Brazil. So I think, overrated. Markets are, you know, I think India, because I think that, that, I think the kind of growth that India has had, I don't think is sustainable, partly going back to our earlier discussion about premature industrialization. I think, you know, they have these plans to.

really significantly strengthened their manufacturing base. I just don't think, I don't see it happening. I think India can grow at 4 or 5% per year on a sustainable basis. I don't think it's going to be 8% and 9%. And then when this is sort of sinks in, I think there's going to be a negative overreaction, would be my fear. Last question before we turn to the audience.

And this again is getting back to your book. A reader wrote to me, Roderick was the Albert Hirschman professor at Princeton. And before that, he received an Albert Hirschman Prize. Both Hirschman and Roderick are economists who look at the same facts as everyone else, but they see what nobody else has seen. If you were allowed to make one change in the economics

profession or academia, this is an institutional change, or rules change, not an attitudinal change, but an actual change in how things are done, and a change in a graduate program. If you could make one change to help produce more Dana Roderick's for all the rest of us, what would that be? I wish I had a very quick and good answer to this.

But, I mean, it certainly, you know, it's not a great answer, but it probably would help. I mean, I think, you know, I was helped a lot by going into economics after having done political science. And I think a lot of what's wrong in economics is that it's so much driven by people who first do engineering or math, before they go into economics.

And it's relatively late that they get immersed into the real world. So I think anything that would get them a little bit more sort of cognizant of the problems of the real world, even I would say that political science, there are parts of political science that become even worse than economics right now. So I'm not sure that that would work.

I don't know, maybe sort of a gap year, spending a year in a developing country between your first and second year. That's actually my idea as well, so I'm glad to hear you said that. There we go. So we just now have to find somebody to finance it. We now open up to the audience. There are two mics.

Please get in line. I will alternate. Please note these are questions for our guest, not lengthy statements. If you start making a lengthy statement, I will cut you off. But please head up to the mics with your questions, and I will call on you, and you will hear responses. At the mic over here, please just, announce your name also. Hi, my name is Caleb Watney. I'm a master's student here, and I'm

actually considering spending the summer in a developing country. So what one would you recommend? You know, one that you have not been to before, or one in a continent that you haven't been to before. I mean, I think, you know, I always tell my students that they should always go to a country, I mean, when they have that chance to spend a summer or a year, to go to somewhere which is as different from where they have some experience, you know, as possible. Because, I mean, that comparative, you know, sort of, you know, there are so many things you take for granted that you don't even understand are things to be questioned. It's only when you see another country that's so different, then you start asking, but why is it, how can you. that is working there, it's not working here. And so for that, you know, as many opportunities

you have to be asking that question, which is as different a place you can imagine from where you've been to. So, given that, I've only been in America and Mexico, and I only have one summer, what would be the top of the list? I'm looking for specifics. You're looking, well, I mean, you know, you go to India and travel,

and you will have seen so much diversity and variety. So on this side. Thank you. I'm Richard Rubenstein. I'm a teacher here. I have my class here, in fact, today. We are at the moment studying systems that produce structural conflicts. And so it makes me want to ask you, when you talk about premature deindustrialization,

we're in the middle of looking at Rosa Luxembourg's work. And I wondered what your explanation is for the, whether there are structural causes for premature deindustrialization, if Luxembourg were here, she would be talking about the effects of imperialism. And so I wonder how you would explain it. Well, you know, of course, in the 19th century, it was, you know, sort of, you know, formal and informal empire that, you know, the various, the so-called unequal trade treaties and so forth

that you then you had, you know, India and, and China and the Ottoman Empire, sort of all these nascent textile industries being decimated by imports from Britain. But of course, we also have cases like Japan, which in the late 19th century, despite having very low tariffs being able to develop its own domestic industry. So we have at least one exception even back then

of a country that could industrialize, despite those circumstances. The 21st century, the late 20th and 21st century analog of that imperialism, if you will, is China. Because it's been China that has been essentially swamping the world with manufactured goods. So you go to a country like Ethiopia today in Africa, and basically everything is imported from China.

So 50 years ago, a country like Ethiopia would be manufacturing very simple things from footwear to tables and chairs to cardboard boxes. A lot of, you know, sort of, but now it's sort of everything that's coming from China. So the fact that we have, you know, we move to a stage of the world where country like China is able to exert

such strong effect on world markets, marketing in manufacturers means that the opportunities, for import substitution in manufacturing is significantly less today in the low-income countries that have opened themselves up. So it's not obviously imperialism, but it's sort of like, if you will, the imperialism of free trade. This might be one way of putting it for our current experience. So that's clearly one. It's also in terms of the fact that earlier I was saying that traditionally manufacturing has had the ability to absorb a lot of unskilled labor.

manufacturing has become more and more capital and skill intensive over time. So that means that now, you know, that even garments or textile footwear, you know, they become fairly skill-intensive activity. So that, you know, the Chinese entrepreneur I mentioned when she goes to Ethiopia and opens up a footwear plant, she's using very different kind of labor, university graduates and very many, many fewer of them. compared to what the Chinese experience was. So I think changes in technology and globalization have been, I think,

the two structural factors behind pushing for prematurity industrialization. Thank you. On this side. Hi. My name's Ethan Alsup. I'm a graduate student at the Fairfax George Mason campus. Give me a sec. I apologize.

This is written down because I didn't want to forget it. When referring to the past political situation in Lebanon, You characterized it as preferable to the current more autocratic situation of today in as much as a large number of cross-cutting cleavages and the mutual understanding among them to the effect that once in power, it's not necessarily guaranteed in the future or something like the mutual fear of what the other will do, effectively necessitated deal-making and compromise. So given this, what would be your position on nuclear proliferation? and aren't you by virtue of this sort of beholden to the position that the more countries with nukes, the more cross-cutting there would be in the more effective, better functioning democracy? And when will Turkey have nuclear weapons?

I'll just toss that in. Well, you're really pushing me into my sort of areas of incompetence here. I have no idea to have a question to say, I have no inside knowledge of that to share. Now, so I think, so the question you were asking is, you know, extending the notion that sort of more cross-cutting cleavages, you know, imply for greater political stability and tolerance and moderation, can we take that idea to the international sphere, in particular apply it to sort of nuclear proliferation? if more states at nuclear weapons, would that make the global, the world safer? I'm not quite sure about the analogy, the way that you've taken that idea and extended to the global sphere, because the notion of cross-cutting cleavages has to do with sort of, you know, when you're operating,

not in a state of anarchy, so to speak, but when you're operating in a well-ordered sort of polity. And I'm not sure that that analogy carries to what is effectively the state of anarchy at the global level where there is no global government. So the nature of competition is very different. So I mean the idea of nuclear proliferation

globally greatly worries me not because I think that you know, the marginal country is going to be less responsible than the countries that already have nuclear weapons, but just because the more countries you have them, the greater the chance that at least one of them will be irresponsible rises. So I think just probabilistically, I think that makes me very, very nervous. I think it's the analogy I don't think really quite applies. That's fair. Next question.

Thank you. My name is Paolo Sanjitin, graduate student of politics at Catholic University. I'm Brazilian. I have developing country experience that is more than enough, probably. Thank you for your words of hope on what's going down down there. Still, besides our words of hope, chronic capitalism and draconian regulations are more than rule. more the rule than the exception in Brazil.

I would like to know if you believe that Brazil, is there a way of Brazil's overcoming that in those five, six years that you said, or put in another way, do those issue actually matter? Yeah, I mean, maybe it's easier to say it. Look, I come to Brazil as a Turk. I watch what's happening in Brazil. I compare it to what is happening to Turkey now.

It's not like Turkey has had an easy time economically, but the way that the financial markets have treated Turkey is incomparable to how badly Brazil has been treated. And then I look at crony capitalism. I see at least that in Brazil we have a system that's actually dealing with it and dealing with it in a way that's as clean as one could hope for. What's happening in Turkey? What's happening in Turkey is that the extent of corruption and crony capitalism,

the part of it that we have already seen is vastly superior that anything that has come out in Brazil. So we know that the president and his immediate family have been greatly implicated in vast amounts of corruption. We know that. We know that. It's, you know, the kind of thing that Dilma could be guilty of, you know, pales in comparison.

And we have had, you know, sort of the fact that anything, you know, in Turkey, in terms of trying to delete the judiciary, when it went into sort of trying to clean the system up, it did it in a way that was explicitly politically motivated. And therefore, it made it much. easier for Erdogan to actually clamp down on it because it was clear that it was just a politically motivated attack on him.

So which makes neither side really right. But what essentially means that in a country like Turkey, you're basically you're postponing all these problems into the future. They're going to hamper your development, hamper your politics for decades to come. And at least in Brazil, you just, you just, dealing with these things and you're trying to overcome them.

Maybe it's not be five years. Maybe you'll find other things that are happening. But, you know, at least, you know, my recommendation to you is at least take pride that you have a system that is actually trying to clean it up, because that's really rare. You know, it's not happening in Turkey. It's not happening in Thailand. It's not happening in, you know, most developing countries that I know of. So I think in that way, I think it's really, I think Brazil is exemplary. Thank you very much. Next question.

My name is Elizabeth and I'm a master's student here. I read a small excerpt about your new book and I know that it's about economic models. I was wondering how do you factor in just best practice institutions or when you consider economic models. is there room to factor in, say, in your own words, second best institutions, and how effective would that be in the ultimate analysis of a country or a model? Look, you know, I've said this before.

I hate the notion of best practice. I mean, I think this is probably, you know, a very harmful notion. The, the, I was a student of Avinaj Tixit, who was a great economist at Princeton, and he likes to say the world is second best at best. And this is, you know,

so you always have to think in those terms. And the notion of a best practice, you know, is based on the idea that you can simply just, you know, have something that worked somewhere and take it and copy it, apply it somewhere else. And the kind, not only does that not work in general,

It also gives us a very lazy frame of mind. So we end up doing, sort of developing all these world economic forum scorecards, or we have all these sort of checklist of, you know, sort of, you know, the business environment rankings. Or, you know, like these, even those sustainable development goals. And I think, you know, to some of it, you know, to some of, you know, to some of it. extent these things can be important because of as public relations, as PR efforts. But you look at all, you know, successful countries. And what you'll see is that you've had their societies and leaders who've always sort of distilled experience from elsewhere

from the lens of their own local knowledge. And I think that's when you get that combination is really when things work. And sort of, you know, best practice kind of a mindset, I think is an enemy of that. Question here. Last question. Hi. My name is Shraya Shekhar. I'm an undergrad student from George Washington. I just had a question. So given that industrial policy largely failed in post-independence India to a great extent, do you advise the present Indian government to go ahead with conventional industrial policy of picking winners and losers? Or do you just, should they just, instead, you know, liberalize?

factors and focus on expanding access to capital. And just a second part, if they do go ahead with the strategy, do you think global demand right now is strong enough to sustain an export-based growth strategy, or will it largely fail? You have three minutes to answer for a billion people. Well, first, I would never recommend a country to do anything conventional. That's just, I mean, I think, you know, it relates to some of the things that we were discussing. Yes, I mean, I think the returns to industrial policy are lower now.

The returns to any export-oriented strategy are also lower now. We haven't talked about this, but really I think there's a sense in which the world economy isn't going to be as much of an engine for growth for developing and emerging markets in the future as it has been until now. as will, you know, manufacturing industry will not be that. But I don't see this trade-off between, you know, fundamentals versus, you know, sort of a more proactive government policy that's trying to, you know, generate new industries, not just manufacturing, but also services.

I think, you know, you know, it's, what I always, you know, is some kind, is a very pragmatic kind of attitude towards the private sector and the business sector, which is, you know, government is sort of saying, what is it that we can do to unlock possibilities and keep an open mind on that? It doesn't mean you're going to be picking winners, but it doesn't mean that you're going to be willing to do,

to get activities started that might not have started otherwise, and just, you know, some of them will fail, that's in the nature of things. But I think, you know, having tried and failed is better often than not having tried at all. And there's no trade-off, really. I mean, you can do that and also work on your fundamentals, on your skills and your capital base and your infrastructure,

certainly as India has to do. And Indian economic policy has very much, I think, moved in that direction. And, you know, so I think that's fairly consistent with what the government is already doing, except that I think they just, you know, I think exaggerate, you know, how much growth and how much industrialization they can really get. Thank you so much for all of those stimulating.

words. There will be a book signing out front with Danny. Economics Rules. It is out this October. All of you here should buy and read it. Thank you again. Thank you. Thank you, Tyler.