 It's really an honor and a pleasure to be able to share these ideas with you. The secret of economic growth is the question that Adam Smith started economics with, you know, what's the origin of the wealth of nations, why are some countries rich, other countries poor. The only thing is that when he wrote the wealth of nations, the richest country in the world, which was probably the Netherlands at the time, was about four times richer than the poorest country in the world. Today, the poorest country in the world is probably Malawi. So if I multiply by four, the income per capita of Malawi, to get to the same distance between the Netherlands and the poorest, I get now barely to Haiti. If I multiply by four, Haiti's income might get to Morocco. If I multiply by four, Morocco's income, I get to Poland. And if I multiply by four, Poland's income, I get to Canada. So today, the richest countries in the world are about 250 times richer than the poorest countries in the world. You might say, well, what's this problem of difference of incomes between countries? It's not only between countries. Within a same country with the same exchange rates, same interest rates, same tax regime, same etc., etc., you have differences in productivity per worker of about a factor of 10. That's a truly puzzling result. Now, what we know about where we got here is that growth is a very recent phenomenon. We had incomes per capita since the year zero. Essentially, there was no movement until this very last period. And in this very last period, there's been this explosion. I'm expanding the last 200 years. But this explosion of incomes happened in a very differential way. It happened a lot in some parts and not in other parts. So the difference that there was a factor of four now has become the differences that I mentioned before. And it underpins these humongous differences in productivity per worker. What's behind that? And economists have had theories about what that might be. And those theories typically involve the availability of assets, factors of productions like land, labor, capital, human capital. The accumulation of these things is not the secret of growth. The real puzzle is in productivity. Because say the US is 30 times richer than it was 200 years ago. But it's not because it's producing 30 times more of the stuff that it was producing 200 years ago. It's producing different kinds of goods that did not exist with different kinds of techniques that did not exist. So the process of growth has meant changing what you make and changing how you make it. It is not having more stuff to make the same way but the change in the things you make. So it's the increase in productivity that underpins this growth process. In fact, the increase in productivity is the thing that wants you to say accumulate more capital and so on. Technology, people think of it as essentially being either tools or blueprints. You generate either new machines, new equipment, new tools or new recipes, new ways of doing things. If you think about it as technology as the explanation for these humongous differences in productivity, you have to ask yourself the question, why doesn't technology diffuse? You can put a machine in a container and ship it around the world. It doesn't take that long to ship something around the world. And you can put a blueprint on the web and have it instantaneously anywhere that has an internet access. The problem is that in order to implement technology, there's a crucial ingredient. And that crucial ingredient is that at some stage in the production, you need know-how. You need the ability of the brain to do things. To answer a serve, this is not something that you're going to learn if I tell you how to do it. It's something that the brain must be trained to do it. And that process of training how to do things takes a long time. And the diffusion of that is complicated. The problem in the world today is not just how to do things on your own, but how to do things in teams when people have to know how to do different complementary things. My hypothesis is going to be that what slows down the process of development is the process of diffusion of this collective know-how. In order to get our minds around know-how, I'm going to make a stylized comparison. And my stylized comparison is I'm going to compare an inuit, a traditional inuit, and here's the inuit engaged in food production, and here's the inuit engaged in housing construction, and here's the inuit engaged in transportation. Who has more know-how? And that ends up being a somewhat complicated question because this guy uses glasses, doesn't have a clue as to how to make glasses. He has a headset, a computer, doesn't know how to make those things either. If I put this guy in the Arctic, he will either freeze to death or starve to death. So there's no practical way in which you can say that this guy has more know-how than the other guys. But it is possible to say that the society to which this guy belongs knows how to do more things than the society to which inuits belong. Not because this society is a bunch of geniuses, but because in this society there are some people who know how to make glasses, they'll know how to make headsets, or who know how to make other things. It's the diffusion of that know-how in society. It's the division of know-how that underpins the capacity to do more things and more complicated things. This is the 787. It's supposedly done by Boeing. Boeing has 165,000 workers. With that, they make less than 15% of the parts that go into making the airplane. So in fact, the parts have to come from all over the place because you have to source the know-how of making these things in the whole very long network, meaning that the know-how necessary to make just one plane involves many, many, many people. This doesn't mean that the secret of progress is to have large companies. This is a very big company, but in this company, it's not a very complex company. They're making chicken parts because you can realize that if you move workers around, not much will happen to the production process, but you cannot do that here. Here, each worker is contributing a different bit of know-how to the whole, and you need the whole set of instruments to make the symphony. So it's not what the guy in the tractor knows. It's the network of know-how to the which he's connected. And obviously, he can pay for the tractor, he can pay for the seeds, he can pay for everything and make more money than the guy on the left. If the guy on the left, for example, cannot sell his product, he cannot buy all these other inputs. So it's being connected to that network of all these other inputs that allows this guy to mobilize all that know-how and to then generate that productivity. This I'm going to re-describe as the game of Scrabble. In the game of Scrabble, you have to make words, you're given letters. So think of words as products, goods or services. And think of letters as bits of know-how. In order to make something, you have to string the bits of know-how together in the same way as you need the different instruments to make the symphony. If you only have one kind of letter, you're most going to make one kind of word. Say the letter A. But if I give you three kinds of letters, now you can make these four kinds of words and you can make three letter words. And if I give you four letters, now you can make nine words and you can make four letter words. And if I give you ten letters, now you can make 599 words. What's happening in this process is as you get more letters, you get an increasing number of words, a better diversification of what you do and longer words, more complex products. So the process of development, you can re-describe it as this process of accumulating letters and expressing them in more words and in longer words in more diverse products and in more complex products. And this we can observe the telltales of this process by looking at how many products countries are able to make and how hard it is to make those products. So for example here, the most diverse country in the world is Germany and there are very few other countries that are able to do the things that Germany is able to do. While the poorest countries in the world make few things and they make things that everybody knows how to make. They make shorter words. So the more letters you have, you make more words and you make words that are harder to make. So with these tools, we developed an index of trying to attempt to measure how many letters a country has, how much productive capabilities a country has and this is our picture of the world in terms of economic complexity. The U.S. is very complex as is Western Europe, Japan, a little bit less China, China more complex than India and even within Africa you see Tunisia is complex and Egypt at the top, South Africa at the bottom and so on. What does it know how to make? And you may ask yourself the question, does this relate to how rich countries are? And it does. It does a pretty good relationship between how many letters you have here and how rich you are. And you might say, well, this is a pretty good relationship but it's not perfect. Does that indicate a certain defect of the theory to which I might answer, well, maybe it reflects a certain defect of the world? Here is India. The theory would say, tell me, how is India so poor given how much it knows how to make? Well, maybe that's the reason why India is growing so fast because it already has what it takes to be richer. So the idea is that this metric of how much you know may drive where your country is going to, how rich you're going to be. We now understand that the secret of growth is to get more letters and to express them in more words and in longer words. The problem is, how do you do that? Because if you wanted to make, say, we're here in Switzerland, if you want to make watches, you need watchmakers. But if the country never made watches before, there are no watchmakers. And if there is no watchmaking industry, why would you want to become a watchmaker? And even if you wanted to become a watchmaker, who are you going to learn watchmaking from if watches are not being made? So the difficult question is, how do you coordinate the appearance of the letters with the demand for the letters in an industry that needs them? How do you coordinate the need for a capability with a supply of that capability? And the question is, how does the world solve this problem? And the world tends to solve this problem by moving from words that use certain letters to other words that use maybe very similar letters, adding maybe a letter or two, so that this chicken and egg problem that we need to address is easier to solve. But then the question is, what do you mean by nearby? What does it mean for a product to be near, cognitively speaking, some other product? Well, to get a sense of that, we need to think sort of like spatially. So think of this metaphor where every product is like a tree in a forest. Trees are at a certain distance from each other, depending on how similar are the letters that they use. So if they use very similar letters, they'll be nearby in the forest, otherwise they'll be far away in the forest. We were able to map this forest in this idea we call the product space. And the product space is if you want to map of the forest, every product is like a circle. Here they're sized according to world trade. And they are connected to other products that use sort of like similar cognitive skills, similar capabilities. And you see very quickly there are some dense parts of the forest. This is machinery, this is construction materials, that's garments and textiles, that's chemicals, that's electronics. We didn't put them there, they put themselves there. Very interestingly that they're very dense parts of the forest, but they're very sparse parts of the forest. For example, the big blob, black blob up there, is oil. It's big but it's disconnected. While machinery is very much connected to other things. If you know how to make one kind of machine, it's easy to figure out how to make other kinds of machines. So products are going to differ in two dimensions. In how long are the words, how many letters do they use, and in how connected are those products, is how much you could use the words, the letters that are used for one word, if you were to make other words. How close is that tree from other trees in the forest? So with this, we are now going to re-describe the world. To re-describe the world, we have to imagine what is a country in this description of the world. And a country is going to be a collection of monkeys that live in some of the trees. Monkeys are like firms, firms make products, products are trees, so the monkey is living on a tree, exploiting a tree. So we can now describe a country as to where it has its monkeys. So for example here, I'm contrasting the monkeys in Venezuela with the monkeys in Mexico. And you see that there's much more know-how in Mexico than in Venezuela. They know how to make many more things. They make printers, TVs, cars, and so on and so forth. While here we have the big blob at the top, oil, and little else. Countries differ in how much they know how to make. And in where in the product space are those things? How many other trees are they near from? How many other things would be easy for them to move into? Now, we're going to see how is it that monkeys populate the forest? How is it that monkeys move in this space? And in order for us to understand how monkeys move in this space, I'm going to tell you the story of Korea. So this is Korea in 19... That's Korea in 1962. We're going to be zooming into this place where Korea suddenly developed batteries. From then it went to develop these other products. From then it went to develop those other products. And from then it went to develop CPUs and computers. So the monkeys were populating the forest by jumping from where they were to other products that used more or less those words but added some. And that is how Korea ended up populating this place. This is two countries, Ghana and Thailand. They started in 1962 with very similar levels of income. In the intervening period, Ghana invested more than Thailand in education. So they accumulated more years of schooling than Thailand. They had the advantage that the education in Ghana was in English, which is the lingua franca of the world, so it makes things easier. So let's look at what these countries knew how to do in 1962. Well, you see the colors are fairly similar. There they were doing cocoa. Here they were doing rice and rubber, but essentially very similar productive patterns. Let's look at what happened in the intervening period. Ghana diversified a little bit. See more or less similar colors. They added gold. And Thailand completely transformed what they did. Thailand suddenly, the old stuff is this thing here and there, but they suddenly are making electronics, cars, trucks, chemicals, a bunch of other stuff that was not there before. Incomes in the two countries diverged so that now Thailand is four and a half times richer than Ghana. Countries are facing different predicaments and obviously that leads to different emphasis of strategy if they wanted to do something about it. Now we can use the position of the country in the product space and how easy it is for them to get more letters to predict growth. And this is our estimate of growth for the world in the next decade using this framework. And as you see, we're very constructive on India and Pakistan, a little bit less growth in China, very positive about Southeast Asia. So this leads us to a bunch of interesting and important policy questions. You have heard repeated many times that countries should specialize in their areas of comparative advantage. That's probably one of the most dangerous statements that has been ever said. Okay? In the process of growth, countries don't specialize. Countries diversify. They add more things, they become good at more things. If you would have thought that since France is good at grapes and France is good at, hence wine and France is good at cheese, wine and cheese, that's what France should do. If you look at what France does, it's hard to find wine and cheese in their export basket. They're making airplanes, they're making cars, they're making chemicals, they're making a ton of other stuff. They are still very good at making wine and cheese, but they evolved being good at many other things. Germany is the most diverse country in the world. They have not specialized, they have diversified. The process of diversification is more about adding capabilities to your capabilities than it is about adding value to your raw materials. Let's go back to this question. Why do we observe these differences in productivity? It's again because it's not the letter that this guy has, it's the capacity of the guy to combine his letter with other letters to make longer words. So this goes to the question of inclusive growth. What makes growth not inclusive? It's the inability of people to combine their letters with other letters to make more complicated products or to make things more productive. Now, this guy here is connected to the logistics network, to the supplying network, to a knowledge network, to a bunch of networks that allows him to the financial network, that allows him to buy the stuff and credit, get it delivered to his place, use it, etc., if something breaks down to have the services, etc. He is connected to a whole set of things that allows his effort to be productive. So the challenge of development is to get more letters, to be able to do more words and longer words, to have the monkeys populate the forest. But in order for the monkeys to populate the forest to jump from tree to tree, we want to give the monkey some instruments, some elements, so that he can orient himself in the forest. And that is why we have developed this tool, the Atlas of Economic Complexity. And this tool makes it a free tool. It's open to anybody. You can log in and Google. We're building this thing. This is just the beginning of the process. We want to develop more tools, more instruments for the monkeys to be able to make better decisions and to move around in this space. I think it's an exciting way of promoting inclusive growth in the world. Thank you very much.