 Thank you for joining us Ariel, I don't know if it's a good morning, good afternoon or are you in Indonesia at the moment? Yes, I'm in Indonesia but my background here is in Helsinki, back then in 2011 I guess, so we were supposed to be there but unfortunately unfortunately today we can't so maybe it's a hope in the future I can visit there again. Yeah that's like a decade before Covid, right? So great for you to be able to join us. I have just one main question which now leads to a build-up of other questions. So I saw that you were the leader or one of the focal points for the project on structural transformation in developing countries. I also just glanced through your paper with Kunal and the people at SCAP and I found that structural transformation was quite high in Indonesia for a while and then during the Asian financial crisis it went lower. I don't know about your experience with African countries but can you give us a sense of what was easier about achieving structural transformation and inclusive growth in Indonesia and why it may be so much of a challenge in Africa? Well historically speaking Indonesia has an episode, had an episode of successful I think structural transformation which is during the decade of late 70s and 1980s and toward the end of 1990s where actually we managed to have industrializations accompanied with rapid poverty reduction as well as not so much increase in inequality for some reason. Some people also believe that this is a good side of manufacturing based structural transformation which actually can help not only reducing poverty but inequality. But that ends in 1998 or in the late 1990s because after the year of 2000 which is after we encountered the Asian financial crisis things start to change. I haven't done much research in Indonesia except generally including it amongst the panel of countries when I'm doing my research I'm a bit more familiar with the African context but it's almost impossible. There's not much structural transformation in Africa and even I was able to go through the book by Kunal and Eric Verca on the development and even there's a difference between the kinds of deals which are palpable in Indonesia and in Asia in general from the kinds of deals which are palpable in Africa and maybe Latin America. Would you have a sense of why that may be the case? Do we have a sense of why the politicians in Africa tend to be more susceptible to corruption than the one in the Asian countries? Because I think about the whole deals and development is about the finality of the politicians. If they're more susceptible to corruption then the nature of their deals are more short term and less long term. Can we have a sense of why that's the case? Is it because of the availability of natural resources or is it just some bad luck? Well that's an interesting question. I'm not necessarily an expert on African countries by the way but actually Indonesian episode of successful structural transformation happened during the authoritarian government during the Suharto era. I'm not so sure if it's something to do with political stability or something else but from what I learned for Indonesian case even though the political leadership is somewhat authoritarian and also of course corruption is there, yet the corruption at daytime may be because of the very strong power in one hand. So the corruption was also a little bit centralized so these big people corrupt a lot. Yet the good thing about it in that era is that for some reason the economic rationale was maintained. For example by practically inviting at that time there is a new generations of young economists from California, I think around 10 or 55 to 10 people and they become the architect of the economic transformations at that time. So we follow this economic rationale very closely and then it seems to work at least to increase growth at that time so we managed to have consistently 7% growth for I think almost 2 decades. That's remarkable. So that's I think one of the key. So you can be authoritarian but if you listen, listen to some experts, some good advice from economics manager, economics development manager maybe it can change something, it can make a change. In contrast actually, I'm just, this is a casual conversation. In contrast there is at that time actually the Nigerian government or Nigeria and Indonesia actually experiencing almost the same episode of oil boom and then we managed to be a little bit more successful in terms of using that resource boom for development compared let's say to Nigeria. So you are correctly pointed out there are some contrasts between some Asian countries and also African countries. But I think maybe, I'm not so sure, I read the book by Asimov, for example, that say that one of the most, therefore deep determination of growth and one of them is lack, lack hypothesis. I think that could be a role, for example, the key features of the Asian is Asian miracle. It's the manufacturing based export growth. And then it seems to be to fade away when China come along in the mid 1980s. So I think the lack factor in that case maybe I'm just thinking out like here is the long life of Mao Zedong. Because otherwise then if the post to, you know, not as have that longevity, or maybe doing shopping can enter them earlier and then China will come earlier and then they may be like make the competitiveness of those Asian miracle, I mean, lose earlier. So that part, so I'm not so sure in Africa, but of course it is not the only factor. It's not empirically proven yet, but it can be, can be too. Yeah, but for Nigeria, at least I'm familiar with the Nigerian case because at the time of the oil boom, they've always been bestowed with tremendous levels of natural resources. Right. At the time of the album, they had coups after coups after coups. So they were mostly on the military control and each general was very happy to overthrow the other one and then grab as much of the oil boom as the cold and then be overthrown by a colleague. So for at least a couple of years, I'm thinking 15 to 20 years on the military rule and it wasn't under one person. It was under successive military rules and then, you know, it was a bit difficult for them to sustain. I don't know if you've been following the headlines now. I don't know if to refer to him as the current former president of Guinea was just recently. And there's an example of a country that's bestowed with natural resources and then the kinds of deals which are there are not necessarily long term or rents reducing kinds of deals. So everything that's there is some kind of clock and dagger and there's lack of transparency in how things are treated. And so there was Mali before that. And I'm thinking that I've just forgotten the other country. This is the third African country in this year which has overthrown their government or overthrown their president. So it makes it a bit challenging because historically they've been able to achieve some levels of growth, maybe like in Rwanda or Ethiopia and all, but structural transformation and inclusive growth that's, you know, becoming less and less able to be implemented in the countries. And if you have examples in Asia like, you know, India and Indonesia and China where growth has been more forthcoming or at least structural transformation has been more forthcoming. And I've always wondered why that happens as much in Asia and it barely happens in Africa. But if we talk about luck, then I'm sure it makes sense to an extent. I don't know if it's critically testable anyway, but it kind of explains a lot of what is happening in Africa now. Yeah, I guess so. Sure, but so I think I'm sure that the China coming along I think has also has to do with what happened more recently to Indonesia and also the rest of the other developing countries. I really like Danny Roderick's keynote speech yesterday, which also suggesting that, for example, manufacturing base structural transformation will be very hard to find again. So now I think that's what also Indonesia experiencing because after that then we start seeing something different compared to the decade of that era of this high quality. Structural transformation because the most recent data suggest that actually the structural transformation happened still that people from agriculture still coming out. But yet the manufacturing cannot anticipate that through fast. So now they have to go somewhere else. And then because of the investment in human capital, maybe it's not that fast. So it end up that only certain the biggest service sectors that receive all of those influx of labor from agriculture is at those with lower productivity. For example, the trade services in Indonesia, the share of labor into those services rising quite rapidly. Yeah, the value I didn't share, for example, stagnant. So that's a sign, very clear sign of that low productivity. And it goes with the rising inequality that quite also happened rapidly during the same period. So we are entering something quite worrying because this trend is strong. And we cannot see that this will have an inflection point in the near future. So if that happened, then we have to come up with something different. There are two actually in the government now. Actually, we are still insist, not insist, but we are approaching with the industrialization agenda, reindustrialization. But I'm sure that not many development economists have a strong preference or strong agreement about this, such as Roderick, for example, yesterday. But people can still see non-hopefully, hoping that reindustrialization will make our prospect of more less tensions or transformation and inclusive growth happen in the future. So that's what we're having. So in your opinion, as an experienced economist, what does the future hold for Indonesia then? Well, I'm looking at the future of Indonesia based on the history of the 10 for the past two decades. And my observation is not so positive because actually we have, because Indonesia was to get the independence in 1945. And then we really, really have the aspiration politically speaking to achieve the high income status after 100 years of independence, which means that will be 2045. So that is a campaign quite highly in the country. But to achieve that, actually our calculation said that we need economic growth that we used to experience in the decade of 80s and 90s. Otherwise, there's no way we can get the high income status in the 42045. But what we learned from the episode of high and consistent growth of other country or even developed country like OECD, we learned actually that the source of economic growth that persists, that sustained the growth spell that can last long, is actually the growth that contributed predominantly by productivity, total factor productivity growth. So I think 70% of growth in OECD country from 1960 to 2000 is actually contributed by the total factor productivity. But in Indonesia, many analysis, many estimations of the source of the economic growth in Indonesia for the last two decades is actually almost zero total factor productivity. So that's a sign of non-sustained economic growth. We had a 5% growth average for the last two decades, but it's not enough. If we really want to achieve that 2045. So the idea of escaping from middle income threat seems to be, we will face a lot of challenges at that time. So that's my observations of my Indonesia toward the future. Not to mention the inclusiveness of the growth. I'm only talking about the growth per se, not necessarily the inclusiveness of the growth. Yeah, the inclusiveness of the growth, that's going to be my next question. Because I'm thinking the income status of the country is determined by the international organizations, right? So even if you become a high income country per se, does that necessarily imply that growth in the country is inclusive based on my so far limited knowledge of economics? I don't think as much. I have two examples. Rwanda has been the first growing country for the last decade and above, but it's still classified as low income country. Conversely, Equatorial Guinea is an upper middle income country, but still the inclusive growth in Ethiopia in Equatorial Guinea is quite low. The president has been there forever, as you know, and he has a select group of people who end up being ministers with different portfolios. So the rents are just shared between an elite group of people. So I'm thinking if Equatorial Guinea meets a certain international standard at some point, they might be classified as a high income country, but then the inclusive growth in Equatorial Guinea is almost non-existent, which is the same thing in Rwanda. So if Indonesia gets classified as a high income country eventually, does that necessarily mean that the growth in Indonesia is inclusive? I'm not too sure. Yeah, that's true. And that's what happened even now. Because when you have a country as fast as Indonesia, so we have 36,000 islands, the land mass is very big and the population is the fourth in the world, then the income per capita tells you very minimal information about the welfare of the majority of the population. Take this as an example. Jakarta, the national capital, is divided into five cities, five districts, sub-provinces, right? And then one of them is the center of Jakarta, and you calculate their income per capita, let's equivalent to Belgium. So the Belgium in Indonesia is one Belgium, and I think the population of this Indonesian Belgium is also higher than the real Belgium, but then per capita income is comparable. But on the other hand, we have somewhere in the East Indonesia, like North Musa Tenggara Island, who actually almost as poor as the poorest country in South Africa. So we also have this diversity in the region. And I'm sure in other countries also this actually happened, especially in countries like China, which is also even much larger geographically Indonesia. And I'm sure many African countries also have these issues. I know that in other neighboring countries of Indonesia, for example, there are similar issues, which is more serious. In Thailand, the country was so divided into urban bank, Bangkok, greater area, and then the rest, which that's why the political situation in that country actually resemble, is a resemblance of this geographically divisive economic performance of these two regions, Bangkok or not Bangkok. So yeah, so I agree with you that to have higher growth to achieve income per capita, similar to high income in 2045, well, it may happen, but of course there are issues other than that. And then when Indonesia, for example, the last year in 2018, for example, even though we already in a group of upper middle income countries before COVID, after COVID we go down again to lower, but during that time we already have in the upper middle income countries, yet if you look at the vulnerability data of World Bank, which is $5 per capita per day, that's the threshold of economic security according to World Bank publication in 2018, $5.5 per capita in poor charging power parity, Indonesia 52% still below that. And then interestingly, I did some research to find other countries in the history that at that particular period has similar per capita income as Indonesia. And then I look at what is the proportions of the population of that country in that period that has that below $5.5 per day. I just found out that Indonesia only better than South Africa of today. So it's just to show you how deceitful those numbers, even the grouping of those countries, upper middle, lower middle income countries, if we didn't really look at it correctly, the distributions vertically between person or household, but also between regions, if your country is fast enough where this regional imbalance can be actually problematic. So that's what I see, basically. Okay, we have a question from one of our colleagues, which is going to be linked to the question I was going to ask. I think we have just about a few minutes, so we'll scale through them as fast as we can. So he asks, can Africa replicate growth in Indonesia given the poor institutions and corruption? How does policy in African countries resolve such bottlenecks? Which is linked to what I was going to, I was just going to conquer with your statement. You have better knowledge to answer this question. It's like a country that is vast, like Congo or the Democratic Republic of Congo. So they have the capital, Kinshasa, which is quite developed by the standard. And then they have the other sections of the country which arrive with marginalization. And even within Congo, some places are inaccessible such that you either have to take a flight or you have to land on the plain ground, or you need to take a boat and travel for like a day or something. So those are the differences between countries. And I think Congo is always classified as a low income country. So in response to Qabela's question, I'm assuming Africa should be able to replicate Indonesia's kind of structural transformation and inclusive growth. But for the most part they are susceptible to high levels of corruption. So we don't know when that's going to happen. Personally, I'm a Cameroonian and the country is aspiring to be an emerging country in 2035. That's what we're told in the year 2000 anyway. So we are 21 years into that. It doesn't seem to happen. Maybe in 2035 they'll give us a new story, but we're waiting to see what they say. Yeah. Do we have any more questions from the group? I think we have just about a handful of minutes. How much time do we have Lume? You can have five minutes. There's the other session starting, but obviously I think answering Qabela's question might be interesting. But there's no other question. Okay. Ariel, what do you think about China's prospects as well? We've talked about the prospects of Africa, which almost always seem bleak. We've talked about the prospects in Indonesia, which I touch and go. They just depend on how the policies are implemented. What does the future hold for a country like China and India with all the population and development, but the ensuing stagnation as well? Well, I'm afraid. I'm not an expert on China, but maybe I will just give a personal remark about how the way I see China positively. I think as you mentioned in the early sections of this chat, you mentioned about how the leader of countries can plan ahead beyond the political cycle. And that matters especially if we talk about growth spell, not only growth, quarterly growth or annual growth. So China, I think, has the advantage of that. Has the advantage of looking ahead without too much thinking about who will be in power at that time. Will I be in power? I'm not an expert. This is just personal curiosity and personal opinion. Because to some extent, maybe to a large extent, that matters. Because China in 2011, for example, as I look up their long-term development plan in 2011, they already invested billions and billions of dollars of government money to invest in green and renewable, for example. Something that is beyond the thinking of many other countries' government. And I think why they can see it simply because they can look ahead without really thinking about what sort of political cycle. So maybe perhaps this is something put forth thought. Maybe if we can manage to have a democracy with the same capacity like that with the same legislative process that can maintain road map, disregarding will be in power in Indonesia, for example. Then maybe that's the key of how to sustain economic growth. So I think China has the advantage of that now. But other than that, politically, I don't have any expertise on commenting on that. But for me, I think the key to sustain growth is technological progress, innovations. And that needs a country that can be thinking beyond the political cycle. So that's what I thought about China. So I can see that China will be still expanding and perhaps can manage to sustain growth for a while. And a final question from Andy. If you could write a book on any topic, economics or not, what would it be about? Andy's tale. Well, if I could write a book on any topic, economy or not, what would it be? Well, actually, I mentioned this to Andy once in Thailand. I want to write a book about economic inequality, but it's a fiction one. So it's a little different style of fiction. And I also invited Andy to co-order that book with me. I hope that one day we can realize that promise. Okay, sounds like a good idea. If we look forward to that then. I think we've run out of extra five minutes. So we're going to have to close. Thank you very much for joining us, Ariel. It was a very instructive and constructive discussion. Look forward to exchanging emails with you. Thank you. Thank you. Thank you all for joining. Bye.