Podcast of the Day — Banarjee talks to Tyler Cowen
Abhijit Banerjee on Theory, Practice, and India;
COWEN: How well do you think economists understand economic growth more generally?
BANERJEE: I think they don’t understand it. This is the point we make in the book. I think we understand some very basic insights, one being the one that my colleague, Bob Solow, made very clear, which is that growth has a tendency to run out, that once you used up your best talent and your best capital and your best locations, there’s going to be less and less so. And I think that’s probably the only thing which has been pretty consistently borne out: that fast growth slows down. China’s slowing now.
And there’s nothing tragic about it. It’s a normal way of things. I think that the question is more — the thing that we don’t understand is what makes that happen sooner or later, more or less, et cetera. Brazil grew for 20 years, extremely fast, between 1960 and 1980, and then essentially stopped for 20 years. Why do those kinds of things happen? That we don’t understand. I think we’re lousy at predicting growth in general.
COWEN: But if we have countries — take Singapore as an example. Say they invest heavily in human capital, they actually have the political will to grow, and they very broadly have some kind of neoliberal policies, but tailored to their specifics. Don’t we know if they do that, they’ll grow? Singapore it worked, Dubai it worked, Republic of Ireland it worked. Don’t we know a lot about growth?
BANERJEE: Alas, no. You have these tiny, tiny countries, basically, with, I would say, very specific political configurations. I think Lee Kuan Yew knew very well that if he didn’t deliver a very specific set of environmental conditions, and if he were falling behind, there’s Malaysia around.
Singapore was a very, very fragile project in 1960 and one that, I think, they were lucky to have him as the dictator. I think he was, in the end, committed to some things which were . . . But they could have easily had someone who had crazy views, and there were plenty of people with crazy views.
I think small cities at the edge of other, less liberal societies also are very strange examples to use. I was at Dubai. You see so many people from Saudi Arabia, Iran, et cetera, who need to escape their own societies temporarily for pleasure or for just freedom. I think lots of rich people around — Iraq less so — Iran and Saudi Arabia, probably two big countries with lots of rich people who need a playground. I don’t know that that’s replicable at any scale.
Related:
Nobel Prize Winner Abhijit Banerjee: Putting Evidence into Action: Tested ideas in Human Development