q to grok 7/27/25 This is a transcript if csis interview with world bank economist gill. He has also just hosted the annual abcde human development economics summit out of washington dc. Can you summarise this and if you see it helping make case for india or other countries most urgent ai needs, please clarify .
....ne, Naven Girishanka here at CSIS. Welcome to betting on America. For 0:05 this episode, I'm sharing with you a conversation I had with the World Bank chief economist Indit on global growth 0:12 prospects, challenges that developing countries are facing and importantly opportunities that developed countries 0:18 have in really solving development challenges going forward. What I thought was particularly valuable 0:25 for those who care about US industrialization were Ind's insights on the sources of structural imbalances in 0:32 trade. His thoughts on populism and the future of economic reform and importantly 0:39 opportunities that advanced technologies offer not only for developing countries but importantly for US exports. It was a 0:46 really interesting conversation for anyone who cares about US industrialization. 0:52 [Music] 1:01 We are living through an era of unprecedented trade and policy uncertainty. Uncertainty that is flowing 1:07 through the global markets affecting global growth prospects particularly in developing countries. 1:13 What does the rise of populism mean for the future of economic reform? reforms that could generate growth and reduce 1:21 poverty around the world. What is the rise of new technologies and 1:26 multiple technology revolutions like AI, biotech, clean tech, nextgen telecom 1:33 mean for the opportunities for countries to leapfrog and address long-standing development challenges with new 1:39 solutions? We're going to talk about this and more with Indgill, my good friend, chief economist and senior vice 1:45 president at the World Bank Group. Indid, thank you so much for joining us. I'm delighted to have you here. 1:51 It's a pleasure to be with you, Navi. Um, it's a pleasure. You're you've recently come out with the global economic prospects report. I 1:58 wanted to start there as one of the flagship reports of the World Bank. Um, 2:03 the the team yourself and your team have put out really growth projections that are quite sobering and they project uh 2:11 global growth to deceler decelerate to the slowest rate since 2008. And for 2:16 developing countries, the picture is even starker. Growth has fallen in the last decades, in the 2000s, from 5.9% 2:23 to just under 3.7% in the 2020s. Um, a lot of this also has to do with 2:30 unprecedented levels of trade and policy uncertainty that we're experiencing now. I think I I read a blog where you say 2:38 developing countries are now a development free zone. I found that a striking statement. So help us 2:44 understand what's going on. Got it. Excellent question. So we did a 2:50 fairly big report that looked at uh the long-term growth prospects of countries around the world. And the striking 2:55 finding Naven was that across the world um the potential growth rates were going 3:01 down. So they were they were very healthy in the 2000s and then they went down in the 3:07 2010s and they ratcheted down in the 2020s. Um and so as a result of that I 3:14 think I think that that's so that's a backdrop in a sense. Yeah. Now there are some countries that are exceptions by 3:19 the way one country that is an exception is India. Mhm. Right. Right. And there are a few others 3:25 like Indonesia and others which which have tended to maintain. For the others where you haven't seen a drop they're 3:31 actually already at very low levels. Okay. Like like essentially Latin America and 3:36 Africa. Okay. Right. So that that that's a backdrop. So then beyond that if you sort of look at it 3:42 there are two other trends. The first trend is of course is a very cross-sectional one in the sense that as you go from as you go from emerging 3:50 markets like India, China, Indonesia and others their prospects are not that bad. Okay. 3:55 Then when you go to the smaller economies and the poorer economies their prospects tend to be worse. So for an 4:02 example I mean if you look at Africa uh subsaran Africa I think the nearest 4:08 approximation for their growth over the last uh decade or so is a per capita 4:15 income growth of zero essentially okay and I think that when we look at the prospects looking ahead the prospects 4:21 look like that decade is going to get repeated for many of these countries the low-income countries especially 4:28 so if if you uh so that's the D that is the second part. The third part of 4:34 course is that if you look at the most recent shocks like trade policy uncertainty and things like that they 4:39 tend to be they tend to hurt the smaller economies a lot more because smaller economies depend a lot more on trade. 4:46 Yeah. Market access market access. Uh so for all of those reasons thing now when I said 4:52 development free zone you know I guess the best way to put it is this if you 4:57 looked at the MDG period the period of the millennium development goals right. 5:02 Mhm. You know we said we made a lot of progress there etc etc but a big chunk of that progress was China Navin. 5:09 Okay. Okay. for actually for many of the indicators in in other parts of the world there was regression not 5:15 because but China so this was the first decade of the first decade when we're looking at this 5:21 decade now and look at the period of the sustainable development goals instead of 5:27 China you've got to India so India is actually making things look a lot better 5:32 for the world but actually you have a lot of other countries the the poorer 5:37 countries the countries in conflict etc. They are the ones they actually 5:43 have not they're not seeing development right that's what I meant by a development free zone 5:48 I got it so given the size of both those countries China in the first decade India in the second decade the 5:54 aggregates look better than what's actually happening in the case of say countries in Africa or countries in 6:00 Latin America absolutely and so then you say okay what happens next who's going to replace India and China 6:07 now they're gone right and the prospects don't look But right that's uh yeah 6:13 so um let's just double click on this because I want to understand the drivers. So if like I don't want to 6:20 overindex on what's happened right now with uncertainty although that's something we should get into. Yes. But when I when I when we think about the 6:27 first decade of the century and the second decade of the century, there have been some important events. The global 6:32 financial crisis, the pandemic shock, but um were those the main drivers of 6:38 reduced growth prospects during that period or was it other things? 6:44 So, so those are those are things that actually ratcheted things down rather quickly. But the things that actually 6:50 lead to declining drivers of growth are more long-term. So one of them of course 6:56 is you can sort of think about three things. The first part is is capital. 7:01 The second part is labor. The third part is energy and then the fourth part is technological progress. Right? 7:07 So if you look at all of this stuff what you find is in ter demography you find many of these countries are 7:13 aging. Right? Not all of them, not Africa, not India yet, that kind of thing. But but that's 7:18 one of them. So if you look at East Asia for example, a big part of the declining drivers of 7:24 potential growth was demography. But the second part is equally important in the sense that if you look, you know, 7:30 many of these countries based their strategies on a lot of investment investment, but investment paid off less 7:37 and less with each dollar in terms of growth and so on. So that at that part 7:43 essentially is declining productivity growth in these countries. So in a sense these countries had to 7:48 improve their the way that uh the way that they combine all of these factors 7:53 of production and things like that but with more and more efficiency because you can't rely just on more work 8:01 and more investment and so on that but that only takes you up to a point. So these countries all hit that phase where 8:07 they needed to generate greater greater efficiency and they failed in doing that or they're increasingly failing in not 8:14 all of them. And now if you say okay but what are the sort of uh reasons why the 8:21 '9s were good the 2000s were even better and then we sort of hit this declining trend. 8:27 There were these there was a consensus. The first consensus was let markets take the lead and let governments give them 8:35 support and I think that spread across the world. That but that that was a very American idea by the way. I mean it's a 8:41 great idea. The second one was macro stability is really important especially for the 8:47 poor. So inflation is slow growth is bad but inflation is a killer for for 8:53 poverty reduction. And there was a sense that don't don't spend beyond your budgets. Don't print money when you do 9:00 spend beyond your etc. And then the third part was trade. Yeah. 9:05 So countries become suppliers of goods before they become demanders. So trade really helps on that one. And the and 9:11 the flip side of trade was of course the flows of foreign direct investment. All of these things there was a 9:18 consensus about them. And this consensus one by one has frayed. 9:24 Uh so this thing about let the private markets take the lead and so on that started to fray once you had the China 9:30 model. You know there was a sense that oh well you know you can act because interest rates are 9:36 so low you can run you can run um big deficits because you can finance them 9:42 very cheaply and that got us into trouble. All right. And that that was mainly a western phenomenon but not just and then the 9:49 third part the trade part and I think this is something that I'm sure you're thinking about is that 9:55 this period of success led to these countries I'm talking about the emerging markets becoming a bigger and bigger 10:02 share of the world uh world economy. Yeah. And at some point it starts it starts to 10:08 matter in the countries that were richer. When these countries are 20% of the world economy, the flip side effects 10:16 are not that great in the richer countries. When they're 40 50% depending on how you measure it, now you're 10:23 talking about huge effects on richer countries too. Yeah. So I think that's what we are seeing 10:28 played out. So as a result of it, trade was of course the first uh uh first casualty. But very but I mean we just 10:37 finished a report on foreign direct investment. foreign direct investment has just tanked. 10:42 Okay? It's gone basically. Okay? And now then what happened and by the way foreign direct investment was 10:48 tanking at the same time that domestic investment was tank. Now why was domestic investment tanking? Domestic investment partly was tanking because 10:55 you know uh once you start to spend beyond your means, once governments 11:00 start to spend beyond the means, you accumulate a lot of debt. Okay? and countries that accumulate a lot of debt 11:06 tend to be lousy places to invest in, you know, not just for domestic investment, foreign investors as well. 11:13 So, you sort of see that happening. Yeah. Anyway, I'm sorry to depress you, but but it's a depressing picture. 11:18 It's fine. And I think part of the uh challenge is to focus on what's the 11:24 overarching goal. And I think if you think of long-term productivity growth 11:30 and you you've laid out so many of the elements at least what was the consensus on how to drive that and challenges to 11:37 that particularly let's just say a kind of statist industrial policy model which 11:43 uh many many countries even say in the around 2015 or so we're having a fairly 11:49 open re-evaluation about the role of industrial policy really compelled by 11:54 the example of China. Yes. And the thing is that they don't necessarily have the deep pockets and 12:00 the ability to absorb uh inefficiencies in the implementation of industrial 12:05 policy like China has. Yes. And so when you think of smaller countries in Africa trying to do that 12:10 and identify particular sectors where they are going to be competitive, there is the risk for example of mistakes. Uh 12:17 can you give us your thoughts on u this shifting away from what was the 12:23 Washington consensus to this kind of other approach to how to drive productivity growth and uh where are we 12:29 on that? I I think we are probably on the side of abandoning the Washington consensus too 12:35 much. Yeah. And we need to go back towards that. Right. I mean, you know, it was never seen, I 12:41 don't think the Washington consensus was ever seen as a full recipe for progress, but it was seen as the necessary 12:48 ingredients on which you could build these other things. Right. So, I think we need to go back to that 12:53 in the sense of, you know, get your fiscal deficits in order. And this is true for pretty much every country, I 13:00 think. Yeah. Right. There are few exceptions that I think and those and those exceptions by the way the uh uh 13:08 those countries that tend to have low public debt ratios and so on are countries that depend a lot on commodity 13:14 exports. Yeah. And commodity and the thing about commodity markets right now is that uh 13:20 they've also entered a phase where commodity uh prices are going to be low and commodity price volatility is going 13:27 to be high. So even for them there is this problem of managing their fiscal policies and so on. It's a different 13:33 dimension but it's an equally tough problem. Yeah. But for these other countries I think 13:39 one of the things is just let's return to the fundamentals of living within your means you know 13:45 right and I think that that's the first thing. The second one is I think that you know 13:51 what we ended up doing was we ended up um forgetting that a big part of 13:56 progress was affordable and reliable energy you know and we went away from that I 14:03 think for a good reason in the sense we were worried about climate change and things like that but I think we ended up 14:08 focusing a lot on uh where the energy was coming from rather than how uh how 14:16 countries uh were using the energy and what you really want is you want to use these energy resources frugally 14:22 efficiently instead we started to focus a lot on you know oh get rid of fossil fuels you have to do this other thing I think that 14:29 balance is coming back too it's a sensible balance and I know it's also related by the way to the other thing 14:34 that you mentioned about AI and data centers and so on because I mean you have very high energy needs for that 14:41 I want to come to that I mean you know we do a lot of work on um technology 14:46 competition techn technology competitiveness here in our shop and one of the things we think about um as you 14:53 think of technology as a driver of innovation and productivity um we think about technology enablers and energy is 15:01 one of the primary technology enablers uh obviously um skilled technical 15:06 workforce is as well um creative uh capital markets there are many elements 15:12 of that and you know that's another way to look at what are those fundamentals Right. And I'm so glad you describe the 15:20 need to maybe for the pendulum to swing back a little bit more because sometimes 15:25 I worry that um in the midst of the rise of populism, which I know you've written 15:31 about and talked about um and the re-evaluation of the role of the state in productive activities, I sometimes 15:38 think we are forgetting the timeless and universal power of markets. Yes. And I'm worried about that. And I I would I 15:44 think that's what you're saying, but I don't want to put words in your mouth. I want you to share with us your thoughts on that. So, you know, I guess this thing about 15:51 populism, right? I mean, uh so populism can rise in a lot of places and it 15:56 really doesn't change the world that much, right? When it when it happens in a big economy 16:02 like the United States, it changes the world, right? Okay. So, I think it's very important to 16:07 see what's the reason for that here. Yeah. And I think I think that when you 16:12 look at that you sort of say all right you know really it has to do with the two biggest economies in the world now 16:19 the US and China and their relations. Okay. And I think one has to look to see whether or not 16:25 these relations uh were sustainable in a sense. And I think the answer clearly is 16:32 no. Yeah. So then the then the next question is why did we get to this point where it 16:39 required such a something that looks like a rupture and I would say that's where the the uh 16:48 that's where that's where international institutions like mine the world bank 16:54 uh the IMF uh the World Trade Organizations I think that uh we didn't see all of 17:02 this coming. Yeah, I don't think we did enough to make sure that things stayed on a stable 17:08 sustainable footing. I'll give you an example. There are these uh three things that really matter a lot. The first one 17:16 is tariffs. The second one is the second one are currency values and then the 17:22 third one are non-tariff measures and so on because what you really want is I 17:27 mean again I think that the free exchange of goods and capital and so on is a very important part of that 17:33 progress that happened. So then you say what actually led to that suddenly coming to um I mean creating so much 17:39 angst it hasn't come to a stop but it's creating a lot of angst and so you say if you look at that you find the first 17:45 one of course was if you have a large economy that actually keeps currency values under undervalued you're going to 17:52 have imbalances right okay and so you saw that uh so as a referring to China 17:57 I'm referring to China as a result China consumes too little and on the US side 18:03 somebody somebody has to consume too much for them to consume too little. So I say US that actually consumes too 18:09 much. Okay. So then the second question is okay. So that was the first one. Now who's supposed to call that out? It's 18:15 supposed to be the IMF and they should call it out. It didn't. And this has been a longstanding issue. 18:22 Not it's not it didn't happen yesterday. It didn't happen. It happened between 2001 and 2009 mostly. But I would say if 18:28 you look at economies now again you know you'll actually start to sort of see maybe there is again this currency 18:35 undervaluation and so on in some economies and as a result of that one has to do something. That's the first 18:40 part. The second part is the part that actually has been a big part of the debates right now which are tariffs. And 18:47 if you look at the tariffs, I think the people just got used to the US allowing 18:52 access to its markets at much lower tariff rates than US producers and 18:58 suppliers had access in their markets. Right? I mean we just looked at this and I can cite you numbers but basically if 19:04 you go down the list of countries the groups of countries from high income economies like Europe and so on down to 19:11 upper middle inome countries like China lower middle- inome countries like India down to low inome countries like u 19:18 Ethiopia and everybody just got used to this world where they said the US would apply much lower tariff levels and so on 19:25 then I mean you can do that for a while but you can't do that forever. Right. Right. And I think we ran out of time 19:31 there. So that's the second part. And I think that was the WTO's job to call it out and so on. And then if you you know 19:38 what it really did require was not so much the WTO calling it out but changing its rules because once a country has 19:44 let's say for example it has u 40% of the world's manufacturing output. It 19:51 should not be considered a developing economy for that reason. Right? When would it be considered developing? 19:56 It gets to 100. You know, of course, at that point, so at that point, a country has to have not a definition that it 20:04 gives itself that it's a developing economy, but a definition that that is a multilaterally agreed one, which says 20:10 this is the category where you are, and as a result of it, these are the kind of additional tariffs, etc., etc., you can 20:15 have and then the third part was the non non-tariff measures and I think that's 20:21 where the world bank actually we were cheerleaders. I was I mean I was I was in the World Bank at this time and we 20:26 were we were cheerleaders for countries like China. Why? There's so many poor people in China and this this model was 20:33 great for poverty reduction. You see yeah sorry explain again that you were 20:40 advocating for reducing non-tariff measures or you didn't advocate enough. We didn't advocate enough. 20:45 Okay. I don't mean you personally but I mean the organization. Yeah. Yes. We didn't advocate enough especially in the services side because 20:51 that's where the US has comparative financial services and others. I mean those sectors tended to be 20:57 closed. Well, you know, let me just so this is such a fascinating perspective especially given who you are and the 21:04 seat that you're in and your research over the years. It's a very rich perspective and I think it resonates 21:11 with uh what I believe now is an emerging consensus on the part of the United States, bipartisan consensus that 21:18 um structural or persistent imbalances are no longer tolerable that coming off 21:25 of the pandemic and coming off of the last 40 years of I would say economic dislocation in the United States as well 21:32 as and you didn't mention this but I'll mention this a recognition of national 21:37 security risks or civil military fusion risks on the part of the PRC. All of 21:43 which contribute to what we are seeing which is the rise of economic security 21:48 policy. Yes. Not just economic policy but economic security policy. Yes. This also has a risk which is that you 21:55 overindex on the role of the state in productive activities where you might 22:00 undercut the drivers of productivity. And so like there is a very like there 22:06 you're trying to thread this needle here. Perspective on that. So my perspective on look I we don't 22:13 work on those I mean strategic issues. We work on international issues rather than like security and things like that. 22:19 Right. But even if you take those those concerns off the table it was not a 22:25 sustainable situation. Yeah that's great. That's great perspective. Yeah. Fantastic. 22:31 Let's just talk about export oriented growth because that was such an like you think about the as East Asian miracle 22:38 you think of Korea you think of number of East Asian countries Japan obviously you think of Malaysia other countries 22:44 export oriented growth winning which assumes certain access to large markets 22:50 was a huge driver of manufacturing growth yes and even I would say 5 10 years ago 22:57 there was a recognition that well is that pathway available to African countries. Is that pathway available to 23:03 India or is there something that one needs to consider around servicesled growth? Um where are we now on that 23:11 debate? Because I I just think it's an important part of the puzzle of what is a robust economic policy for developing 23:18 countries in the current world that we're in. Yeah. Before we get into the sectoral part and and we'll get into the sectoral 23:24 part like the agriculture versus services versus manufacturing. Stay stay 23:29 with me a bit on the macro part. Yeah. Okay. So you said say that I've got a um 23:35 so I have a strategy. I I uh what what I want to do is export growth. 23:40 Right. Right. So what I then do is I you know generally speaking what I end up doing is I end up keeping my currency values 23:48 lower than market. Right. That gives me this big edge. That was the East Asian strategy. Yeah. 23:53 And we never sort of called it as like a violation of international rules. we should have. Okay. 23:59 Now, when it was a small economy like Taiwan, China or when it was South Korea, it was okay. But if you remember, 24:07 uh we've we've seen this movie before at a smaller level. It was Japan, right? 24:12 Okay. Yeah. So, I I think that then what you end up doing is you keep currency values low 24:18 and then you run big current account surpluses. Now, look at the alternative. The alternative is maybe for whatever 24:24 domestic reasons and all you can't keep currency value low right let's take the case of India where I 24:31 mean overvalued currency what you then end up doing is you end up having to 24:36 have tariffs right so then these then there you have these higher tariff walls 24:42 right so as a result of it is one way or the other you end up distorting things 24:47 so you you know we say trade helps a lot and you know free trade helps even more but there's no free trade trade. So as a 24:54 result of it right now that that part need that part needed changing and it is 24:59 changing. Yeah. So one of the things that we always try to tell the countries that we work with in saying look you have to negotiate 25:08 with the country that gave access to its markets on relatively preferential 25:14 terms. You have to negotiate with them in good faith, right? And make things much more reciprocal 25:20 rather than think it's a noisy process. It's a noisy process. But that's what I 25:26 mean would say negotiate in good faith. Try to bring your tariff levels in par 25:31 there. So at least you have that's the first part. And by the way, there are winners and losers with all of this. And so that's 25:38 the political economy of this whole negotiation or set of negotiations, many of which are ongoing right now. Exactly. 25:44 Exactly. And then the other side the point that you mentioned I think the short answer to your to to your question 25:51 is you know when you have such big economies as India and China enter the 25:58 market uh so for example the the growth strategy for India could not possibly be 26:05 replicate what China did right? Okay, maybe for a small economy like Bangladesh, you could do it. But 26:12 for a big economy like India, especially if it wants to be ambitious, it wants to it cannot be the same strategy. By the 26:18 same token, now let's think of this other big economy. Let's call it subsaran Africa or Africa including 26:25 including northern Africa. It cannot be the same as what India did. Okay. It 26:30 can't be services. Yeah. because in India once it decides to get into services or modern services 26:36 and so on there's not much space for anybody else not easily see I'm not 26:42 saying that we are sure about this but what I'm saying is you better be you better keep that as a very likely 26:50 scenario where now you need to think about something else so then you say okay what's left okay of course you know 26:57 services are a very big block so you can sort of cleave out the services the India 27:03 the the uh services in which countries like India have a big advantage take out the others or you get into because many 27:11 of these countries you still have a lot of people working in agriculture. So you then you have to sort of say okay let me 27:17 try to sort of see how I can get huge increases in agricultural productivity without also getting people out of 27:25 agriculture which is which has been the model all along. Yeah, these are not easy questions, but but I 27:31 think this these new technologies that we talking about and so on applied to agriculture do have a potential for some 27:37 of that, you know. Anyway, well, let me this is very conjectural stuff. This is uh fascinating. I I want to jump 27:43 on the technology point and then I want to hit a couple of more questions. you've you've taken us through this really panoramic view growth prospects 27:50 the long-term history the short-term moment that we're in rebalancing and 27:57 really uh I think where we may have gotten our eyes off the ball both the international community but also policy 28:03 makers in developed and developing countries really fascinating let's talk about technology our department is 28:09 focused wholly uh on the economic security dimensions of uh the technology 28:15 revolutions right and So when I think of what we're going through, I often say we're not living through one Sputnik 28:21 moment. We're living through five. AI and chips and quantum that triad, 28:26 biotech, including synthetic biology, clean and climate technologies, and some 28:32 of these bleed into each other and have like an impact on each other. For example, AI and synthetic biology. So, 28:38 and they all sit on a spectrum of special purpose all the way to general purpose technologies. And so when you 28:44 think about this and you know there was a podcast uh our betting on America podcast where Brad Smith spoke 28:50 eloquently about this there are significant potential applications for development and I know 28:57 the bank world bank has been writing a lot about this as well say for example with AI. 29:02 What is really interesting here as these trade negotiations are ongoing, they 29:07 could either be around tariff concessions and maybe some NTBs that need to be reduced or they could also be about 29:14 technology. And the reason I raise this is because um US services 29:21 exports, AI enabled exports, technology exports could be a significant pathway 29:28 to achieving rebalancing. No. Yes. Am I can can you tell me if I'm right there and share your thoughts? 29:34 This is what if you if you talk like this with somebody who's from an 29:39 emerging market economy, either government or private sector, this is music to their ears, 29:44 right? They want huge technology transfers, right? Okay. And they don't have to be 29:50 technocompensated technology transfers. They they could be compensated technology transfers, but they really do 29:56 believe this. Okay. Now once you once you see that then then you start to sort 30:01 of say okay let me look at the other effects of technology let me look at the economic and the social effects of 30:07 technology and the political effects. So one of the things that we are trying to do Naven is that uh we actually have 30:13 our next world development report is on artificial intelligence. Amazing. Yeah. And we are looking at all three of these 30:18 effects. And so that's just so people know that's an annual report that you put out. Yes. It's really one of the it's the flagship 30:25 World Bank report. It's our flagship report. Yeah. And so normally we have like a one-year effort to to do it. In the case of in 30:32 the case of machine learning, artificial intelligence, so on, we found that it wasn't we didn't have we didn't have 30:39 enough evidence and and things to build on yet. So we made it a 30:45 two-year effort. So our team is actually engaged in a lot of research and outreach and so on. We're working with 30:50 people at Stanford and Chicago and Harvard and so on. Then the next year we'll actually put put all of this stuff 30:56 down. What are the implications of all of this for now? But I know that you don't want to wait until next year. So 31:03 so the question is okay now our East Asia region actually re has I mean can't 31:09 wait until next year because this is this is where a lot of these things are happening. So they put out some really I 31:16 work that was really great and I we will link that to to the YouTube post for 31:21 people to take a look at that. That is really quite interesting. Yeah. I mean this whole thing about jobs and technology and so on. One of the 31:27 nice things for example what they found is that is that if you look at not at AI 31:32 but they were looking at robotics and things like that right and they said okay what are the effects of these things? Do they displace labor 31:40 and and the picture is complicated simply because it has two effects. The 31:45 first effect is of course it displaces labor right? Okay. uh but then second effect is if 31:51 you adopt these technologies it increases your efficiency and competitiveness massively. So as a 31:56 result you get a larger share of the market the world market and that increases the demand for labor 32:02 on net they are finding that it actually for at least for these countries it is a plus 32:07 interesting a big plus and along the way it creates pressures to sort of upskill your labor 32:13 too right so you have this very you know strong demand push and so so again the early 32:19 adopters of these technologies might end up gaining and later adopters might not 32:25 be able basically. Yeah, it's really interesting. I I shared um 32:31 on another podcast a chart that looks at um surveys of optimism around AI. 32:38 Yes. Uh it's an Ipsos poll. And the IMF AI preparedness index and what you find is 32:46 many emerging markets are very very high on the optimism scale, obviously low on 32:51 the preparedness scale. Yes. And the way I think about that as as an American is that is the golden 32:57 opportunity for American AI that gap. Yes. So I mean that's that's a normative 33:04 point but I I welcome your thoughts on it. But I as you answer that consider this. 33:10 There's also like a decoupling agenda around the tariffs and that has its 33:17 impact on technology stacks. Which one are you going to buy into as a developing country? Could you just share 33:24 if you do believe there's an opportunity for American AI in developing countries, a tech offer to developing countries? 33:32 What is the nature of the challenge that a developing country faces when they're also faced with an offer from China? 33:40 Well, first one is, okay, as you were talking, I remembered a conversation I had with some business 33:47 people from India. Yeah. And they had a very uh they had a very 33:52 uh uh good example because what we you know we had done this report where we were saying look don't jump to 33:59 innovation first you know from uh from an investment strategy add on what we 34:07 called an infusion element. So this was our world development report on the mill 34:12 income trap last year. Yeah. And we said you know add on this infusion element. This infusion element 34:18 basically is just copy technologies from abroad adapt them you know rather than 34:24 putting a lot of R&D etc into new technology denovo technology and we contrasted strategies of South Korea 34:30 versus Brazil etc and we found one worked really well the other one didn't work at all you know 34:37 now when we discussed this in India they actually gave us some really good 34:42 insights about how the world of AI is changing some of this stuff it may not 34:47 change the entire fundamentals of this but it can change things enough on the margin that it makes a difference and 34:53 the example that they gave were was like uh the Uber eats kind of services and 35:01 basically what they were saying was that if when they looked at this they found that if you don't if you don't need a 35:10 human intervention to one of those transactions if somebody orders food and so on if it's if it's entirely U web 35:17 based um um you save roughly 70 rupees 35:22 right per transaction. Uh if a human intervention is needed you pay 70 rupees 35:28 extra and that 70 rupees really goes to a college educated Indian you know. 35:34 Mhm. Okay. Now what they found was with the pressure of competition they could cut 35:39 that 70 down to 10 or seven by using AI. Yeah. Okay. Now, but they said that that seven 35:47 or 10 doesn't go to an Indian company. It goes to a a company in UK. 35:53 Mhm. Or what you're saying is I want that money to come to a company in the US. 35:59 Well, they're on to that. Yeah. Because they're saying, not only am I losing demand for my college education workers, now I have a net transfer out 36:07 in terms of intellectual property payment. Yeah. So I think I think that I think that uh I still believe I still believe 36:15 that many of these people are actually part of the US technological ecosystem and so on. So as a result, the US can 36:22 actually gain a lot from that. But it requires a little bit more thinking and I think that's why I think 36:27 it's really good that you guys are thinking about it because it's not that simple a problem in the sense of saying, 36:32 you know what, we can't export uh X things anymore. Let's just export technology. Well, not so fast. 36:39 Such a great conversation. I'm going to do some quick hits. I know your time is valuable, but I don't want to lose this 36:44 opportunity. So um let's talk about innovation. For for some time uh US 36:52 economic security policy has assumed that the locus of innovation on advanced technologies is here. Hence we have 36:59 export controls not in all cases but in many cases we have to protect technology advantage. That's the imperative right? 37:07 What happens when technology innovation is located elsewhere like obviously 37:13 China but maybe not only China maybe in other countries maybe in some emerging 37:18 markets are the source of innovation particularly in this day and age um what 37:23 are your thoughts on that so you know I um I'm uh we did some work 37:31 for the Europeans uh some years ago just before the COVID crisis 37:36 about about all of this stuff and we ended up comparing Europe and US and 37:42 China. Yeah. And we said okay which of these uh places is best suit best uh best sort of 37:50 suited for like a big push on AI and sort of thing and uh the 37:58 uh the place where I concluded was it was the US right and the reason was the following. We said okay you know for for you to do 38:05 well on these things you actually need three things. You need big money. Yeah. 38:11 You need business process innovation and yet then you the third thing you you need efficient tax and transfer systems 38:17 because they have huge distribution effects. And what we found was on big money at 38:23 that point China had a big advantage. they're putting a lot of money into it 38:28 on business process innovation US easily you know bringing these the bringing 38:34 these technologies to market is the is like don't bet against the US when it comes 38:41 to that right even if that technology is developed somewhere else it'll be brought to market much quicker here than anywhere 38:47 else right that's uh the third one was uh the tax transfer systems you know how smooth are they and 38:54 so And that Europe actually had an advantage on that. Yeah. So what we were trying to tell Europe 39:00 was don't be so scared about these technologies. You are actually pretty you're actually well equipped 39:05 institutionally or or or administratively to do it. But if you sort of look at all of these 39:10 things you say okay uh who would you give the highest marks to in all of this 39:16 stuff? I' I' I'd give it to the US especially now big money is going in you 39:21 know right with just a little bit of pump priming by the government big money comes in and you have the business process 39:27 innovation these things take a long time to develop and the US already has them tax and transfer systems the US has a 39:34 tolerance for a greater amount of of social mobility in a sense I think you know and I think I think as long as it 39:40 retains that um it it'll actually have it so if I had to bet on thing I would bet on the US. 39:47 Yeah. Yeah. Interesting. Interesting. Very interesting point. Uh one more two more 39:53 quick hits. Yeah. So with the rise of the AI revolution, 39:59 the energy transition, uh obviously critical minerals have 40:04 become the thing. They are an important topic. Uh certainly a point of uh 40:10 concern for people cons who are interested in economic security particularly in the US. Um and so you 40:17 see a number of countries uh that are focusing on this. Uh there is the early 40:22 discussions about the deal in the DRC and Rwanda. There's obviously the discussion around the deal in Ukraine. A 40:28 lot of them focused on critical minerals and uh there were some African heads of state at the White House recently. They 40:35 also touched on this topic. Yes. So great. When I listen to this, I certainly see 40:41 the economic security dimensions to it. I also see uh kind of back to the future 40:48 dimension to this. You know the last 30 40 years there have been times when extractives have taken center stage in 40:54 the development agenda and there were some hard lessons learned from those experiences. Yes. 41:00 In fact this has more than a 200year history in a lot of countries. Yes. But certainly in in our lifetimes. 41:06 How do we approach this now in a way that does not repeat the mistakes of the past and tell us what you think those 41:12 mistakes may have been? Uh so you know on this one you I'm sure Naveen you know a heck of a lot more 41:18 than us. Uh so our expertise in in these kind of issues is really about looking 41:25 at the outlook for commodities markets. So we have a a team that actually the 41:31 same team that does the global economic prospects also does the commodity markets outlook. Okay. And one of the things we are 41:36 trying to have them do is exactly try to answer the question that you're asking. Not from the viewpoint of the US 41:42 necessarily, but from the viewpoint of of emerging markets and developies. And um so I don't think I'm ready to 41:50 give you an answer about this just yet. But but we know what the main problem is. You know the main problem is that we 41:56 are we are worried that I mean we were worried back then because of things like 42:02 um because of the kind of minerals we needed for EVs and solar panels and you 42:07 know those kind of things and we were worried that a large part of those technologies were concentrated in one 42:13 country or in one part of the world. Now you also have rare earths and I think that there are countries that have 42:19 invested in uh u uh they have invested 42:24 in developing these resources and they're the early developers and as a result of it they actually corner they 42:31 have a large part of the market but I think it goes back again to the thing that you mentioned because 42:39 they have invested in developing these resources I there's no reason why the US 42:45 can't invest in developing those whether they are in in the DRC or whether they 42:51 at home. Yeah. And it's really a technology issue. I think I think ultimately just like we 42:57 think that the problem of climate change is going to be solved by technology. I think that we think that the problem of 43:03 rare earths critical minerals and so on will also be solved by technology. You know so I and then again here I'm a big 43:10 believer of the US innovation system. Yeah. Once you present the US private sector a problem, whether it's flight or 43:18 whether it's something else, I think that you get the solution. I think that's fair. Let me just sort of 43:24 probe you on this one because my sense is for the United States and their allies, diversification is more 43:31 important now than ever. You have a concentration of processing on a number of these critical minerals in the PRC. 43:38 And so you don't have to go from 90% of processing in the PR PRC down to 10%. 43:44 Even if you move down to 60 and 70%, there's a degree of diversification that is important. And so that's rocks in the 43:51 ground and that's processing. And I, you know, I want to just throw this at you 43:58 and see what you say. There's an exper there's the experience of Chile. There's also the experience with I believe it's 44:03 forestry in Norway where uh these extractives these extractive industries 44:09 can also become a basis for productivity growth in countries. Yes. They don't have to they don't 44:14 automatically lead to a resource resource curse. Yes. And so my question is for for sort 44:21 of the lay people like myself, what are the ingredients of making sure that those extractives so now critical 44:28 minerals in Rwanda for example or DRC Yeah. become an engine for productivity growth? What would you advise them? 44:35 So you know I think um it's a it's it's it's it's a very good question. So one 44:40 of the things that we did was we've just finished a paper on Indonesia. Yeah. because Indonesia wanted to 44:47 develop its nickel um value added in nickel basically right 44:53 and u and the question was and it's a very reasonable thing to do saying why should we uh export ore when we can 45:02 actually develop that at home of course then you sort of say oh well you need energy for that do you have energy yeah 45:08 they can have energy as long as they use coal and that kind of a thing but but the main point is that you can't argue against keeping some of their value at 45:14 home. Yeah. But then the next question is why why do you want to keep some of that value at 45:20 home? Because it should lead to improved improved economic outcomes. 45:25 Yeah. Once you start to sort of look at that a little bit more closely, you say, "Okay, let me see that what what I'm going to 45:31 be doing is I'm going to be making this cheaper at home." So, I'm going to now take a look at all 45:38 of the industries that use this in their production. So in this case it was steel 45:44 largely. Yeah. And what you find is that once you have cheaper nickel available or cheaper 45:50 inputs available for these there are a lot of firms that would otherwise have 45:55 gone out of business because they're low value added firms now stick around. Mhm. 46:00 So as a result what you then do is that you take this good thing and you make it 46:06 a bad thing by lowering productivity levels across a huge sector. M so my own sense of it is that's the 46:13 modern resource curse that's you have fascinating that that's a modern resource now now of 46:20 course you have other countries where just these natural resources are so big and so on that they create what's called 46:28 a veracity effect and so on right I mean they weaken institutions I don't think the resource curse is 46:34 something that should worry Canada and the US for the same reason as the 46:39 resource caucus was not an issue for a country like Norway because I'm really thinking about developing 46:45 countries where we could be investors. Absolutely. Or u even vendors for those sorts of 46:50 things. Absolutely. Absolutely. And I think of these things as 100red-year relationships and you want 46:56 those relationships to be robust and benefit the population and benefit both 47:01 sides uh of the Atlantic to put it that way. So two two observations on 47:08 um uh two observations on that. If you look at uh this question about to what 47:15 extent has Chinese investment helped or hurt countries in Africa? Yes, that's a good question. Yeah, 47:20 good question. I think a very simple but not misleading answer is for uh uh based 47:29 on the analysis that that I've seen if a country had strong strong institutions 47:35 good governance basically it gained a lot from this if a country had weak governance it lost 47:42 right so then the question is for an institution like the world bank and like 47:47 what you just said if you want a sustainable relationship that leads to mutual gains. 47:52 Yeah, it can only happen if you also make sure that these countries develop their institutions. 47:58 That's a great point. I'll tell you why I think this is a great point. I think that for the United States, as we think 48:05 through what the future of foreign assistance looks like, let's not throw the baby out with the bathwater. There 48:12 is a modocum level of investment in institutions that are needed. So the ROI 48:17 of those investments including private investments are meaningful um and sustainable. So 48:23 amen what I would say to that. Great great point. Okay, I'm going to bring it home. We started out with a 48:28 sobering picture of where we are point in time and then you've taken us through and there opportunities and I think 48:34 you've like I'm excited the more you talk about it like there are still possibilities and opportunities. I think 48:41 I believe in being a hyperrealist and so I was excited to read that next week I 48:46 believe um you have a conference the annual bank conference for development 48:51 economics is that right that's exactly ABCDE for those who don't know and what I found interesting is your focus is on 48:59 u economic reform in the age of populism fascinating meaning to put it in my 49:05 words what is the future of economic reform in a world um where populism is 49:11 on the rise in developed and developing markets and maybe I would just sharpen this a little bit and ask you should we 49:18 be moving towards development policy including by the bank and others that 49:23 are robust to the political economy considerations of developed countries 49:29 particularly those that have been perceived losers from trade over the last several years you uh you're 49:36 absolutely right and uh I think I would encourage encourage uh so I would 49:41 encourage you and everybody else to actually participate in this conference. You can do it virtually, you can come, 49:47 we'll be happy to host you. I think that the short answer is that um that you 49:53 know um the short answer to your last question is that there is no way that 49:59 you can ignore political economy issues in the more advanced economies because 50:06 they may be more advanced but they are much smaller fraction of the world economy or they're not a dominant part 50:12 of the world economy anymore. They share this roughly 50/50 with the others. Mhm. 50:19 So how can you how can you ignore but the other thing that you sort of see 50:24 this no is if you really look I mean and I'm a firm believer of this if you look 50:29 at the period of prosperity that that the world economy went through it was a period in which the American 50:36 template was applied in a lot of countries one a reliance on markets not 50:43 just say okay markets are sufficient are both necessary and sufficient you said no no no you need these other 50:49 institutions like for example mass education which which I think was also I 50:55 mean it may not have been an American invention but it was definitely an American story. Yeah. Right. 51:01 And a lot of these countries did all that stuff and as a result they prospered. So when the US model needs 51:08 adjusting and so on, it should adjust because then I have a feeling that that 51:14 same template will be applied, right? And if if it and if this happens, you 51:20 all all the countries that are low-income countries will become middle- inome countries. Many middle- inome countries become high income countries 51:26 and it'll be it'll be a very different world. It'll be a much more prosperous world. It'll still be an American world. 51:33 Yeah. Yeah. Uh amen. So let me let me now bring this finally home. You have been a 51:40 world banker I think a couple of times. You've been a professor, a scholar, a researcher. I've been a big fan of what 51:46 you've done over the years. Um if you look to the next generation of economists, 51:52 you know, take take it back 40 years or whenever when you started. uh if you 51:57 look at the the generation that's coming up now, how has the field of economics 52:04 changed? What are the things that you would point to as um sort of future 52:11 directions for the field that are exciting and important and uh hopefully influential for uh tomorrow's 52:17 economists, the tomorrow's uh in their midst of tomorrow. Yeah. So, so I I think because of the 52:25 way that I was trained, I was trained by people like Gary Becker and Bob Lucas 52:30 and Chauvin Rosen. I believe that I believe that uh you have to you have to 52:37 u make economics uh work for the common good. Mhm. 52:43 You know, uh I mean if you look for example at the American model too, it 52:48 was a you know it wasn't like market based systems hadn't been tried earlier. 52:54 I mean they were all market based systems in the medieval ages etc etc but 52:59 they were not applied for the common good. M so that's the point I I say believe in 53:04 markets that's one thing for sure but make find ways to sort of make them work 53:10 for the common good right and you know one of the things that you learn of course then is that a a huge a 53:17 hugely important thing for this is competition right but you can't leave competition just to 53:22 capitalists I mean you know because people who uh who compete want to end 53:27 competition they don't want to prolong competition so That's one thing. So I 53:32 think that this whole I think that this whole No, that's Say that again. That's really important. You can't leave competition 53:38 just to capitalists. Yes. Because uh I mean um uh folks who 53:45 you make uh folks who have to compete want to end competition. 53:51 They don't want to prolong it. Right. Yeah. So somebody has to prolong competition. And I think that's the role of that's 53:58 that's the role of the state and that's a huge. Now then if you sort of look at it you say all right let's go back and 54:05 say what is it that thing I think we I would return to the fundamentals. I 54:10 would sort of say you still need uh you still need macro stability. Okay. So I 54:17 think I think that the world has to deal with the debt crisis especially the debt crisis in poorer countries because the 54:24 richer countries can you know they have the mechanisms to actually give people a second chance right but I think the world has to come up 54:31 with mechanisms to give poor countries a second chance you know uh um and then of course I think trade 54:38 uh you know trade has always been a great thing but it cannot be a trade which is imizing for one big swath of 54:47 society, even if that swath of society is in a very rich country and the rest of the country is really benefiting from 54:52 it. I think that's what we've learned. I don't see populism as a bad thing. By the way, 54:57 just like elitism, you can't say elitism was a good thing and populism is a bad 55:03 thing, you know. Uh so I think in some sense this is a correction because I think the elites 55:09 blew it. I mean I mean you could consider us as part of the elites or what but I think we we miss these big uh 55:17 big risks. Yeah. But we have a chance to fix it. So and I I don't know if I'll be able to 55:22 do it in my time but you're much younger. You should do it. Not that much. Yeah. 55:27 But I think you've uh laid out a wonderful vision for uh folks who are starting their careers 55:34 as economists. um it's given you you've laid out a purpose and I think like that's timeless 55:41 and universal but I should say particularly urgent in the moment that we're in. So with that I really thank 55:48 you for taking the time. You've been generous with your time. Such an interesting conversation. Thank you. It's been a pleasure. 55:55 Thank you for joining this insightful conversation with Indil World Bank chief economist and senior vice president. You 56:01 can find this on YouTube or csis.org. This is Naven Girish Shankar signing 56:07 off. Thank you. [Musi
