Economic development in the 21st century
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Welcome to the LSE Events Podcast by the London School of Economics and Political Science. Get ready to hear from some of the most influential international figures in the social sciences. Everyone, and how exciting to have a full room. And I think there's a whole spillover on the online live feed. So very exciting. Today we have Ali Alavi with us today looking at...

economic development in the 21st century. My name, and we have Professor Shipping Tang. My name is Mavish Shami. I'm at the Department of International Development and I'll be chairing the event. The event today is looking at sort of the easy question of development in the global south.

This is something we've been talking about for decades and centuries about how do we bring about development. Why are some countries richer than others? Why have some countries been able to pull themselves out of poverty while others continue to struggle? What sort of is the essence of deciding what leads to development and not? Is there like a sort of a solution to this problem or is it something that we just have to keep figuring out as we go along?

For our speakers, we have Ali Elavi, as I said. He is an Iraqi politician and scholar.

He has served as Iraq's Deputy Prime Minister and Finance Minister from 2005 to 2006, and then again in 2020 to 2022. He has also served as Minister of Trade and Minister of Defense in the Cabinet of the Interim Government, and he's done extensive scholarly work. And his most recent book is Rich World, Poor World: The Struggles to Escape Poverty.

We also have Professor Shipping Tang who is visiting from Fudan University. He's Fudan Distinguished Professor and Dr. Sikor Chan Chair Professor of International Relations and Public Affairs. He's the Director of

of the Center of Complex Decision Analysis at Fudan University. And starting later this year, he's vice president of the International Studies Association. And also he's a well-written scholar with many books, the most recent of which is The Institutional Foundations of Development Economics.

So each of our speakers will talk for 25 minutes and then we'll open up the floor for questions. And I should point out that both of these books have been put on our course list for development management. And I can see many faces from our classes. And I've asked students to hold their questions and ask them off you today. So yeah, we'll try and keep the room open for as many questions as we can get today. So without much further ado, shall we? Thank you.

Thank you very much for your kind introduction. I hope you can hear me in the back. My voice, the pitch is sometimes low. If you can't, just raise your hand and try to do something about it. My talk really is, I would say, a summation of decades' work in the field of development, not necessarily only from a technical perspective, but also as a practitioner,

and from both sides of the aisle as it were. From the private sector, I worked in investment banking for a long time in East Asia and South Asia, and in the professional side, I was working for the World Bank in my early years, and finally as a government official. I won't say in charge of the economy, but in charge of an attempt to be in charge of economic affairs.

And what I'm going to talk about really is a summation of my experience laced with some observations, particularly of a political economy nature and why I think it is fundamental to understanding the process of economic development. At the end of World War II, you all know, the world was looking for a new international economic and financial architecture and Bretton Woods was the place at which it all began.

And at the creation, there was really very little or no representation from the so-called developing world. There was no notion of the developing world then. It was either the colonial world or the unfortunate term backward countries. And people like Keynes had really very nasty comments to make about the presence of delegations from South America and India.

and from one or two countries in the Middle East who were nominally independent. He thought that they didn't belong there because their affairs were better suited and better managed by the victors. What I call the age of development, which became part and parcel of international economic relations, I would say part and parcel of Western economic relations, effectively began with Truman and his famous point four speech

which was driven really by the fear that the West, in particular the United States, was losing quote-unquote important countries in the world and was prompted by the crisis in Greece and Turkey and also in Iran, which made the United States look at the world, the then colonial world, and the few independent countries as worthy of their attention.

Prior to World War II, I think there was very little theoretical work done in academic institutions relating to economic development. Colin Clark dealt with it in his national income work, particularly things like measuring poverty. Rosenstein Rodin talked about it as it relates to the economic development of Southeast and Eastern Europe.

And you have people like Ragnar Nergsi who was involved with the League of Nations and of course Arthur Lewis came from the developing world, from St. Lucie I believe, and started first theoretical work on economic development. The World Bank itself, which thought it was going to play a part in the redevelopment and reconstruction of Europe, was eclipsed by the Marshall Plan.

So very late in the day, they switched their attention from Europe and reconstruction work to work of economic development. And the first serious economic development mission-- mission was also a word invented at the World Bank, by the way-- to deal with the issues facing

The countries that were seen to be falling behind was to Columbia, the famous Curry mission led by Loughlin Curry, a new dealer who headed the first mission of the World Bank that dealt with economic development.

The US and then Europe, as it came out of reconstruction, and then later Japan in the 1960s, began the process of institutionalizing economic development, forming their aid agencies, and dealing with, firstly, the former

colonized countries and later the development world as a whole. The UN tried to get into the Development Act early on but was essentially vetoed by the United States and limited its role then and until now to technical assistance. And if one looks at it, I think it's now been 75 years where we've had the issues of economic development on the agenda.

And we can see that it was driven by what I call cycles that governed the policies and the strategies, mainly of Western countries, as to what should be the appropriate path to development and how one should construct or design economic development policies around these theoretical and policy frameworks.

For example, in the 1950s, economic development was seen to be an issue of capital, put capital in, build up infrastructure, and create the social capital necessary to start the process, kickstart the process of development. It was to some extent guided by the experience of the United States in the TVA scheme, the Tennessee Value Authority, which was possibly the first integrated region development clinic. And the US used to invite--

delegations from the developing world. They were then called the underdeveloped countries to the United States to look at the TVA as a model for economic development based on large-scale infrastructure financing. This was of course underpinned by the theories of Rosenstein and Rodin and the big push that if you build big infrastructure they will create linkages and this will start a virtuous cycle.

The 1960s was a period when the developing world was governed by the paradigm of planning. Central planning, Tinbergen, people like that talked about the essential need to manage the allocation of resources through central agencies. Of course, India at that point had committed to central planning, and India was the supposed child of development. Mahalobis in particular was the key

progenitor as it were of India's national development plans, found a ready audience with people like Nehru and they were also guided to some extent by the experience of the Soviets in their economic planning. So economic planning was over age in the 1960s and it was accepted by the World Bank as part and parcel of economic policy making. Then you had the modernization theories that underpinned the work of people like Rastaf

where you had the ideas that there are stages of growth and countries had to go through these cycles of stages before economic takeoff could take place. The whole idea of the modernization theory also underpinned America's policies in Vietnam. The whole thing came crashing down, of course, with the end of the Vietnam War. Another model that was promoted in that period was the imposed substitution model, promoted by people like Prebyshev

based on the work of publisher Hans Singer and state-led industrial development. None of these models actually extended beyond a certain finite period of time and those countries that were as it were the exemplars of this model were soon ditched because they didn't achieve the right results until the new model came. 1970s was an era of resource scarcity

And it was the beginning of the idea that – of the third world, that you can have integrated groupings of countries that relied on the financial heft of the OPEC – the oil producing exporting countries – to generate, as it were, massive development push by having basically unlimited capital resources.

The whole process again was greatly distorted. It raised alarm bells in the West, especially in the United States, when there was talk about OPEC buying the entire listings of the New York Stock Exchange. The whole thing ended in tears because as the surpluses piled up,

bankers came up with the idea of the recycling. So massive amounts of petroglyphs were put in commercial banks which were then lent to deficit countries, particularly in Africa and Latin America. And when interest rates moved up in the late 1970s, early 1980s, it became a massive financial burden in these countries and we had the first major debt crisis in the developing world.

That ended sort of the resource boom theories of the 1970s. Then we had, as it were, the counterrevolution, which was bubbling away in the background, which then manifested itself in the Washington Consensus and so-called neoliberal policies. The first attempt to exercise this theory was in Chile with Pinochet, with checkered outcomes, but then in the end the experiment seemed to work, but at huge costs.

With the collapse of the Soviet Union, you had the erasure of the only serious alternative model that existed apart from the capitalist based models of the Western world.

And there you had market fundamentalism, as it were, taking over with shock therapy and neoliberal policies being the cornerstone of the transformation of the former Soviet-run countries. It led to massive, massive domestic upheavals, and countries, for example, such as Ukraine, did not achieve the similar per capita income that they had in 1990 until well into the beginning of the 21st century.

Towards the end of the 1990s, we had the second global wave of globalization, the first one being in the 19th century, and you had massive private financial flows to the OECD and that was seen to be the key to economic progress because you no longer had to rely on bureaucrats making resource allocation decisions and international aid agencies and bilateral agencies, but the markets could speak.

Again, huge flows of capital into the developing world from banks and also from bond issues from capital markets. That's when global supply chains also began to be more established and the new era of globalization seemed to be in the offing. That of course crashed in 2008 with the banking crisis. The failure, I think the key failures of the age of development

are the fact that none of the paradigms that govern the processes or appear to govern policy making frameworks for certain periods of time, probably not more than a decade, continued. They were jettisoned and abandoned. And some countries that had adopted these policies as part of what was seen to be then as best international practice were left high and dry. The other main conundrum

that was not explained adequately either by the theory or by the strategy and policy of technocrats sitting in international agencies is how did the East Asian countries and in particular China emerge out of quite deep impoverishment into what was then called self-sustaining growth and massive technological advances and huge

outcomes in terms of their international trade policies and international trade outcomes. The theory could not explain it. Neither could the practice. And in fact, the World Bank took nearly a decade before they admitted that the East Asian economic miracle, it was called, had little to do with them following the nostrils of the World Bank and of the bilateral Western aid agencies. As an example, in 1949, Latin America was seen to be the key

groupings of countries that was going to emerge out of poverty. It accounted for something like 8 percent of world GDP coming out of World War II. Well, it didn't happen. It did not happen. If you look at import substitution and state-directed industrialization as was premised by the Prevost Singer model and what happened in countries like Argentina and Brazil, it did not fail. It did not succeed in its objectives.

they nearly invariably ended up in balance of payments crisis, exchange crisis, and massive domestic inflation. The big push investments and infrastructure again did not lead to the desired outcome. Countries like Egypt, which bet a lot on things like the Aswan Dam and all the backward and forward linkages did not end up with the goods.

State-dominated economic planning and autarky and the theories of revolutionaries and utopians and radicals also ended with little outcome. Recycling didn't work, shock therapy didn't work. And this became really quite an issue with those who are in the trade as it were. When I was first looking at this in government in 2003,

it began to occur to me that the things that were being promoted then, which was a form of the Washington Consensus, a form of market fundamentalism, did not really meet the standards that were required, seemed to be disconnected from the conditions on the ground. So that's what started the process in my mind, thinking as to

But what does all this mean? Why did we have to go through all these cycles without necessarily achieving the outcomes? And those countries that avoided this type of thinking, mainly, I'll probably say exclusively with one exception, East Asian countries, how did they manage to do it?

while those that followed the theory, best international practice and the siren songs of World Bank and the aid grant in agencies and also private capital, why did that fail? So there are two huge questions, I think, that still linger, as it were, in this long age of development, the 74 years.

There's no doubt that the capital incomes have grown. There's no doubt about it. A lot of people are much better off than they were in 1945 proportionately. But nevertheless, there's a gap that persists and in some cases has grown larger between income, wealth and social indices between rich and poor countries. It has persisted and the question is why? Next question is how did China emerge from really the ruins

of the Great Leap Forward and the Cultural Revolution with no marked reference to any grand narrative. I'm sure Professor Shipping will talk more about this later, but to me it was really astounding that, and reading now some of the history of the period of the 1980s, what were the main drivers of the economic reforms and how did they take place? There was very little paid attention.

There was little attention paid to what was coming out of the Western international aid agencies, unlike the Soviet bloc. And if you look at countries like Korea, which was really one of the poorest countries in the world in 1982, it had a per capita income of $87 in 1962, 40% lower than India. It is the numbers when you stack them.

those countries that ignored grand narratives and those countries that followed their own path is really quite quite market and the heart of the issue I think is the absence of the notion of power when we discuss the ideas of economic development power is central to the process of economic development and when I say power I'm talking about international relations I'm talking about

the power of groups, the power of classes, the power of vested interests, the power of large concentrations of capital, the power of inertia, how difficult it is to change and shift, establish patterns, establish interests. And if the theory does not include that, there's something really remiss about it. And I think here we have to look at some of the works that have come out recently. I think they made it clear that the process of

economic growth in the Western world is wedded to the issue of power and how it was wielded. Not the standard Marxist commentaries on how power is wielded, but a far more nuanced, far more effective, and I think verifiable research into how the Industrial Revolution

metamorphosed into these massive concentrations of capital that skewed in the direction of economic growth and development. Here the work of some of Kenneth Pomerantz, I think I must quote him because I found it very, very compelling and convincing that if you take Western Europe in the mid-18th century and compare it to other regions of the world that had the ingredients and the infrastructures

for economic takeoff, as it were, China and India, you would find that they had really very, very similar economic and social indices. They had all the things that the West was supposed to have that was the cause of their industrial revolution and success. Things like property rights and so on existed in these countries, in China, in particular in China. The main reason why the Western world managed to create the accumulations

is really by a fortuitous accident that its major resources needed for the industrial revolution coal and iron were very close to population centers and there was no ecological constraints on the increase in their populations because you had a new world opening up to them these were not available these initial conditions were not available in china so there was nothing special

about the peculiar institutional characteristics of the Western world that allowed it. As soon as the Industrial Revolution took hold and incomes began to take off, it was translated into military power. And through a process of violence, coercion, and military subjugation, you had this cementation of a world order in which large resources ended up concentrated in very narrow geographical areas.

The other issue I think is to do with the concentration of capital in a few regions of the world and in a few national governments and corporations and even individual hands. And I don't think we've seen it to the scale that we have today. It's really extraordinary how much capital resources exists within a very, very narrow band of institutions and individuals.

And here again I have to pay some attention to work done by people like Wallerstein. Now, I'm not saying that this is the world system theory or the dependency theory is applicable, but there is a great deal of truth in it. The concentrations of capital are immense. I made a very, very small example as to how, for example,

the size of the big five US tech companies. They earned in 2024, nearly 400 billion dollars. Their market value is around 4 trillion. The total aid coming from all the OECD countries in 2023, in the state year, was 225 billion dollars. So you have five companies on one hand, and you have on the other hand,

resources flowing supposedly for development purposes. I see actually the coming days there will be a struggle between a rising hegemon and its allies, probably the BRIC countries, and established apex powers, particularly the United States. And I think the rules-based international order has been seriously crippled by the accelerating jettisoning of all the verities that were established after the First World War.

And all this has to be seen against global inequalities, climate crisis, energy transitions, technological revolution, and the rise of authoritarianism in the Western world. I just want to take one minute of your time to summarize what I think are the essential characteristics needed for economic development over and above correct policies. Firstly, I think you have to have

uncommon leadership of purpose and commitment and not leadership simply of political power but also institutions and organizations and it should be wielded pragmatically. Secondly, I think there must be powerful institutions that can translate and implement key decisions of state whether a party or the military. Thirdly, there has to be an enabling culture of hard disciplined work

productivity and ensuring current consumption. The savings levels in East Asia are incomparable. Fourthly, there has to be a degree of political stability and domestic order. There is no way in which development can take place if there is no domestic stability and this order. And lastly, any economic development and

The developmental state ideology, as it were, the developmental state cannot succeed if it divorces itself from the international economic, financial, and political environment in which it is set. Thank you very much. Thank you very much. That was very interesting and thought-provoking. Professor Tang?

Thank you so much, Mavesh, for the introduction. And it's great to be here. And thanks to Eric Green, Professor Green, for making these things happen. And great to be with Ali Alawi. I should admit, I was a local small petty official for like a year or so. And I decided it was not really my type kind of job. So I'm going to start with something about--

I'm sorry, I have to go over some of this. Some of you, if you have read my book, you would actually wonder why would somebody like myself, who actually mostly have written on, you know, international politics, come to write a book on economic development. So I'm going to start with some personal background. There used to be a house there.

And that house is Longgang. This picture was taken in 2010. That was the house I used to grow up. So I grew up in a very small, tiny village in southern part of Hunan. This is the well I used to fetch drinking water when I was four or five. So I grew up in the village until I was 14 when I went to college. This is the school I went to. I remember very clearly

We had one single teacher and he taught four classes, first year, second year, third year, and fourth year. This school actually is still there. And this is the back of the school. And you can actually tell the house beside the school is now made of bricks, but the school is still used to made of mud.

This is a small village which is still staying today. My old house was somewhere in the middle of the mountain. So one of the key memories of my childhood was to try to get out of the village so that I don't have to fetch water every day. That was my motivation. Now, I start with these pictures. This is like the mountain. The view you can actually see from the front of the village.

I start with some of these slides. It's precisely to show how difficult it is to have economic development. So as some of the economists have already done, and I also did my own calculation, if a country can experience 4% of GDP per capita growth rate

for about two decades. You will be able to double the GDP per capita in 20 years, triple in 30, and increase up to about five times in 40 years. But it is so difficult to do so. Quite a few countries actually have been able to achieve more than or around 4% of growth for about a decade. But then half of those who were able to grow for about 4%

in one decade will fail to achieve another decade. It's so remarkable. It's like you have a gradual reduction of half every one decade.

So, and this table is actually what I call the lucky field, right? So any country, I'm only talking about developing countries here, right? Because I think developed states or OECD countries, they have a different, entirely different kind of challenges. For developing countries, you can tell if you go from the left side to the right side, you will see a gradual reduction of

the number of countries will be able to include in the 10 years, 20 years, 30 years, and 40 years. We are now updating some of the data, but I think the list will remain roughly the same. So as Ali has already highlighted, very few countries have been able to achieve more than 30 or 40 or 50 years of GDP per capita growth in 4%. It's so remarkable that despite all the effort

all the energy people put into economic development. It's not very easy to do so. And this is one of the fundamental reasons why we still have vast global inequality. I'm also happy to be part of this event, LSE, is because LSE actually puts economics and political science together. Why is it so? Because I would argue

The most important problem for economic development is not economics, it's really political. So it's not a really economic challenge, it's mostly a political challenge. So I quote, this is one of the most frequently quoted message in economic development. Once one starts to think about them, it's really hard to think about anything else.

So this actually explains why I came to write a book on economic development, even though I studied as a biologist and then international relations scholar. So you can say when I grew up in that small village, I was already beginning to think about economic development, even though I didn't really understand that. So I was

I worked in Shenzhen and then I worked in Luoyang and in different parts of China and I went to the States to study and it just struck me how profoundly my income can be varied from one place to another.

I started with Robert Lucas quote, and I would argue he was only half-white because if you really try to understand economic development from a purely economics point of view, you won't be able to understand it. And as somebody who actually was never really trained as an economist, I had the luck or opportunity to be able to draw from different fields, right? Anthropology, geography, politics, of course, and also sociology.

So my book is fairly straightforward to some degree. So I started with a very simple puzzle. How would a country be able to develop and in order for a country to develop it needs its people to work for certain economic growths. So how can we achieve that? So I started with a very simple metaphor, what they call the big bills on the sidewalk. So there was a

very famous metaphor by Monk Olson. He said, you know, when an assistant professor and a full professor walking down the street and there was a $100 bill, you know, the poor assistant professor wants to pick it up, but then senior full professors like Professor Wade or something say, well, you don't have to bother because if it's a real bill, somebody must have already picking it up, right? So...

But I think that metaphor actually has very profound intellectual implications if you push the logic of that metaphor to the outcome. So I'm not going to get into the details. I will use this thing like a pickle. So the metaphor is really something, if you push the logic to the natural conclusion, it will come up with four things. Possibility, incentive,

capability and opportunity. So I would also argue the institutional foundation for economic development is only one pillar or one pillar of the new development triangle. It consists of state capacity, institution and policy. Of course most government officials, you know, when I was in government,

We are really more concerned with direct or immediate policy questions rather than the institutional foundation. So once you connect possibility, incentive, capability, and opportunity, you can actually come up with, I would argue, six major dimensions to the institutional foundation.

Some of the things which Professor Adi Alawi was saying actually connects to what I have highlighted in the book. So hierarchy, you know, human society became hierarchical things about 6,000 or around 8,000 to 6,000 years ago. So hierarchy is actually really for maintaining order and stability. And second,

it's really liberty or how can you protect liberty for innovation. This is where democracy comes in as a useful feature in making economic development happen. But it's not really a necessary condition. The reason why liberty is important is because hierarchy usually demands conformity or obedience to authority.

However, in order to innovate, you actually have to try to go against the conventional wisdom or the reigning understanding. For incentive, what I highlight in addition to property rights which have been written by almost every economist who wants to do institution from North to East,

AJR, it's really property rights beyond, it's really for constraint and executive constraint the state. But in addition to positional market or property rights in the material market, human society has a very important another market which I call the positional market. It means people want to climb up toward a higher status or have a certain social prestige.

This is actually why most of the scientists, they are happy with their life even though they don't really earn as much as, let's say, a venture capitalist. You still have scientists who are willing to take time, spend enormous amount of time in lab or in the office, work on certain things. For capabilities, really how can a state or how can a society empower its population?

So basic education is important, basic healthcare is important. And finally, opportunity is really what I call equality opportunity or affirmative action for employment and contract bidding because fairly, let's say, racist country, a group of people or ethnicity or whatever, they will be forbidden to really play a part in economic development.

So I now come to the final part of this particular brief talk. It's really why is economic development mostly a political problem? And I would argue you can actually go back to Adam Smith on his first page. He actually said something really clearly and he said, you know, the proportion between the number of those who are employed in useful labor or what we call a productive production

and that of those who are not so employed. So the first sentence of Adam Smith's particular quote actually makes it really clear the most critical factor in shaping economic performance across time and space is really the allocation or misallocation of production factors by political decisions. So in a fairly straightforward way, we can say whom and the worst institution in power relationship

both domestic and international decide to deploy what kind of knowledge and what production factors to make watch. And state is the most powerful player. And the state deploys two primary instruments for impacting economic development. One is institution, more for the long run, and the other is policies.

The ultimate question for most developing countries, I would put it that way, is really to become what I call the developmental state, which Professor Wade, Professor Amsting, Charles Johnson, they have written on that particular topic extensively.

So I would also argue the literature of East Asian development state has provided much insight but it's not really on the end, it's not the end of the story, right? Because I don't think you can actually replicate what East Asian development states has been able to achieve in today's age because time has changed and the human society is fundamentally an evolutionary system.

But the good news here is actually states do not really have to get everything right. And this, I think, is a very important insight from developmental state literature, but also from mainstream economists like Daniel Rodrik. So there's no justification for a Big Bang kind of reform. All you need is actually to have certain reforms so that people can get on with making money, making profit, and eventually

if possible, you will be able to get into a positive feedback cycle, then economic development can actually be potentially sustainable. So the good news is actually not so difficult to have economic growth for one or two or three years. The really difficulty lies really on sustaining for more than two, three or decades of growth. So with that, I would also...

put the final kind of a diagram is really you can argue both economic development and also the quality of governance are major macro outcomes which are underpinned by three things. One is state or state capacity, the other is institutions or rules, and the third is really policies, including industrial policies.

Now, I want to add the final wrinkle to my book, which I didn't really have a clear understanding at the time when I was finishing the book. But I did have another project which was partially done with one of my former postdocs to really try to understand the modernization drive of the whole planet, so we can divide

The modernization drive, let's say since 1500 into three major waves. What we can tell at least from the first wave, second wave, and I'm sure, pretty sure in the third wave too, the making of the modern capitalism system or the making of the modern European system, geopolitical rivalry in economic development are truly interlinked.

So you can say that France tried to compete against Britain, Germany or Prussia then tried to catch up with Britain. And those things actually created the imperial competition and that imperial competition had profound and devastating impact upon the global source. So unfortunately I would say most international political economy or global political economy scholarship

has somewhat at least neglected the dimension of international political-- international or geopolitical rivalry in the making of economic development. So I would argue that is a very important element we should also consider. I want to just give you a sense that the European system or the European Union was a product of the Cold War.

Okay, so I talked a little bit about the East Asian Development State before, but I want to just highlight a few things which has been singled out about what makes a developmental state. And I would argue there were some features which I think is still possible today, but there were some other features may not be available today now for some developing countries or many developing countries. The most important thing is actually

protectionism is now coming back to the United States and potentially Europe. And so we need another potential consumer market from developing countries, including China, including Brazil, including India and other countries so that they can actually buy or sell things toward each other. Okay, so I want to add a final point about this new geopolitical landscape. So why this time?

why it gives us a little bit more hope and I think it breaks country as a major economic power outside the West. This is actually the first time since 1880, right? So, and you also have spillovers of geopolitical competition. So there is a, whether you agree with some of the rhetoric or, you know,

in terms of competition for different narrative from the Russian-Ukraine war or the Israeli-Qadha war. You can certainly tell there was some resentment, perhaps quite a bit of resentment from the global south against the global west because they might have double standard under the so-called "labor international order" or "world-based international order."

And I think the West as a whole has become more fragmented despite or in spite of the Russian-Ukraine war. And finally, I think it's very important to understand the present US-China rivalry may actually last two or three decades, but hopefully will be shorter than the Cold War and certainly without too many proxy wars. Let me stop here and I hope I have saved a little bit of time.

Great. That was amazing. So I'll open the floor to questions. And I think we have an online audience also asking some questions, but let's start from the room. Hi, I'm interrupting this event to tell you about another awesome LSE podcast that we think you'd enjoy.

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Hi, so I'm James from the PPE first year at LSE. My question is, the session discussed the topic of development, but I'm wondering how can we define development?

whether it's purely in terms of GDP growth or we have other significant factors such as citizens' welfare and civil rights or especially democracy which is a key concept in the West and it's even a key concept in the Chinese 24 words core socialist principle. So it's a key principle of everywhere where the development includes the development in other areas as well. Thank you.

Shall we collect a few questions? I think the gentleman right next to you. Hi, thank you, professors. So my question is concerning Chinese policies, both in terms of economic policies and political policies. So we both know that recently the Chinese economy has been hit by the real estate market slump, which

which affected government finance situations as well as like domestic consumptions and also other sectors of aggregate demands so how do you think this will affect the chinese foreign policy also chinese economic policies in the future thank you

Thank you both for the excellent presentations. The impression I got is that there seems to be an attempt to develop like an under-arching or an over-arching theory for why development or prosperity takes place and I'm wondering, I'd like to ask both speakers what their view is of the authors of the book Why Nations Fail, what your view is of their theory.

As you know, essentially what they claim is that it all boils down to institutions and transitioning institutions from extractive institutions to inclusive institutions. And linked to that, I wonder whether you have something to say about rule of law, because it seems to me, and if you look at the example of Iraq over the last two decades, that the kind of missing piece in the puzzle is rule of law and establishing real genuine rule of law, which is actually a political issue.

So maybe if you could speak to those issues. Thank you. - Can I throw in an online question also? So we have an anonymous user who's saying, is there a way to reform the IMF and World Bank to better serve the interests of developing countries? Or are corporations and capital-intense countries too powerful for these institutions to work? Do you want to take those and then we can do another round?

Since you spoke first, we can go in the same order. Okay, I'll go with the first one and then the second one.

I think the gentleman asked about defining development. I mean, obviously, the way that the conversation is going is that we define it in a technical way, as it were, using socio-economic indices. I understand where you're coming from, that there are other aspects to what constitutes development and whether growth is the be-all and end-all of man's economic life. This is another question. I think as long as the majority or the vast majority of people think in quantitative terms,

and relate their well-being to quantitative factors and the qualitative aspects are put to the side. And as long as governments relate to that, then I'm afraid this is the only yardstick that we're going to use. I know other people have tried Bhutan, for example, came up with a gross happiness index and so on. It doesn't seem to have traction.

because most people still think in terms of their material well-being as being the cornerstone of their lives. Also the second one. Let me just add to the definition of economic development and I actually also I think there was a footnote in my book about that. But I think for most regular folks in developing country it's not a difficult problem at all.

they know their life is getting better or they're getting worse. So I think it's – but in order to be able to compare across regions, across country, we need some indicators. One, the typical one is GDP per capita. So other than oil rich or gas rich countries, it's fairly straightforward to argue China today is a more developed state than let's say 20, 30 or 40 years ago.

on political development. I don't think, I study politics more than I study economics. I don't think politics has a proper dimension that can be understood similar to economic development because politics is constantly a kind of a phenomenon that should be able to adjust to certain

power configuration. In contrast, economic development you can actually measure with fairly subjective and objective statistics. China's economic policy. I don't really make Chinese economic policy. I am interested in some of the policy dimensions. And I think your question was talking about US sanctions, US pressure, right?

It's more about the recent economic hardship and its potential influence. Economic hardship? Okay. All right. I do think China is economy. I'm not really an expert of Chinese economy. I know Jing Keyu is a well-known Chinese economy specialist.

probably she should be able to tell you more about the Chinese economy. I think China's economy faced quite a few challenges, but it's not really as bad as most. I hate to use this word, right? I think the Western media tends to paint a darker, bleaker picture about the Chinese economy. I know China is not really doing all the things right, but I think China still has

quite significant room for maneuvering or making certain things happen. I'm not saying China's rise is inevitable. I'm not saying China is going to grow forever. I think China faces challenges. But I think it's, at least in my mind, I'm a fairly guarded optimist or pessimistic optimist. And I would argue, I think the United States

underestimate the resilience of Chinese economy, including its political system. And I think, of course, China might have also underestimated the U.S. pressure and U.S. power. But I think right now, both sides are reassessing what they are trying to do. IMF and World Bank, I think that's your area of expertise, Ali.

Well, I'll try to answer some of these things. I just want to make a small comment about sanctions and the effect of sanctions. If you overuse sanctions as a weapon, and I advise all those interested in the economic effects of sanctions to read Nicholas Mulder's book, you'll find out that sanctions were a primary driver of Japan's sense of having itself closed in.

and may have been a significant factor behind their entry into the war with the United States. So you should be careful how far and how and in which ways you sanction countries. There has to be a way out through negotiations, and moderation and wisdom is what is needed here. So it's very, very dangerous territory to push sanctioned countries to the brink. You can do that with small powers, true,

But when it comes to larger powers, then the outcome, especially if they are nuclear armed, is extremely dangerous. Why nations fail? I think you are referring to Achimoglu's book and Robinson's book and so on. I think it's – I don't want to knock it. At its time it was quite a significant understanding, as it were, it increased our understanding of why nations succeed and fail. But I think it's too –

the argument is too simplistic and has no way can use that argument to explain the rise of East Asia. As to the rule of law,

It is again one of the main features of the so-called post-war liberal order and it's being abused serially and there's something called lawfare which is now being used extensively in non-democratic or so-called non-democratic as well as democratic countries. So the rule of law is as good as the way in which the law is used or abused by those who have power over it.

and I don't believe that all justice systems are blind and carry this scale. This is what they would like to think of themselves, but justice frequently operates at the service of those with power.

Reforming the IMF and World Bank I think is a pointless exercise until and unless you change the way in which they vote. The voting is skewed in one direction and it is undoubted, undoubted, and I say that from practitioners from both sides.

that it is influenced by whatever are the prevailing ideologies emanating from Washington. Now, they do their best. The staff there are extremely concerned and committed to economic development. But they cannot get out of the straitjacket, and they won't. The way I think the whole system needs to be reformed

Maybe we should put more emphasis behind the BRICS Bank, which is grossly underfunded, or China's Asia Infrastructure Bank, perhaps. But that would assume that also hegemonic power or a near-hegemonic power like China would wield its power essentially in a different way than other hegemons. We've yet to see. I think the developing world needs to have its own power

international agency backed up fundamentally by those that have resources outside of the nexus that is the global financial market. Thank you both for your presentations. My name is Sabrina Aiman, LSE alumna from development management from the BBC here. My question is to Mr. Ali actually. It's very interesting in the Bretton Woods how the presence of delegations, for instance, from the MENA region or specifically Iraq and Egypt,

And that brings me to the thought of the role of individuals and institutions. And considering your role as someone who has worn the hat of a government official but also at the same time a scholar, how much of the divide between the scholars and the academics and the economists that produce these theories and these development models and between the actual policy makers who end up designing them and implementing them, how much of a divide is that

of that does create a barrier or creates an obstacle to development? And was that something you experienced in your time, especially considering that you were in the Iraqi government in two very different times as well, 20 years apart? So we'd love to hear your take on that.

My name is Anish. I'm an LSE, MSc finance alumnus. Very little to do with development and very little background in sort of this kind of scholarly sphere, but obviously interested in it. Coming from an Indian perspective,

The Indian economy at the moment still has a pretty substantial chunk of economic activity coming from the so-called informal sector. And I suspect that that is currently still the state and a lot of developing nations. And my question is a bit of a two-parter. Number one, what role do you suppose

the informal economy has in any development model for all of the developing nations that policymakers want to help advance? And two, do you think that the prevalence of the informal economy poses a problem for institutions in terms of the paucity of data that a lot of scholars and

bureaucrats might have in trying to understand where that economy and that model really is. I hope that made sense. Thank you. There's a question at the back.

Hello. Yeah, my question is regarding-- you touched a bit upon protectionism and how that's re-emerging now. So the linkages between trade and development broadly. As we've seen throughout the ages, traders played a fairly important role in development. And now as we go backwards to an era of more tariffs, subsidies, how do you see the role of trade sort of changing if you think it would

be as important in the future? In what sense would it change or would it not be as important? Thank you. MS. And I'll throw in an online question also. So can we learn anything from countries which have gone backwards, for example, Argentina, which went from being one of the richest countries 100 years ago to a relatively poor country now? SECRETARY KERRY: I think I'll answer the first one because it refers to Iraq. The number of

Some delegations that came to Bretton Woods from the developing countries were mainly from Latin America. And that was because of – there was some connection with development before in the United States. There was something – there was a proposal to form an Inter-American Development Bank – not this one – in 1930s. And the U.S. had some kind of aid policy towards Latin American countries, but their voice was not heard at all. India, which was on the cusp of being independent,

Unfortunately, its delegation was headed by a Brit, so it lost a bit of -- but still, they were heard. The Arab delegations there were very few. Iraq's delegation was there by mistake, actually. It was supposed to go to the International Chamber of Commerce meeting in Lake Pleasant in New York just before the Bretton Woods meeting, and they invited them as an afterthought.

and they just looked at the whatever the way the British voted they raised their hands so I can't say that the developing world had any presence of any significance at Bretton Woods. The idea was that there was supposed to be an international trade organization that would have handled the issues of trade that may have affected them but that was then delayed until the Havana

meeting in 1948 which did not reach an agreement and instead of having a WTO in 1948 we had GATT and there the developing countries had very, very few representatives. As to the divide between scholars and practitioners and the various Iraqi governments, we had I'm afraid to say very few

...experts in economic development at or near power or even at university... ...having come out of decades of war and sanctions. And those in power had little interest in scholarship and economic theory. So it is the kind of union between the two, the osmosis that never took place. In fact, it was like the dialogue of the deaf.

The role of the informal economy, I think, is true that it employs an ever-increasing number of people, especially in the African continent. But I've yet to see any major success story of economic development linked to the existence of a growing informal sector. It's the other way around. I mean, the digital world works against the possibility of this sector coming up.

Protectionism and tariffs, yes, we're moving in that direction. And I think the last 40 years, 50 years has been a kind of aberration. Whether we go back to the 1930s of beggar-the-neighbor policies and so on and ever increasing tariff rates is something that is not likely to happen. But I think a degree of protection is necessary.

for the developing world unless they are in an export-oriented mode. And I can't see any serious attempt for recreating the export success of the East Asian economies in the 21st century. The world has moved on. I'll leave that to you. Thank you. Okay. I want to...

address the last question, the online one, right? So whether we can learn anything useful from unsuccessful story. Absolutely, actually, in very elementary kind of methodological understanding is actually when you want to do comparison, you want to do at least two cases, right? One is

a positive case, there is a negative case. And certainly if you can add more cases, you will be able to draw a very important lesson from a successful story, but also unsuccessful stories. I would argue from the Argentinian, I mean, the earlier Argentinian history was you should not really have too much public spending when you have a populist government and therefore you lack fiscal discipline.

I think that's one of the key insights that some of the East Asian countries usually have a very tight fiscal control, although they tend to concentrate money or support in certain strategic or high-tech industries. That's one of the things which I think distinct some of the developing countries in East Asia. About information, informal economy, all right?

I think it's useful to have informal economy because it's very important for most, you know, peasants to go to a market and have a bad trade. And I don't think really the government should try to tax every informal transaction. But certainly I would agree with Ali that I don't think the economy, a state can really develop with

relying on informal economies. And also if you read my book, I actually said a very important dimension of state capacity is really to have informational capacity. So you need information to be able to make decisions without the capacity to understand or grab data from the economy. It's actually not really easy to have sensible economic policies.

So I think with the coming of the digital technology, actually it's fairly easy to have cost-effective information capacity. Protectionism, I would argue it's actually a bright spot in the sense East Asian countries are less protectionist than U.S. at least. So we have regional close economic

so RCEP and also we have CPTPP, and that actually symbolized the coming together of South Asian countries, ASEAN, and also North East Asian countries like China, Japan, and South Korea. So I would argue, I think the EU may actually go against some of the Chinese imports, but I think overall you will be less protectionist

than the United States. Certainly, I don't think Trump will be very free trade. - Thanks. Both of you, is this working?

Both of you have had experience dealing with professional economists working on economic development, especially Ali Alawi in the World Bank and other such places. I'm wondering if you could give us some indication

of what you think is the basic fallacy or is there a basic fallacy in the world view, in the zeitgeist, in the gestalt of the discipline of mainstream economics.

as it relates to economic development. What is, have you encountered any sense of the basic fallacy in the way these professional economists go about approaching questions of economic development? Just behind? Yeah. Hello.

Mine is not as complicated as yours. But in Saralawi's presentation, one of the few slides I think talked about the fact that the rich are getting richer and the poor are getting poorer, and that gap is still increasing. So looking at the overall history of whenever you want to start, seeing as some of the countries that are considered developing-- I don't like using the word, but that's the one we have-- have been plundered to the point that even after regular aides and all of these things and getting help,

they might never actually reach the status of what developed countries are. Or do you think there might be a time when such developing countries do come out from the hardships they do face and then may have a chance in going to what is called the developed country? That would be my question to both. Then we have a question in the back. Yes. I was wondering what you guys think the role of the dollar will be in a possible more multipolar world order.

Sorry, can you repeat that? It wasn't very clear. I was wondering what you guys think that the role of the dollar as a fiat currency will be in a possible more multipolar world order. The role of the dollar? Yes, the dollar. We can take one more in the front and then we will... Yeah, because there are not really any online ones. And then we can take those. Yeah?

I have a question for Professor Tang. Professor, you mentioned in one of your articles as well as in the lecture that authoritarian countries may not maintain a so good performance in terms of innovative activities comparing to democratic countries because of the hierarchy. So my question is,

China is currently challenging the theory because China is trying to model the policy from Western countries and trying to create a modest space for its domestic innovative activities. So my question is to what extent do you think China's effort will success? Do you want to take those? Do you want to start? Yes, I'll answer the first one. I think I sort of alluded to it in my talk.

These professionals or technocrats or whoever that staff these international institutions and the bilateral agencies, they are part of a, as it were, an embedded view on that particular period. During that period, during that phase, certain strategic and policy and theoretical and structural frameworks are established and they reflect that.

So if you hold contrary views or if you hold views that are not of the mainstream in that planning, you are not given much attention in these institutions. So you have people who may not necessarily believe entirely in what they are promoting or what they are preferring as advice, but in reality they can't come out of this sort of embedded thinking in that period of time.

I've gone through several cycles of that and I have seen how these things change depending on the nexus, as it were, of views and policies and thinking that comes out of the political process in the Western countries, mainly the United States, and that carries the day. Sometimes it veers a bit, if I can use these terms, to the left, say the 1970s, but then

the counter-narrative builds up and it takes on, as it were, the governing paradigm for the next cycle. And these people, they don't parrot it, but this is their foundational thinking. So they're well-viewed, actually. I mean, some of them are driven by high moral, ethical standards. They want to see poverty reduced. They want to bring these countries up to what they think are decent standards of living and so on.

but the tools that they use are of that time and they very, very rarely think out of the box. In the last decade, I would say, all these grand narratives seem to have fallen apart. You find people focusing rather on micro-stories, micro-narratives as it were.

and on specific issues. So they spend more time thinking about, for example, how improving the income of women can elevate and improve living standards or how bringing, drawing in people into the money economy and so on.

The whole thesis behind grand narratives has collapsed and the international aid agencies and those who work in the field of development no longer really subscribe to anything except as it were the micro aspects of it. Regarding developing countries reaching as it were developing the status of desired status,

There is very little doubt that the process of development, if you want to bring it down to the core of it, is to do with increasing people's incomes, increasing the standard of living as it were of the mass of the people. As long as these standards are set in quantitative terms and they are set according to certain yardsticks as to what constitutes a good or decent standard of living,

then yes, this will continue. Will they ever achieve that or will they ever be always one or two steps behind? I think the dice is loaded against them, frankly.

There are few countries that have managed to get out of it and they had peculiar starting conditions. The East Asian countries except China could not have functioned without the U.S. security umbrella. I think you have to say that as a matter of fact. Neither Korea nor Taiwan could have developed without them having access, privileged access to the U.S. market and without the U.S. giving them a security

umbrella as it were and it's definitely as Professor Shipping said, it's part of the Cold War rhetoric. China managed to do it without people really not noticing.

I think Deng Xiaoping said you should walk softly in the shadows or something to that effect. Don't people know what you're really up to? In the 1990s, where China set the basis of its economic growth, I think it was seen more as not a rival but a benevolent ally, as it were. And things began to change only in the 21st century. The role of the dollar, I think,

Trump knows that the use of the dollar now as both a unit of account for trading purposes and for reserve purposes and so on is retreating. Unfortunately, the options now are this chaotic world of digital currencies which the central banks of the Western powers are trying to get some kind of access to control in order to have it as a reserve currency that is under some kind of political authority.

or the Chinese begin to create large deficits, which I can't see happening in the near future, whereby they flood the world with their currency and it becomes an acceptable and available and convertible exchange. I think we're in a transition phase now. It may take about a decade, I think, before we know whether the dollar has been dethroned or not. I think Trump, in spite of the way he comes across,

seems to know where the heart of power lies. And power lies in this case in having access and control over the world's reserve currency, even though it's on a declining curve. And he wants to stop that and reverse that. And the only option, the only alternative I see now are these digital currencies, which out of this chaos that we have right now,

western central banks and governments are thinking seriously about mechanisms of controlling that process about interaction with professional economists i think we should divide economists into two kind of groups one is more you know in the academia they're more doing the theoretical quantitative stuff without you know very extensive uh

Experienced in practicing or doing the actual things about supporting economic growth or economic development. And certainly the other side of economists will be somebody like Mr. Ali Alaoui, who actually had experience, knows how difficult in practical terms

So I would argue my experience with professional economists, there are two things which I think struck me. One is they are more ideological than political scientists, I would put it that way. So they tend to see things as clear-cut black and white. One is a market economy, the other is not a market economy. One is a

authoritarian and therefore it doesn't really have economic freedom, whatever. I think that's one thing. The other thing which I think struck me was they tend to be narrow-minded, I wish I can put it that way. They read mostly about economics, literature, top five journals, they read very little about

I mean, very few people in economics understand Michael Mann or Wallerstein or Charles Thierry. I think they're just wrong. So I think they tend to be within their own discipline. I don't want to keep bad mousing them. OK, so I think most of economists who, if they really work in practical terms, they tend to kind of gradually change their mind.

Innovation in China, all right. So I don't think China has to really invent something truly groundbreaking in the last couple of decades. China has been very successful in making things what they call from one to 100, right? So from zero to one is usually came from the United States or maybe sometimes from Western Europe.

but China has been very adept or quick in terms of making things really cheaply, mass scale, whether it's EV or other kind of consumer products. So I do think China is capable of innovation, there is no doubt, because as I said, even in a non-democracy or non-authoritarian state,

there is still room for economic freedom in terms of but also for innovation in technological terms but also has room for institutional innovation too it's just the chinese system tend to be more top down rather than bottom up and i would argue it's more cost effective and also taps into china's informational tech information capacity

if the Chinese government can allow some bottom-up innovation, not just technological-wise but also institutional-wise, because it's extremely costly to only have top-down innovation

Essentially, actually, I think it's wasting China's enormous capacity in gathering information from all this digital data. So I'm not saying China cannot innovate if it's not democracy in the Western sense. I'm only saying it can have more innovation.

In my mind, I think actually Chinese economy has yet to achieve its full potential, partially because it actually hampers innovation bottom-up. The role of the dollar, I'm no expert on the international finance thing, but I want to just...

At one particular point, I don't think really China is really eager to replace the dollar. I think that's a misperception outside, maybe in the United States, because Chinese understand if you have a single currency from one state to become the reserve currency, actually like the United States, the United States is constrained. It can print money, but it has other drawbacks by becoming

the de facto reserve currency. And I think the Chinese Central Bank has already said quite a few times a few years back, I think the world will be in a much better place if the reserve currency is a basket of quite a few major currencies rather than a single US dollar, which I think is counterproductive for the US too.

Fabulous. I think we've run out of time, and I know we could all go on for a while, but I think we're going to have to end it there. Before we go, I just want to say that there's – is it Yale Publishing?

is outside and they're selling Mr. Alavi's book. And I think if you ask very nicely, he might just sign it for you. So I do encourage you to grab a copy and get a personal signature on it. Thank you very much for joining and thank you very much for our people. Welcome to the LSE Events Podcast by the London School of Economics and Political Science. Get ready to hear from some of the most influential international figures in the social sciences.