 If people are standing near the door, maybe you can come in. There are a few seats over here and here. My name is Alfredo Saad Filio. I'm from the Department of Development Studies, and I'll be chairing the session today. First of all, very, very warm welcome to everyone, to the start of the new seminar series held by the Department of Development Studies that saw us jointly with the Bloomsbury Doctoral Training Center for the Social Sciences. This academic year, we're going to be holding seminars every Tuesday between today and teaching week nine, and then again in term two. Most of the other seminar sessions will be held in room G3 in the main building as you come into the building on your left. But today, of course, we are here because today is a special day. I'm sure you've got a copy of our seminar program, and the seminar program is also available online, and I do hope you will turn up every single week. Now we are starting the seminar series with a very special session with an extraordinary academic and an inspiring public figure, Professor Giacchi Ghosh. Giacchi will be speaking to us on the topic of our emerging markets still developing and what is development anyway. This is a very, very provocative choice of topic, and I've been looking forward to this talk for a long time. Now most of you know that Professor Giacchi Ghosh is one of the most influential political economists in the world today. She was educated at Delhi University, at Nero University, and at Cambridge, and is now Professor of Economics at the School of Social Sciences at Nero University in New Delhi. Giacchi's academic work is exceptional in its quality, depth, spread, and influence across a whole range of fields, including globalization, international trade and finance, employment, macroeconomic policy, gender, and recent growth in China and India. Giacchi has authored about a dozen books and more than 160 refereed articles. The most recent books she has authored include work and well-being in the age of finance, the markets that failed neoliberal economic reforms in India, tracking the macroeconomy, never done and poorly paid women's work in globalizing India, and after crisis, adjustment, recovery, and fragility in East Asia. Her next two forthcoming books are India and the International Economy, and the co-edited Elgar Handbook of Alternative Theories of Economic Development. Giacchi has been awarded several prizes in India and abroad that I'm not going to list because there are too many, but I will mention that she was the principal author of the West Bengal Human Development Report 2004, which received the 2005 UNDP Award for Excellence in Analysis. She was also awarded the Nord Sud Prize for Social Sciences 2010 and the ILO Decent Work Research Prize 2010. Giacchi has consulted for a large number of international organizations, including UNDP, Yanktad, UNDESA, UN Women, and the ILO, and she's a member of the advisory boards of several academic institutions and journals. In addition to her academic work, Giacchi is a regular columnist for several newspapers, journals, and blogs, and she also writes regularly for the Guardian newspaper. Last but by no means least, Giacchi is closely involved in several progressive organizations and social movements. Through Giacchi and her work tonight, we'll also showcase the work of the Department of Development Studies at SOAS that has multiple points of contact and a general convergence with the traditions of scholarship that Giacchi represents. And the way this session is going to work is this. I'm going to invite Giacchi to speak in a moment and she'll speak for about 30 to 40 minutes. I will then invite Laura Hammond, the head of the Department of Development Studies, to discuss Giacchi's presentation and to outline some key themes for debate. And then I'll open four questions from the floor. But before we start, I'd like to thank the organizing committee that put together this entire seminar series. Faisies, where is Faisie? Where is Faisie? Somewhere. Faisie is here. Lorenzo Monaco is here. Joe and Tomkinson, where is Joe? Joe is there. And Carolina Alvis, where is Carolina? I cannot see Carolina. Too many people here. And also a very, very special thanks to the very large team of volunteers that put this session together. Where are our volunteers? They are there. They are there. They are outside doing some work and they are doing other things too. Thank you so much for this. Now, this session, as you have noticed already, will be captured on camera and on video. And I hope this is OK. At the end of the session, please exit through these doors over there. Please remember to either turn off your mobile phones or keep them on silent. And for people on Twitter, the hashtag is saw us dev studies. Just one word, saw us dev studies. Thank you very much. And let's welcome Professor Jayati Ghosh. Thank you very much. I knew this man was a friend of mine, but this much? I mean, thank you. I'm really quite overwhelmed by, of course, this introduction and by all of you coming. It's really nice of you. Thanks. Machiko, there's a chair there, if you want to sit in the first room. Yeah, well, thanks a lot for turning up. And of course, it's very daunting now to actually make this as interesting as Alfredo appeared to make it be. But let me just go straight ahead in talking about some of these issues, because these are things which have been partly bothering me, but partly also, I think, have been, are often misinterpreted in the mainstream press. Many of you are economists, many of you probably aren't. And it's often quite easy to actually get misleading impressions from the way that things are portrayed about what's happening in the global economy, and particularly about things happening in the developing world. So this is really about trying to unpack some of the words that we use all the time, like emerging markets, development, and so on, and see what's really actually going on. So let's just begin with a couple of definitions. What are emerging markets in the first place? And the way that the current discussion is, is often about really that these are economies or countries that are emerging in general. That is to say they're converging in terms of their per capita incomes. They're becoming closer to some of the richer countries. Some of them, the BRICS in particular, are also becoming more geopolitically powerful, more economically powerful, and therefore they're coming closer to developed countries, in a sense, that they're emerging to become developed or advanced economies. But actually, the term emerging markets was really used originally, at least the first that I could find it in 1981, by a bunch of economists who worked for the IFC, the International Finance Corporation, which is the private lending arm of the World Bank, some of you may know. And it was really used to excite investors in the possibilities of investing in the developing world. It was to create bond markets and get northern investors interested in investing in these southern bond markets. So the early mutual fund investments were promoted by describing these economies as emerging. Today, when you look at it, I actually went to the Financial Times. They have a useful online lexicon, which says what's an emerging market is a developing country in which investment would be expected to achieve higher returns, but be accompanied by greater risk. That's why they also put Russia in this category of emerging markets, because they say the regulatory regime is not quite what it should be, and so on. So what does it mean? It means emerging is actually recent integration with global capital markets. That's what emerging really means. An emerging market is not just any old developing country. An emerging market is an economy that has become more financially integrated with the world, essentially with more open capital accounts and more internal financial liberalization. So ultimately, what emerging refers to is greater openness to cross-border capital flows and domestic financial liberalization. That's what emerging is. And I'm going to make you stick, keep this definition in your mind, because when we look at the next thing, it's going to be rather different. Now, emerging markets, as you know, they're not emerging anymore. They're out of fashion. They're submerging more like. Kindleberger had this phrase. You know, when he talks about financial cycles, you go through euphoria and then stringency and then revulsion before you get to panic. So emerging markets are now in the revulsion phase, as you can see. Basically, the net flows to emerging markets. This is actually from the International Institute of Finance. But the net flows this year have turned negative, expected to turn negative over 2015. Already in the past one year, more than a trillion dollars has flown out of the total of emerging markets. But the net is estimated to be around $500 billion. And they're hoping it will improve a little bit. That'll be still negative, but slightly less of a net outflow next year. But that's anybody's guess what happens. So basically, it's not a good time at the moment for emerging markets. OK, fine. So what's development then? So may as well give away the punch line from the beginning, and then we can get on to the rest of it. Everybody has their own definition. I'm sure I don't know how many of you were in this room, but we'd have at least 300 definitions of development if we put our heads together. All kinds of ways to define human and social progress. And in a sense, economists always talked about development in the past. This idea that there were development economists and other economists is very, very new. An economist was somebody who looked at the process of growth and development and the evolution of economies through different stages earlier. But now, of course, there's this division that are those who have made it, the advanced countries. And then there is all the rest of us. The Great Unwashed was still out there developing, OK? How do you do it? Well, there is the per capita GDP indicator, which everybody now sees as simplistic. Then there are all these much more complex, multi-dimensional ideas. Amit the Sen has spent a lifetime developing the concept of development in different ways, as freedom, as in terms of capabilities. There are people who argue that it's the progressive realization of human rights and all of that. I'm going to take a much more simple definition, and in fact, a simplistic definition also. But I'm basically going to say that development is, in its essence, the diversification of productive structures. It is the movement from less value added to higher value added activities. It is being able to move the bulk of your workforce from low-paying and low-value-generating activities, whether in agriculture or in a whole range of services or whatever, to higher value added, to more processing, to higher value added activities. So basically, what's development? It's productive transformation, OK? I'm not saying that's the only definition, and I'm not saying that that is all-encompassing. What I am saying is that it's a necessary condition. You want any of the other stuff, you have to do this. It's the minimum you must do. If you want to develop, is to actually transform your productive structures and get toward a higher value added activities all around. And again, if I can give away my punchline, what I'm going to be arguing is that the process of emerging is fundamentally antithetical to the process of development. In other words, the two are not things that happen together. It's not that emerging markets are a subset of developing countries. It is that when you get into emerging, you actually stop developing. And this is a strong statement, and you can imagine that there will be many, many people who will find this completely unacceptable. Let me try and explain a little bit what I mean. OK. First, I'm going to stick, by the way, as examples, I'm going to look at Asian countries because I happen to know them better at certain Asian developing countries. But what I say I think can be applied to many other countries, Brazil, Mexico, a number of other countries as well, South Africa also. But let me just concentrate at the moment on the Asian developing countries also because they're always seen as the most successful. When everybody talks about development, they say, oh, yeah, developing Asia, you know, they're the ones who got into also productive diversification. They managed all those things. So here are some of the countries that I'm going to be looking at. The line on top, I don't know how many of you can see it at the back, but the purple line, it's purple to me anyway, is South Korea. And that's the clear success story. This is per capita income in nominal 2005 US dollars. That is to say, not PPP exchange rates, not purchasing power parity exchange rates. I'll come a little bit later to why I don't think using PPP exchange rates is a good idea, especially when you're comparing across countries. But as you can see, in terms of US dollar nominal incomes, real nominal exchange rates, South Korea is the one that has moved to significantly high well above middle income kinds of status. Everybody else, including Malaysia, are still very much in the middle income group. And other than China, which has recently grown and Malaysia, the others, India and Indonesia, are definitely still in the low income category, actually. Low to approaching middle kind of category. South Korea is actually one of those classic productive transformation stories. And OK, let me just try and explain what I mean by the productive transformation. I'm using these really as proxies for that broader definition of development that I mentioned, where you are moving towards higher value added activities. There was a classic pattern. Simon Kuznetz, Clark, then subsequently Caldor. Everybody talked about a typical pattern of development. So the green line is the per capita income, which, as you can see, is going up nicely, except for that little bump after the Asian crisis. The upper line there is the share of employment in agriculture. The purple line below that is the share of output of value added of agriculture. So this is the classic pattern, which is that as you grow in per capita income terms, your workforce moves out of agriculture, and it also accounts for a lower proportion of your GDP. The workforce in agriculture is always a bit higher than your share of agriculture and GDP, but the two are going down broadly together. And it's not a huge difference, finally, at the end of this period, which is only 2005. Those are those bluey and greeny lines in the middle. And this, again, is very typical, which is that both the share of manufacturing in value added and in employment, they go up during your phase of diversification. The manufacturing sector keeps increasing as a share of GDP, but its share of employment comes down because manufacturing gets more and more productive per worker. You know all this technological change, and then the workers are using a lot more fancy machinery, and they're able to generate more output per worker. So the share of manufacturing in employment comes down, but it's at a relatively high level of per capita income. So then basically you can hire more workers and services. This is your classic pattern of structural change that is associated with development. OK, now what I'm going to argue don't look at this yet. I have to tell you the story first, the back story of this one. What I'm going to argue is that some of these Southeast Asian countries, essentially, let me focus on Malaysia and Indonesia for now. We'll come to the other ones later. These countries actually were doing broadly the South Korean story while they were following broadly heterodox policies, not Washington consensus style policies, but everybody talked about East Asian Miracle, then Southeast Asian Miracle, the next generation, and so on. OK, they were pursuing broadly these policies, which generated high rates of savings and investment and associated with that high rates of growth. We can talk about the fact that it was export led, and also they were associated with other nasty dictatorships and all of that kind of thing. But the point is that this basic thing was happening. Something happened in the late 90s, and that's something, as you all know, is the Asian crisis, the Asian financial crisis, which was a big one, big whammy hit everybody. Prior to the Asian crisis, that is, from the early 90s, these economies had already started some financial liberalization. But here's the funny thing. You have a financial crisis, right? It's because already you've done some financial liberalization finance has gone out of hand. It's done things it shouldn't have. So what should you do? You should start controlling finance. That's what we would think, or a Martian? No. What do they do? They deregulate further. The crisis actually creates a situation where they go in for much deeper and wider financial deregulation, both in terms of the capital account and in terms of internal financial structures. So both, well, also South Korea it happens, but both Malaysia and Indonesia allow much more foreign ownership of domestic banks, allow many more financial derivative markets to emerge, allow a whole bunch of things to happen. And what is the result? Now you can look at this. OK, can you see the green line coming down? That's the crisis here. That's 1998, the really bad year for Malaysia. Look, the red line over here is the savings rate. And the blue line is the investment rate. And as you can see, they're both moving up quite together, more or less. Some years the investment rate is higher, some years the savings rate is higher, but more or less they're moving together and up. At the point of the crisis, the savings rate looks very high because the GDP has fallen, right? So that's just a base effect. So don't buy that peak thing there. But what happens after that is that the savings rate still remains quite high, relatively speaking. Investment, on the other hand, that's the blue line, has plummeted. Investment collapses to half of its previous level. OK, these lines, the bars are reflected in the right-hand side, the right axis. The lines are from the left axis. So investment rates go from about 44% of GDP to about 20% of GDP. Complete collapse of investment, savings remains high. So there's this huge gap in the middle. Now those of you who remember your national income accounts, if you have savings more than investment, basically what is this amounting to? It's an excess, it's reflected in your reserves going up. Or your current account surplus, or something, which essentially means that you are sending your savings abroad. So here is a country that is still, remember, you looked at the per capita income, it's still rather poor. Which is sending a huge proportion of its GDP abroad. It is not retaining it in domestic investment well before it's done its productive transformation, et cetera. How do I know it hasn't done its productive transformation? Well, I've come to that. But look at now this is just in terms of how investment is related to the things that we think are so important. Because what is the financial sector supposed to do? It's supposed to intermediate between savings and investment and create lots more opportunities for investment. That's why we all wanted so much supposedly. Or we told we wanted so much. So if the financial sector is in a very, very large and growing relative to GDP, then investment should rise. Well, here is the investment is the green bars, as you can see the plummeting. And then it just remains very low. Domestic credit to the private sector and stock market capitalization remain much, much higher than investment. So it's not translating into real investment. And the structural change that I was talking about, this process which had been ticking along nicely, actually, that's the industry share in value added, the blue line. Manufacturing share of value added is the red line. As you can see, they're all rising till about 1999 and then they start falling. At a much lower level of per capita income, I want to repeat that. It's actually, it's happening well before it should, if you like, in the standard kind of Kuznet story. Okay. Next bad news, Indonesia, slightly different country. Now everybody knows it as a primary exporter. And it was a primary exporter. It is a primary exporter. It was a primary exporter in the 1980s. Guess what? It was a mainly manufacturing exporter in the 1990s. Again, because of that process of diversification that had started and was going along. But what we find in Indonesia, once again, is that the price, the crisis does something very similar. It generates not so much of a collapse in investment. Well, it does in the early phase. In the first seven, eight years after the crisis, once again, a collapse in investment. There is a recovery in the very recent period. Savings rates once again higher than investment rates, significantly. Okay. Now, this is what Ben Bernanke, the former head of the US Federal Reserve, called the savings glut. Okay. It doesn't look like a savings glut to me. It looks like an investment collapse rather than a savings glut. It's really because you have stopped investing. And, well, let me show you the relationship between the financial sector and investment. Same old story. Investment collapses, recovers somewhat in the very recent period. However, stock market capitalization going all over the place, not reflected in any increases in investment. And domestic credit to the private sector also going up, usually not reflected in increases in investment. And structural change also seems to have hit a limit. Okay. The upper one is industry, the red line, manufacturing. And as you can see, manufacturing share of value added which had achieved a respectable 28% of GDP down again to 20%. So the whole process of structural change actually getting retarded by this. What I'm suggesting is that when these economies actually integrate with the global financial markets that is to say when they are emerging, they are putting in place inside their economies forces that are going to make it harder for them to do that basic development project which is diversification. Okay. And they will end up either exporting a lot of their savings, which in fact goes to the US as we all know, 70% of the world savings at one point in the mid 2000s. Or it goes into areas which do not necessarily actually lead to this productive diversification. It goes into booms because then these economies become prone to boom bus cycles. We know this, right? Financial liberalization gives you these boom bus cycles where then the credit is going to housing. It's going to housing and real estate and construction or it's going to the stock market. It's going into things which generate bubbles rather than real economic expansion. Okay, so what are these lessons then? Basic lesson one, you get financial deepening, sure. But it doesn't necessarily have a positive effect on investment or real economic growth. Instead you get these saving surpluses which you either export or basically your productive diversification is retarded and plus you then get these boom bus cycles. How does domestic growth continue? It continues basically because you are fueling debt-driven consumption and debt-driven investment, okay? You have a housing boom, you get people to borrow for the housing. You have a consumer-durable boom, you get people to borrow for that, okay? And finance for the related investment in the real estate market, in the construction industry and so on. Now, we all know that these bubbles end in tears. Or if we don't, we bloody well should. Excuse my language, by now. That basically you can't have a debt-driven model for too long, at some point that bubble will burst and when it bursts, it ends in tears, okay? Usually there's an unraveling of either the corporate debt or the household debt and then that in turn affects the banks and in turn that of course further dampens investment. Now, these economies already had that problem. And now of course we have what's happening in China. And this has huge implications also for the real economy because the growth that was occurring even in the real sector was driven to a large extent by the demand that came from China. It turns out that a lot of this demand in China was also ultimately North-driven because it was to deliver commodities finally to the North, to the US and Europe. But in that process, in that whole process of creating these value chains and production chains across the developing world, it generated demand from not only primary producers, but also from manufactured goods producers who were part of that broader production chain. Now the China is slowing down. As you all know, exports fell by 14%, but imports fell by nearly 20% last year in the year up till July. And that of course means that all these economies are affected. It's not just primary exporters who are crying. It's all the manufactured exporters who were so dependent on being part of that production chain organized by China. So let's now talk about this dragon in everybody's room, China. Yeah, okay. It's a success, right? Sure, it's a success. And just to, by the way, this not to be unpatriotic or anything, but everybody who says China and India together in one sentence, they've really got it wrong. As you can see, right? Once again, this is a share of world GDP. The blue line is China. The red line is India. And the green bars are China as a multiple, the China per capita GDP as a multiple of India. So you can see how dramatic the increase has been in China over the last 15, 20 years in particular, okay? And sure, this is evident and well-known and everybody knows about it and so on. I'm going to put it to you that this also was a result of state-led heterodox policies and that the recent past of China, the recent seven years in particular, has already marked the beginning of the end of that particular trajectory. I'm going to put it to you that the 2008 financial crisis generated a different approach in China, which is very similar to what happened in Southeast Asia, particularly in terms of financial liberalization. Okay, one point I cannot resist making. This is the thing I mentioned earlier. Why am I looking at US dollars in nominal exchange rates and not PPP? Everybody uses PPP, right? The World Bank uses PPP. When we look at international negotiations that conducted in PPP, climate change negotiations, look at per capita PPP incomes and so on. Do you all know what purchasing power parity is? Okay, it's based, shall I get into this one? Okay, three minute digression, okay? Look, I do want to talk about it because really it is such a misleading indicator. Okay, so purchasing power parity is based on the idea that you can buy a lot more in India for 100 rupees than you can buy for a pound here, okay? Which is a perfectly reasonable argument. It's certainly true. You can buy a lot more in India for 100 rupees than for a pound here. Therefore, the argument is the nominal exchange rates don't really capture the purchasing power of that currency. So we should be looking at the purchasing power. Now, there are many problems with the way this is done. Okay, for example, do they do regular surveys to establish this? No, they don't. In fact, for China, they hadn't done a survey till 2005. And then when they did it, they discovered prices were higher than they expected. And so, you know, they had to cut Chinese GDP by 20% and so on. The problem, what is the basket you take? They began by taking an average of the US consumption basket. That may not be the best basket for all the developing world. Let's say Burkina Faso may not have exactly the same average consumption as the United States. Okay, so problem there. They've now got into regional baskets, but there's a problem of comparability across those baskets. But the most important point, the conceptual flaw with PPP is this one, which is that look, why can I buy more with 100 rupees anyway? How is it that I can buy so much more in terms of goods and services for 100 rupees than I can buy for a pound? It's because there are other really poor people who are willing to sell me their goods and services at such low prices. In other words, the reason why the purchasing power of the rupee is low is because there is a large number of extremely poor people who are either producing themselves or working for very, very low wages, which enables me to access very cheap goods and services. Okay, so effectively, the reason why a purchasing power of a currency is higher than the nominal is because of the existence within that society of extremely poor people. It's basically what I do then is to say, well, because you're so poor, you're providing these goods so cheaply, so actually you're not that poor because you're getting all these goods and services. Do you see the circularity of this argument? So the PPP is actually making a virtue of the fact of poverty or low wages in your country, low wages and incomes, and saying, well, you know, you think it's low, but actually it's not low because you can buy all the stuff with it, right? So there is a huge conceptual problem with PPP which is why it's proliferating use across not just all the indicators that we look at, but in terms of even international negotiations is a real problem. Okay, end of digression. China, the story, now listen, this is the country that has the highest savings and investment rates ever, okay? And for a very, very prolonged period. It has had investment rates of between, well, 35 in some cases, but you know, really from 40 to 50% of GDP now for 25, 30 years. In the economic history that I have looked at, there are only two comparable examples. One is the Soviet Union under Stalin and the other is Indonesia under Suharto. But even these were relatively short periods. They didn't last for that long. This is actually historically unprecedented to have such high investment rates. Having such high investment rates, yes, of course you'll get high growth rates, okay? The story of how they got the high investment rates is a different one, we'll come to that. But these high investment rates were accompanied by high savings rates and mostly for most of this period they were broadly similar, except in the more recent period when savings rates have been higher than investment rates. Is this much higher than investment rates? Is this a familiar story? Are you finding any similarities with Malaysia and Indonesia in the savings rates being higher than the investment rates? Slightly higher earlier, significantly higher in the last seven years. What happened? Well, okay, let me first also just look at the structural change story. Structural change, yes, decline in the share of agriculture in the red line is agriculture in employment. The blue line down there which is going down is agriculture in value added in national income and both are going down as they should. Manufacturing on the other hand or industry, you find that the share of value added is actually very high, okay? It's close to, it's above 40%, but it hasn't changed at all throughout this period. Employment has grown in the recent past, okay? It grew moderately, but it has grown significantly in the recent past. But employment in industry has grown when the share of value added has not, which basically means that you are actually squeezing out more, I mean, you are getting more workers in there for relatively less in terms of the output, okay? It's a classical over accumulation kind of situation where you've over accumulated in certain things and therefore your output is not commensurate with the kinds of investment you're putting in. Now let's look at recent, this is confirmed by the very recent trend, this is from 2007 onwards. I told you the last seven years are significant, okay? Where the investment rate has gone up and up and up. GDP growth hasn't, okay? Macro economically that's, I mean, of course I hate the word efficiency because nobody knows what it means, but it doesn't look particularly efficient in that sense, right? You're investing more and more and more. Your rate of growth is not showing that investment. So what's going on? Well, the other big story in China post 2007 is a dramatic increase in debt ratios, absolutely dramatic increase. It goes, total debt to GDP goes from about 158% to 280% and this is a conservative estimate because nobody actually knows the full extent of the shadow banking debt. This is the stuff you can identify, okay? It's a dramatic and very few countries have quite as much of a sharp increase in debt in just seven years. And this debt is across, it's across, well government smaller extent, that's the first line there, but all of this is from provincial governments. Okay, the first set of bars. Corporations have nearly doubled their proportion, dramatic increase. Households also have nearly doubled, although still at a lower level, but basically overall that means you get this massive increase in debt. Suddenly the Chinese economy has moved from being something that is investment driven because of high savings to a debt driven economy in just this period after the global financial crisis. And a big part of this is shadow banking. Now shadow banking is impossible to estimate. What is shadow banking anyway, you will ask? And it's a tough question because it is basically both institutions and other things where credit intermediation occurs, but it's not classified as banking and so it's not regulated as banks are. So basically shadow banking is anything that falls in the shadow that is not covered by regulation. It's fallen through regulatory cracks. How can it happen? It can happen because regulators wink and look the other way. That's the only way shadow banking can happen, right? You allow things which otherwise you would regulate. And look at how shadow banking has increased, especially in the period since the global crisis. It's absolutely dramatic and there are all kinds of things. There are these trust loans, there are bankers' acceptances, there are interbank and trusted loans, there's financial leasing, there are small loan companies, small loan companies are a bit like informal lenders, curb lenders and so on, okay? All kinds of things in there, all of them growing dramatically. Much of this went to real estate and as you can see, I'm sorry the numbers here are wrong, but this is quarterly data again from 2007 onwards, okay? And as you can see the percentage of bank loans going to real estate increases dramatically, especially in the period up to 2014. This ends in 2014. The percentage, and you can see that this is the bars are the breakup, a lot of them in the form of mortgages, but also a lot of entrusted loans to real estate, trust loans to developers and so on and so forth, okay? So shadow banking played a huge role in the real estate, the dramatic rise in real estate, prices across China and the related activities in construction. Many of you will have heard of all the ghost towns that have emerged across China and they're not necessarily standalone towns, some of them are standalone towns which are just there with half buildings or many completed buildings and nobody to live in them. If you go to the 10th Ring Road of Beijing you will find ghost towns also. They're all over now in different parts of China. Massive investments in construction and absolutely amazing rises in real estate prices over this period. Now, this is a bubble, right? It's a typical debt-driven bubble. The real estate bubble, excuse me, didn't we hear something about a subprime crisis in a large country some time ago? Something similar. And of course bubbles burst. So here are house prices in Beijing and Shanghai and as you can see, the peak was in the middle of 2014. I've taken this only for the first three months of 2015 but if I had taken them, they've just, they fell till July. August apparently there is a slight recovery but nobody knows for sure. Beijing and Shanghai were the last to fall. The 90 towns that are covered in the real estate survey of the Chinese statistics of them only three have not declined. All the others have shown much more dramatic decline sometimes as much as 40%, 50% decline in prices. So big collapse of the real estate bubble. What, in other words, what happened? When the global financial crisis occurred, the authorities in China realized that that particular model of export-driven, that is exports to the North-driven expansion was going to face a problem. There are two ways to deal with this. One is to say, okay, I have to rebalance and therefore I'm going to at least ensure that wage incomes are sustained and maybe grow slightly. I live with a lower rate of growth for now but at least employment, wage incomes, et cetera, will be maintained and we will eventually rebalance. Another way is to say, oh my God, everybody's used to 10% growth and that's what my political legitimacy derives from, my ability to deliver higher growth so I've just got to keep it going somehow and therefore you then go in for various domestically generated credit-driven bubbles. So, I mean, I don't know what was going on in the minds of the Politburo and so on but basically what happened in China was a shift from this reliance on export-led growth to domestic debt-driven growth. Provincial governments were encouraged to borrow like crazy, as you saw, the real estate market was just allowed to boom, private developers were given all kinds of incentives along with access to cheap loans and the shadow banking sector was basically encouraged to expand and expand in this way so as to keep the real estate bubble going and therefore to generate these high rates of growth. Okay, end of real estate bubble. Now what do we do? We do the stock market. Next bubble. That one didn't work, let's try this other bubble. I told you that one started declining in 2014, the middle of it. By the end of 2014, significant declines in house prices and clearly the fact that many households had overleveraged on the expectation that prices would keep rising, et cetera, all of that had started already. So what do you do? You generate another bubble, this time in the stock market. This one is totally crazy. What they were thinking, really, I mean, I really don't know what they were thinking, but okay, this begins in January, 2013. And then as you can see, there is this massive push from the beginning of 2014 onwards. I mean, absolutely crazy expansion in the stock market. I have to tell you that, you know, the Shanghai Stock Exchange is a peculiar one because they have A shares and B shares. B shares are purchased by foreigners and they don't have voting rights and they are very small as a proportion. So this is not foreign investment led, like the Indian case. The Indian case is driven by foreign institutional investors, portfolio investors. Here, this is really Chinese investors. It's a relatively shallow market, only a small proportion of households invest in the stock market, but from January, 2015, this year, they were massively encouraged to buy in the stock market. You know, it is glorious to be rich, so it is glorious to invest in the stock market. I have a friend who teaches in Tsinghua University. This year's graduation ceremony, the students, you know, they're always given some chance at the end of the ceremony, sort of rah-rah kind of chance. This year, one of the chance was, drive up the A shares, drive up the A shares. So the pushing up of A shares was seen as this macho indication of the strength of the Chinese economy. And so as you can see, this massive bubble. P.E. ratios, price equity ratios for some stocks were in the range of 200. Now, in fact, when they crossed 20 in most economies, you get worried. You know, that it's unreliable and crazy, 200 for some. The average P.E. ratio was in excess of 90 or something, ridiculous kinds of numbers. Obviously, it had to end, and it ended, as you know, very, very sharply dramatically from the beginning of July till the end of July. It isn't over. This story goes on till, I think, I'm sorry, the numbers have got messed up, but it ends on the 7th of August. But if I draw it, it will look worse now, okay? If I extended it into September, the story would actually be a little bit worse. It's in the doldrums, the stock market. So this second attempt, by the way, the other crazy thing they did was to encourage debt-driven investment in the stock market. To the point where, in fact, the most recent measure of the Chinese government, when they did many things to push it up, as you can see, that period when it goes up again, they first stopped trading in 200 company shares, then they encouraged, oh dear, I must stop. Okay, then they did all kinds of crazy things, but one of the things they did was to say, you can use your existing stocks as collateral to buy more stocks, yeah. So that's what has caused that little increase, although even that didn't allow it to sustain beyond the point. So what am I actually saying? Sorry, let me finish the China story. I'm saying that, in a sense, just as the Asian crisis was a kind of watershed moment for Malaysia, Indonesia, et cetera, so 2008 was a kind of watershed moment in China. It changed the nature of that trajectory, and that is bad news from the point of view of economic diversification, and it's bad news from the point of view of development. Final, very quick thing on India. I hate doing this because it looks so bad. Anyway, yeah, that top line is the share of agriculture and employment, and as you can see, it has hardly budged. I mean, it's just shocking, it's really, really bad. However, the share of agriculture and national income has collapsed. That's that line coming down. So it means we have a whole bunch of workers stuck in agriculture because we're not generating employment anywhere else. I mean, we are really stalled in terms of structural change. Well before we did the financial deregulation, imagine. I mean, ours is a totally messed up case because we didn't even have to do financial deregulation to get into the soup. We did it all by ourselves without that. Anyway, that's the India story. We can come back to that if you want, although I don't want to dwell on it too much. Same kind of story in terms of investment, savings, growth. As you can see, investment and the financial sector goes up crazily, the stock market booms like anything, collapses again, nothing to do with investment. Same ratio of bank credit to GDP goes up, nothing to do with investment, which has been stagnating or falling now for five years, including under Mr. Modi. So what am I saying? I'm saying that the real middle income trap is financialization. It is not, you know how people talk about a middle income trap, and they say that it's really because you get higher wages as you expand, and then you're squeezed, and your productivity doesn't increase enough, so you're squeezed between lower wage competitors and those who have higher productivity, and that's why you get stuck in middle income. I'm saying, no, I don't think it's that. I think financial liberalization is the middle income trap. And the tragedy is that countries are getting into it at lower and lower levels of per capita GDP. Okay, I think I should stop here. Thanks. Thank you very much, Nati. That was absolutely beautiful, a work of art. Laura. It was indeed a work of art, and I feel entirely ill-equipped and poorly qualified to say anything after this. But I think maybe I'll start off by saying, as I'm an anthropologist by training, so I really appreciate the kind of plain spoken way in which you've transformed those graphs into a clear explanation. And one of the things I think that I found really useful in your work over the times that I've been using it, specifically relating to financialization and in terms of thinking about speculation with regard to the global financial crises and the collapse of the world food price market, sort of prices in 2007 and 2010, has been the way in which you bring in some of the other kinds of dynamics that very often are not taken into account by economists, for instance. So, it's all right, I'm not sure. I'm happy to do this in the dark. But the ways in which the kinds of variables like the fact that increased growth, regardless of whatever kind of shaky foundation it's built upon becomes an expectation of the constituency of politicians and becomes something that politicians continue to have to strive towards even if they may realize that ultimately in the long term it's not sustainable. Clearly, not only does it make citizens happy to see continued growth, even if they don't see that they're often this increasingly polarized picture between the haves and have nots. But as well, many of those, of course, who are driving those political forces are in fact those who are benefiting in financial terms from the financialization process. So, some of the kind of social, cultural, psychological dynamics behind these huge kind of trends are really useful, I think, to unpack in some ways. Maybe that will come back further in the discussion. I think as well, when you describe the kind of dynamics of how, in fact, clearly the changes in China's performance over time and the slowdown now seems to make so much sense. So I think one of the questions that will undoubtedly emerge tonight will be, if all of this is quite, you've described it in such simple terms, why isn't anyone doing anything about it? Of course, one might say that the answer is because many people in positions of power are benefiting in quite strong ways from it, but it would be interesting to hear what you think about that. If we take for granted the idea that, in fact, macroeconomists and politicians are interested in long-term sustainability in some way, why is there not more being done? And maybe another kind of point to throw out would be you pointed at the problems with regulation and the fact that when there's lack of regulation or when there is a lack of enforcement of the regulation that exists, and then this is an opportunity for shadow banking to take place, there have been some changes in the structures of some regulatory systems, particularly, this outside of the scope of what you've been talking about tonight, but in the US has made some kinds of changes in terms of regulation, and I wondered whether those kinds of change, the kind of regulatory changes that have been taking place, if hold any promise for thinking about how that might be rolled out in other countries and other contexts, what are the ways in which we might think about bringing some of these changes to bear. So I've not really discussed, I've really most thrown out some questions that maybe we could go back to, but in the interest of allowing many people to have a chance to ask questions, I think I'll leave it there. Thank you, Laura. Thanks very much. Some people sitting on the floor in different places and I can see a small number of empty seats. So people sitting besides an empty seat, could you raise your hand so that the people who want seats can locate the empty seats and move towards those seats? And I'll give you 20 seconds to do that. So if you want a more comfortable place, move now. In the meantime, next Tuesday, the 13th of October, Elaine Graham Lee will be speaking on the topic of feeding the world why Malthus is still wrong and that will be in room G3 just inside the main building. And the whole program for the seminar series is available on the web and on our leaflets. Okay, I will open up to questions. So, Alessandra, yes. Yeah, I wanted to ask if you think there might be a correlation between George Osborne's sudden surge for interest in Chinese investment in the UK and the collapse of the stock market in China. And I don't know how or why, but... Can't believe him for everything. But I don't know. Maybe we can, maybe we can find something there. Thank you. Thank you. Here. And this one, the colleague, and then we stop for all and get around the answers and then open up again. Thank you. Super quickly. Then what is the implication of everything that you've told us for productive transformation? What is coming next in these countries, but obviously for other countries who may be following the same pattern? On the, even when you talk about transformation of, from lower value added to a higher sort of productivity, are there even real caps and even that in the kind of situation that we find us right now? Hi, I'm not sure if you explain this, but I just wanted to ask about the high savings rates. My understanding is that it was a political decision taken in response to the Asian crisis to have high reserves, or is there another mechanism that is behind why? In China, you mean? Well, in the countries that you mentioned. So what was the, what are those? Since you managed to compress so much in such a short time, I thought I'd just ask you that last one on India, which you kind of skated over very quickly. What was very fascinating is that in this time of very high growth rates, that there was so little transformation in agriculture, and I just find that, and compared to any of those other countries, it really stands out. Bye to the back. Make him run away. In the back. In the back, in the very back. I'm Chris, thanks for your presentation. Very interesting. You ended your presentation with the concept of financialization. I was just wondering, what is your conceptualization or financialization? Is that only the things you empirically showed in your presentation, or is there some kind of theoretical? How do you engage with that theoretically? Where do you position yourself in that? It's a broad concept, so I'm curious to that. Thanks. Okay, let's stop for one second. Shanti will answer to this block of questions, and then we'll have time for another round. Well, thank you. These are huge questions. Laura, yeah, you know, I think you've, in fact, in a sense also, Alessandra's question is similar. You know that what's going on in terms of this, what I have called financialization, which I, okay. I'm aware that this is a minefield in this location. Okay, so I will tread carefully, but broadly what I'm defining as financialization is the greater significance of financial interests combined with a greater proportion of, you know, greater quantitative weight of purely financial activities in the economy, which includes stock market, et cetera, et cetera, asset markets, but also includes a whole range of financial services. I think there is a huge internal political economy issue going on here. Absolutely, as you said, and as both of you said, really. And that this is not something externally driven. We cannot, you know, in India we had this whole thing where we used to say fund bank tutelage, and it was this answer to everything. They've done it. They haven't. This is internal. And what drives it? Well, you know, years ago, my colleague, C.P. Chandrasekhar, and I wrote a book on the Asian crisis, in which we argued that at a certain level of development, financial interests become domestically, politically powerful. And this can happen even in very bureaucratic, state-led regimes, which the Republic of Korea was at the time, and which China certainly is also. And they become significant because this is seen as an avenue for relatively quick enrichment, which relates also to your patrimonial, you know, business, among the powerful, but also because it is sold to countries as a means of diversification. You know, when you look at the mainstream literature, people are told, yes, you can become a financial center, like Singapore or something. You can, you know, okay, you don't have to do it through manufacturing. You can do it through these high-value services, which are now proliferating and so on. But certainly there is an internal political dynamic to this, and it varies. It's not identical in all of these countries. But I think there is, in fact, a clear, there's a clear evidence in East and Southeast Asia that classes emerge from existing elites, which have a clear interest in pushing finance and finance, and particularly asset markets, shall I say, activity in asset markets as a means of enrichment. How that happens, why that happens, it's a tough one, and it's not inevitable. It's not that it necessarily has to happen, but when it happens, often it becomes hard to override. And then you end up with these much more, you know, heavily financialized economies. Once you do that, then, of course, the lobbying power of those groups becomes even greater so that even when they create a big mess, they don't, you know, they're still laughing all the way from the bank, because then, you know, as Richard pointed out earlier, that, you know, these things get socialized, the private losses become the public's losses, and so on and so forth. So yes, there's a definite sort of internal political economy thing here. Laura, I wish I could be as positive about the changes in regulatory structures in the US, because, you know, the Dodd-Frank Bill, the Dodd-Frank Act now began in a more promising manner, but really has been watered down beyond. There's a wonderful cartoon in The New Yorker about this. It shows these two bankers pouring over this enormous document, you know, with more than a thousand pages, right? It's like, oh my God, these new rules and regulations are going to completely transform the way we get around them. So, you know, and of course, the one place where it had bite was in the commodity futures market. That, too, has been overruled by US courts because apparently it inhibits freedom. The US has a really weird notion of freedom and so, you know, that, yeah, it's not, in that sense, necessarily a good example. There are good examples. The latest trade and development report that Richard over there has been responsible for provides some excellent, you know, proposals for financial regulation, which all of you should read and so on. The Osborne, okay, let me put it the other way. The reason why China is interested in Osborne is because it's in a bad way. Otherwise, I don't think they would bother too much with him. So I would turn it around. I mean, frankly, the Chinese don't need Mr. Osborne, right? They're giving him red carpet treatment. Why? Because right now they're a bit desperate. You know, two years ago, he would not have really mattered too much. So it's the other way around. The collapse of the stock market has allowed Mr. Osborne to get the kind of treatment that normally heads of state only get, okay? Which is nice for him, but. What's coming next for productive transformation? Okay, Cassandra, as long as you persist on this, you won't get it. That's what I'm suggesting. That if you want to get productive transformation, you have to regulate finance. You have to provide long-term finance to the sectors that you feel are important for future growth and for inclusive growth. And you have to actually bring finance back to doing what it's supposed to do, which is to intermediate domestic savings for domestic development. So as long as you are actually on this other trajectory, productive transformation will definitely take a hit. And anybody who tells you the other way is lying, basically. That's a strong statement, but that's what I do believe. Yes, you're right about, there was a very good question from here somewhere about the fact that there are real gaps in terms of moving from low to high value added production. And that's actually, it's something I didn't touch on here, but it's an absolutely critical thing, which is that in fact what has happened and what the export-led growth paradigm did combined with the liberalization of trade through WTO and a whole range of regional agreements is to dramatically increase competition in the production stage. So all of us are desperately competing, agricultural producers, mineral producers, manufacturing producers. We're all desperately competing with one another and therefore driving down our value added because we want to sell in these markets. The pre-production and the post-production phases are getting more and more concentrated. That is to say the design and all of that part and the marketing and branding part. And this is because of the same trade agreements which really privilege intellectual property rights. So what has happened is that more and more of the value added gets concentrated in the North. And there are some fascinating recent studies. There's a wonderful article by Lausanne and Kope, I think in the latest monthly review, which actually looks at value generation and profit generation and shows a real opposite. There's a you and an inverted you, which is happening. And the value is generated in the South, but they get not very much for it. And the profits are retained in the North because they're at these ends which are now with very high barriers to entry, very concentrated. And so they're able to retain the value. And this is very true of what are called value chains. That if you're stuck at the bottom ends of it, you really don't get much value. The high savings rates in East Asia were the result of a political decision to have high savings rates to increase reserves. To some extent, yes. To some extent, because of the fact that you now need self-insurance because for heaven's sake, the world economy is not gonna do it for you. So you really have to go out there into the self-insurance. Again, the latest trading development report has a very good discussion on that. But also, you're an export-driven model. You can't allow your exchange rate to appreciate. And if you run current account services, you're gonna have this problem. So when you get the money, whether as foreign investment inflow or in current account services, you don't use the money. You stash it away under the bed, basically, by holding reserves, which you park in the US at very, very low interest rates and therefore make all kinds of senior rich losses. So it's a combination of both of those. But it's also that and not using the money is the counterpart of the low investment rate. If you have a high savings rate, you are able to have a high investment rate. So it's not keeping the high savings rate, which is the political decision. It is the low investment rate, which is the political decision, which comes about from low public investment and lower incentives to domestic investors. You know, that combination. India. Yeah. Very depressing Naila to talk about India, but you're right, it is absolutely remarkable and unique. We are unique in many ways. You know, the typical Kuznet style transformation involved, of course, the shift away from agriculture in employment terms and the increasing participation of women. We are historically and geographically unique that we don't get a shift out of agriculture and we get a decline in recognized female workforce participation. So we are really completely weird, okay? I believe a part of that weirdness is because we don't actually count a significant part of women's labor. It's unpaid, underpaid, unrecognized, et cetera. And so once you count that, if you can, you know, twist the data around, I have shown that actually female workforce participation when you count the unpaid labor, which is not recognized, not just in household work, but in other productive activities comes to 84%, not 24%. So, you know, part of it is that, but the inability to shift people out of agriculture reflects a failure of the industrialization project, which is remarkable because it's persisted through different growth regimes, you know, Nehruvian socialism, liberalized, you know, new economy, all of that, reformed globally integrated economy. It's persisted through low rates of growth and high rates of GDP growth. It's kind of constant, you know? So the Indian case is remarkable, but it is really a case of a deeply stalled development project. And I believe that a whole bunch of the other terrible indicators we have, you know, nutrition indicators on power with sub-Saharan Africa, really bad maternal mortality, a whole bunch of all, in a sense, I know it's dreadfully economically determinist, but I think you can trace a lot of it back to this inability to do even minimal structural transformation. Thank you. Let's do a second round of questions, hopefully less questions than the previous round. Yes, please. Is the microphone here? And then there's a young man there. Yeah. Sorry, sorry, sorry, sorry. Yeah, there you see the one there? Apologies, it's your colleague at the back. Okay, both. I don't know, yeah. A presentation. Oh yeah, that's okay. I have a very amateur question. I'm not sure if it makes sense, but is it possible in the current global, political and economic scenario, whether Global North wants to invest in the South and the South needs the access to capital and a lot of other things to grow, is it possible for the South, the developing countries to grow and be stable despite being linked to this global financial system, which whether we want or not, the integration is happening and at some level, is it possible for this growth to sustain and continue despite being integrated, if yes, how? Thank you. Yeah. Hi, I'm from China, so I noticed the stock market collapse simply because my mom cried every day. Oh. And so when the stock market collapse happened in China, the Chinese government put more emphasis on corruption instead of reforming the economy system. So I want to ask that whether the Chinese government is right about this stock market thing. Should they put more emphasis on reforming the economy or just put more exercise, like more attention on the corruption? Thank you. Thank you. Here. So I'd like to ask about the correlation between emerging market and corporate debt and the zero interest rate policy in the Western countries. So it seems to be a bit of a loop because there is a weak or slowing global growth and IMF is terrified by the prospect of the rates rising by like 50 basis points and obviously the cheap credit leads to higher corporate debt. So my question is what would be the way to go about ending the era of cheap credit without triggering a crisis? Thank you. Yes, here. Call it right at the corner. Hi, I'm Catherine from King's College London. I just want to ask just maybe like a general question. Why does Sub-Saharan Africa come into this discussion? Okay. Yes. So I have a question about Sub-Saharan Africa. My country is Senegal, it's a developing country. It took its poverty reduction strategy paper, strategy. And I did tweet a point on structural transformation. And now calls it emerging Senegal plan to be achieved by 2030. Do you think a country, any country can reach the state of being an emerging country following a recipe? Thanks. There was a, yeah, there were some people there that kind of appeared. Yeah, hello. My name is Tobias. Thank you very much for this presentation. I have two quick questions. One, I really liked your approach of saying the financialization being the middle income trap and whether you would also go ahead and extend this maybe to say it's a low income trap, even when we look at countries that didn't do that this Kuznet transformation or the productive transformation and did not have this high investments rate like in Latin America, but still have quite a high financialization and whether we could say this is a low income trap. And the second quick question, do you think we're approaching a Falker shock 2.0? Thank you. My name is Sarah, leading on from the, I'm here. Okay, yeah. Leading on from the sub-Saharan Africa questions. Interested to hear your thoughts on Danny Roderick's rather pessimistic take on economic transformation potential in Africa, if you have any thoughts on that and linked to that in countries like Zimbabwe, for example, where you've got 90% informality. How, what does this look like in that sort of context? Yeah, yes, maybe we can, well, if there are more questions, we take whatever. Let's take two more questions and then we'll have to stop. There's one right next to you. Yes, one. She's right next to you. Oh, that's in there. That's, oh, I'm sorry. Okay, I'm from Mexico and I'm really interested in knowing if you know any study that is talking exactly about what you're presented today or if you know the pattern is repeated in the same way in Latin America or sub-Saharan Africa. I'm studying economic and social rights and I'm not an economist, so forgive me if my question doesn't entirely make sense, but one of the things that I noticed when looking at economic and social rights in India is the huge hostility towards industrialization by lots of activists in the rural sector because of the obvious socioeconomic costs associated with changes in land use and so on. How would you respond to those activists when they try to argue that you can make a transformation and expand economic and social rights without actually industrializing? Any especially urgent, boning questions? So somebody, yeah. It's coming, the mic is coming. Thanks so much for this absolutely brilliant lecture. I'd just like to return to the questions that we started off with Laura and Alexandra's and I'd really like some insight from you into what you think is the kind of sociology behind this financialization. Why when it's so clearly, as you have presented it, a death trap, have we got so many people at so many different levels, increasingly getting so attracted to this imagination. What is it about capitalism, the kind of transformation of notions of the individual, the notions of the future, the ideas of the imagination that we all hold. What's happening that we're getting people from all kind of levels, buying in in such an immense way into this kind of notions of speculations that are at the heart of financialization. I'd just love to have some idea of the sociology behind this from you. Thank you. Yes, well this is really me rushing in where angels fear to tread. Let me just begin with Alper's last question because I really, I mean, I'm absolutely zero in terms of any understanding of this. But you know, it is, I think there is something about, Galbraith has a wonderful book, called A Short History of Financial Euphoria, which actually captures in a sense the kinds of thinking that people have. And he wrote this in the 1960s and in one of the forwards of one of the many editions, he says, this book has never been out of print because every time I think it'll finally be then another crisis happens and so more people buy it. But this, what he's really arguing is that euphoria is catching and it's true. You know, South Sea bubble, Tulip bubble, Kindleberger has this history of finally, you can actually trace these, euphoria is catching. And euphoria gives you this possibility of getting rich, if not quickly, at least much more than you thought, which is obviously has a huge grasp on people's imaginations. This young man from China mentioned his mother. The number of people entering China stock market went up from 40 million to 90 million in three months. So you know, the minute, it's clearly there is some deep, I don't want to call it human urge, but there is something which enables this possibility of rapid enrichment, legitimate rapid enrichment, you know, to attract this enormous kind of following to the extent that people are willing to forgive various, you know, and often therefore when they lose out, they think, oh, I was unlucky, but you know, somebody else was lucky and they're even willing to go for it the next time. So I really don't know. I wish I could say more on this, but what is very clear is to me, that's not the deeper question that, you know, people getting into it. What is the more significant question is how closely involved and integrated elites tend to become in different countries to this process. And across political regimes, you know, dictatorship, democracy, socialist, non-social, all kinds of different, the close involvement of elites in this process is something which is quite striking. The, on the stock market, I'll come back to this question about, you know, your big question in a minute, but you know, the Chinese stock market, the government blames corruption. No, blaming corruption is really blaming the messenger. You know, what they did was just grab short sellers and lock them up and so on, which is ridiculous because in periods of crash, it crashes, right? So you can't grab the fellows who are selling when the market is down because that's what they do. That's what is supposed to happen in these markets. The mistake was to see that in any case as an indicator of strength. I mean, how they fell for that one beats me, frankly, because they were really quite smart managers until now. I don't know, my friends in China tell me that the prime minister's gonna take a beating for it, Li Keqiang, which is just as well because he was a financial liberalization. They have to have a fall guy, better him. But clearly, it is not about corruption. It is about an artificial bubble that had to burst. And by the way, hasn't yet fully burst. It's been prevented from fully bursting. So it has a way to go still. And that's, it's completely missing the point to go around locking people up and blaming short sellers and so on. That is just off, completely off target, I would say. It's absolutely right at this point. I forget who made it about the rise in corporate debt in emerging markets and the low interest rate policies. Absolutely, there's all this money sloshing around the globe, right? Some of it goes into straightforward carry trade, like as in Brazil and so on. Some of it goes into emerging market debt. And once again, the people who will go laughing all the way from the bank are not going to be the debtors. They will be the creditors once again. So it's not the first time this has happened. And in fact, loan pushing was talked about in the 70s when you had the first developing country debt crisis of Latin America and so on in the 80s. The earlier period was defined as one of those loan pushing things. And there are many instances of effective loan pushing even in the most recent period. Because of, you know, you're getting 0% interest rate, unlimited liquidity. You've got to do something with this money. And definitely this is very strongly associated with it. How can this be ended without triggering a crisis? It can't. I'm sorry. Wish I could tell you there's a smart way to sidestep it, but no, it's got to come. Where is Sub-Saharan, okay, I'm sorry. I was focusing only on developing Asia. So I didn't look at any other region. But in fact, I was in South Africa last month and it's very, very similar what is happening. It's a mineral economy. It didn't actually get into the diversification stage, but it also has been through a financial boom which is now busting. So South Africa certainly very, very similar. It is in fact in recession at the moment, negative growth at the moment. But other countries in South Africa, it's more complex. Also because many of them have not developed their financial sectors to the same extent. What worries me is that they will see this as a path to growth. I don't know about Senegal, but I don't know whether emerging here also includes financial liberalization. But I do know that in Nepal, Nepal for God's sake, the poverty reduction strategy, whatever they call that thing, includes liberalization of financial services and deregulation of the capital account. So I'm saying, you know, it can, somebody ask this thing that it's not just about middle income countries. It's also about low income countries. Yes, indeed. You would even ask why is international finance interested in pushing deregulation of finance in Nepal which barely has banks, you know, forget about. Honestly, I mean, it's a serious issue. By the way, even in India, I sign up, my friend here can tell you, I mean, most of the population is still unbanked, okay? Yet we've got all this financial liberalization. Why would finance be interested? Because basically, you know, you've exhausted a certain place. It's like those old hunter-gatherers, you know, you've exhausted a particular bit, so you move to the next field and you work on that one for a couple of years and then when that's all used up, you move to the next lot. So it's, there was a term for those people who moved, you know? Yeah. Yeah. Something cultivation? Something cultivation. Jhum, Jhum is a class, it's a Jhum cultivation model for global finance. So even the small pickings to be had from Nepal, they will take for a while, build it up. They'll suddenly discover all kinds of wonderful things in it and you know, and then they'll turn around and say, oh my God, but they were so crony capitalist, we never realized or you know. That's the way it works, really. Are we approaching Volca II shock? Approaching? We've been there for a while, right? I mean, all Bernanke had to do was say, I might do it in six months and bam, capital flows out, okay? And then you have this real, you know, I mean, this weird thing where she keeps, sorry, the current chairperson of the Fed. Janet Yellen keeps saying, I will do it this year, but not now. So many, actually many governors of developing country central banks are saying, just do it and get it over with. Instead of constantly keeping us in this limbo where capital is anyway moving out for fear of it happening, let's just have the shock and get it over with. Definitely, I mean, everybody knows we're heading for that shock, except that it won't be a shock because everyone's expecting it and waiting for it to happen. To go back, sorry, I missed this other question on Africa also, this economic transformation in Africa. You know, high informality, by the way, you mentioned Zimbabwe, 90%, well, we've got 96% in India. Actually, okay, 96% of Indian workers are informal. Unbelievable, but true. That's another part of the structural transformation that didn't happen. And the essential issue remains the same, that you have to move towards industrial activity, high-evaluated activity, and you have to have a bunch of heterodox policies including public investment to do this. And those, I mean, these are things you can't sidestep. You can't say, oh, we'll just go straight into services. You will go into something else. You have to do that. If you don't do that, you don't get the economic transformation. Is the Mexico pattern similar? It's a bit worse, okay? Because those of my Mexican friends who worked on the impact of NAFTA and so on, I mean, it's quite remarkable the lack of convergence in NAFTA, how Mexican value added, everything has stayed like this flat. You have some increase in Makila Dora production and decrease in domestic import competing production. You have no structural transformation in that sense in the Mexican economy. You have a devastation of the peasantry combined with not adequate increase in incomes from industrialization. So at least, unless my friends who are writing on Mexico have got it all wrong, I think it's, in a sense, it's a case of the combination of trade and financial integration creating this mess. Because remember, they got into NAFTA just after they've had their own little homegrown financial crisis, which was again driven by US investment that then decided to pull out. The issue of hostility to industrialization in India. Okay, there are some who are hostile to industrialization. Let me put my take on this matter. I don't believe everybody who is against unfair and acquisitive land alienation is against industrialization. I mean, I'm not, as you can see. I'm a huge fan of industrialization. I'm also a huge fan of land use change. I think it's inevitable, it has to happen. Even if you got just education for everybody in the country, you'd have to give all the children playing fields and things like that. That takes a lot of land as it happens. Even to have hospitals, you need land. So I'm all in favor of land use change. But what I'm saying is that this land use change has to be done ensuring adequate compensation and rehabilitation. You can't do it on the cheap. You can't make those who are on the land getting their livelihood from this land pay for your benefit. If you think there's a social benefit in this land use change, then the society must be willing to pay. So I would be against land use change that is done forcibly without compensation and rehabilitation, without concern for whether you can find other land elsewhere that is not necessarily as fertile and productive, and ensuring that all of those who got their livelihood actually necessarily got some means of income thereafter that was at least as much as what they have lost. Now, this sounds like a pipe dream, but hey, this is the rule in all developed countries. I mean, this is what necessarily happens. It's just called rule of law out here in Europe. So when we demanded how come we are branded as anti-national and anti-development and anti-whatever, of course it raises the costs. If you think private industry is not willing to pay the costs, you pay the cost as a society, which is to say that the government takes on these costs by taxing the elite. So I don't think that an opposition to something like the Land Acquisition Act that this government tried to pass and fortunately failed necessarily means that you're anti-industrialization. I think it's possible to be pro-industrialization and against unfair and acquisitive land acquisition. Final point, is it possible for developing countries to grow and be stable despite being integrated? Different kinds of integration, okay? Trade integration, even that, well, there are ways and ways of trade integration because some kinds of trade integration could also de-industrialize you, as the Mexican example shows. But I think it depends on the nature of the integration. In terms of financial integration, it could still be possible, but it will make it much, much more difficult, is what I would say. So is the answer then that you go off and be all by yourself in a little island of your own? No. It is that you have to nuance the pattern of financial integration. It is that you cannot go in for a sort of complete and extreme form of deregulation that will expose you to extremely volatile and also extremely exploitative financial markets, but that you need to exercise controls what the IMF today calls capital management techniques. You need to exercise controls for both external and internal finance that will allow you to do the things that you need to do as a society to get the productive transformation. So it's not that you completely go for otaki or you completely close your borders to finance, but you nuance that. And this is the story, I mean, Taiwan is a classic example, right? It had the great benefit that it wasn't recognized as a country for, it still isn't, right? In the UN and so on. And therefore it could do all kinds of creative things in terms of capital account management and domestic financial regulation and so on. So it's possible to be globally quite integrated, but on your own terms. Thank you very, very much. Jayati, thanks very much everyone. Next week, as I said, Elaine Graham Lee feeding the world why Malthus is still wrong in room G3. This has been a fantastic start to our seminar series, one of the best seminars in recent SARS history. Thanks very much to Jayati. Thanks very much to our team of volunteers that made this evening a great success. See you soon.