 So, hello everybody, thank you for joining this fireside chat with Professor Lin. My name is Carlos Grading and I'm a reserve fellow at UNWIDER here at Helsinki. And we are here today to have a chat with Professor Lin. Professor Lin is a member of the UNWIDER board. He also serves in many relevant academic and professional positions related with economic development. I would highlight among them his role as professor at Beijing University. He is the Dean of the Institute of New Structural Economics. He founded the China Center for Economic Research, now the National School of Development. And I would also highlight that he served as Chief Economist and Senior Vice President of the World Bank between 2008 and 2012. So the chat is going to be informal. We will try to see how development economics can be useful to trigger actual development in the most vulnerable countries. This is an informal session, so please feel free to participate in the discussion using the Q&A and please feel free to address your comments or questions. So let me start with a personal question. So in one of your books, The Quest for Prosperity, you confessed that you became an economist as a way of contributing to the prosperity of your country so that people would be free from poverty and hunger, something that you can relate to as a child. With the rich background of having served in these academic and professional positions, do you still believe that economists in general, but particularly development economists, can have such an impact on improving people's lives in the developing world? Well, thank you very much, Karol, for these very good questions. I am an educated youth and it's a privilege and I just like educated elites in any country. They feel the responsibility for the development and the prosperity in their country and certainly I have the same internal drive as any educated young people in other countries. And in terms of making a country prosperous, we know that economics is the best discipline to turn to because the first book published by Adam Smith to make economics a discipline in our social sciences is the wealth of nation and try to have an inquiry into the nature of the causes of the wealth of the nation. And since Adam Smith argued the main theme of economics is to understand the nature and the causes of the wealth of nation in a country. So if I want to make a contribution to the prosperity of my nation, certainly economics is the best in our social sciences for me to study, to do research. And so yes, but whether economists can make a contribution to the development of their country, it all depends. If economists that can provide, you know, right ideas for the policies in their country, certainly they can make tremendous contributions because if you look what happened in China in the past 40 years, when China started the transition from a private economy to a market economy, China was one of the poorest countries in the world. China was trapped in poverty for centuries, but with the right policies within one generation, now China becomes one country which eradicates the extreme poverty and a growing dynamic. And improving people's difference. And so it all depends on you can provide right ideas or not. But idea is not so easy to get, just like can set. It is ideas, not vested interests, which are dangerous for good or evil. If you have the right ideas, you can turn the country around and from poverty to prosperity. But if you cannot have the right ideas, you can turn the possible country into a country in which they are hit by crises all the time. And so yes, I believe. And so that's the reason why I try to work hard to explore what are the right ideas for a country to turn from poverty to prosperity. And I hope I can contribute to the understanding of those kind of ideas. Thank you very much. I mean, going into a bit more detail about your economic thinking. So your main approach to economic development, as I understand, is based on what you called the new structural economies, right? So at the risk of maybe oversimplifying, probably something more complex. This is an approach that advocates for an active use of industrial policy, as opposed to Washington Consensus, for example. And this should be based on experience and identifying what are the strengths in a country and trying to relate these strengths to past successful experiences in other similar countries. But obviously, there is a risk that wrong industrial policies can be very expensive and ineffective. So not all industrial policies will be successful. What is the recipe for economic prosperity in the least developed countries in your view? OK, it's a very crucial question. Because we can observe the history in the modern times since the 15th, 16th century. And we find no, you know, without industrial policy. No developing countries can catch up the advanced countries. And so without industrial policy, no advanced countries can continue to maintain their prosperity. And so, but certainly, as you mentioned, there are so many countries trying to implement industrial policies. And most of them fail. And so it's very important for us to understand why industrial policy is essential. For the developing countries to catch up, for the developed countries to maintain their leadership. But at the same time, we also need to understand why most industrial policies fail. From the new structural economics that you just mentioned, the nature of economic development is a process of continuous structural transformation in the production structure. That is technology structure and industrial structure. But also in the infrastructure and the institutional structure. It's a process of structural transformation. And in this process, the structural transformations, certainly, you need to have entrepreneurs to have the incentive to have a drive to capture the opportunity for technological innovation and industrial growth. At the same time, you know, there are so many barriers. In the hard infrastructure and the institutional structure. And if those kind of structures without improvement, they will become barriers for technology innovation and industrial growth. And so we need to overcome the infrastructure barrier and institution barriers. And in those areas, use our term, you need to call the nations, we have coordination, there are externalities. So market value is there. So you need to have a state to help overcome the bottleneck of structural transformation in hard infrastructure and institutional structure. And but the government resources is limited. Both implementation capacity as well as the physical space are limited. So the state need to prioritize the use or it's a limited implementation capacity as well as physical space to unleash the infrastructure and the institution barriers. For the industry which can make a lot of impact on the countries in our job generation, export in our earnings and growth and competitiveness. And if the government does not play a role, then a developing country will not be able to catch up. A developed country will not be able to maintain its advancement. But you are in this process, the countries will have to rely on what they have won. What are their competitive advantages? And turn their competitive advantages from latent to actual. The competitive advantage is determined by further environments in technology and industries, only determining the production costs. But if you want to be actual or to be competitive on the market, it's a competition of the total costs. Total cost includes not only the production costs arising from the factory units, but also from transaction costs which determine by the infrastructure, the appropriateness of the infrastructure and institutions. If infrastructure and institutions are not appropriate, the transaction cost will be too high. And then even looking into the production costs, the sectors, the industries, the countries has competitive advantages, but they cannot be competitive. So those kind of industries may not exist at all, so they only determine the latent competitive advantage. But if you want to turn the latent into actual, you need to have industrial policy. And if a country's industrial policy follows those kinds of basic principles in economics, you know, and also in the new structure of economics, the country can develop very dynamically. But unfortunately, because in the mainstream theory, basically, they do not have the idea of structure as an environment. They do not have the ideas of country at a different stage of development. They have different industries, culture and technologies, culture. And as a way, as a result, you know, the economists often advise the developing country, follow the practice in the developed country, to develop those kind of protecting activities, and not consist of with the competitive advantage of the developing country, and as a result, the production costs will be too high. We'll only look into further institution in the high income country. And I'll advise the developing country to adopt the same institutions as in the high income country, and as a result, not kind of institutions. And as a result, that kind of institution may not work in the developing country. And also developing countries need to be trained, because sometimes they are too ambitious. They want to catch up the other countries in one strike. And so they want to have the same industries. They have the same technology, the same institutions as in the other countries. And those kind of terms with good intention, that may not work. That's what I see from the theory of the new structure economics. So my basic moral is that you need to look at what you have now, based on what you have, how you can do well, how you have your endowment structure, how you can do well as your latent comparable images. Then relying on the entrepreneurs and the state, or the market and the state, to scale up what you can do well with the government facilitation by the target industrial policy. If a country can do that, every country can grow dynamically like China in the past 40 years. I cannot hear you. Maybe you need to turn on. Sorry. Thank you very much for your explanation. We have a question from the audience. Do you want to raise the question yourself? You can request to share your audio and video. Okay, otherwise I can raise the question. So she's asking, how important is the role of trade in reducing poverty in China? And should China be classified as a developed country instead of a developing country under the WTO? And trade certainly is important because as I mentioned, if a country want to be successful, they should follow the competitive advantages determined by their endowment structure. And if they have the competitive advantage in this industry, and with the government facilitation to turn that into their actual competitive advantages, certainly their product not only can be competitive in the domestic market, they can also be competitive in the global market. And also in the modern manufacturing, we know that the economy scale is very large. So if you only do that on the domestic economies, you may not be able to exploit the potential of the, you know, economy scales, and your production costs will be high. So under the current situation, certainly you should explore whatever goods that you have complemented to the global market, and trade is important for that. And trade is important also to give you the opportunity to understand what is available in the world, and you can, you know, learn from the successful country, and especially by the late commercial advantages. So trade is an important project. However, in the 1980s, 1990s, many countries turn from the new working development strategy to the, you know, export oriented strategies during the, you know, structural adjustment in the 1980s, 1990s. Those countries fail dramatically. And they face the issue of de-inertialization, instead of continuous dynamic, you know, upgrading in the industry. And the main reason was because in the transition from an import-sufficient strategies, which denies the role of trade to the, you know, export oriented development strategies, they forgot. There were many old industries, which went against their country's competitive advantages. And if you open up the trade without giving protection to those kind of industries, those kind of industry products. But at the same time, in the 1980s, 1990s, the main idea was neoliberalism and go against the country to use industrial policy to facilitate the growth of new industries, which are consistent with their competitive advantages. And so that the very known five trade open course de-inertialization in the African country, in Latin America country. But however, a country followed the, you know, the more pragmatic approach of new structural economics in the transition process, continue to provide the necessary production and subsidies to the old sector which, you know, defied their competitive advantages and to maintain stability. But at the same time to facilitate the entry to the new industries, which are consistent with their competitive advantages, then they can enjoy stability and dynamic growth, as in China, as in Vietnam, as in Laos. So trade is important if you have the right knowledge and to use the trade to facilitate the growth. And if China is a leading country or not, it depends on definition. According to the United Nations, IMF, and World Bank. And now the threshold for the income country is 12,500, 335 US dollars per capita GDP. And currently China forget the GDP is about 11,000. So China, according to this definition, China is still a developing country, certainly a high developing country. But I'm sure within three or four years, China will cross the trade hall and China will be behind the country. Things change fast, yeah. So we have another question, maybe the last one because we don't have much time. But Carlo Pietrobelli is asking, Dear Justin, what to do when a developing country does not have the kind of efficient and effective government promoting development that you have described? Well, it depends on, you know, the government capacity very much depends on what kind of thing you ask the government to do. If you advise the government to follow the approach I recommended in the new structural economics. Every country can do it. Because fundamentally, you know, if you try to facilitate the sector which you have, let's compare advantages. In every stage, it's very, very intensive. And infrastructure requirements that you need to do, but you can have used some kind of on plate approach. We will have expert processing zone, within the zone, you have the good infrastructure within the zone, you remove all the restrictions. And, and, and if those kind of a pragmatic approach, every country has sufficient capacities. Because compared to include the education for the whole nation, improve the house for the whole nation, improve the transparency for the whole nation, improve the governance for the whole nation. My approach, it's much easier to do. Every country has the capacity to do that. And I can give you one historical article. In 1970s, in 1970s, World Bank gave a grant to the career government in order to send their official to study, to learn how to design policy, implement policy in Pakistan. So that means what? In 1970s, Korea was considered as a country with low government capability. And of Pakistan was a country, you know, considered as a model country can teach other developing country how to have a state capacity. But correct between the successful and Pakistan has been trapped in, you know, low-media income status since 1970s. So whether the state capacity from what I see is important or true, what kind of policy you otherwise the government to do, what kind of ideas you offer the government to do. Okay, thank you very much. The state capacity is also endogenous and something that can change during the development process. So thank you very much. I think we reached the time limit we had. So thank you very much for this quick overview of development and how development can change people's life. Thank you very much, Professor Lin. Thank you very much for this opportunity and I hope you enjoyed. If you are interested, please read the mind and our writings on the news talk to economists. Okay, thank you very much. Thank you. All of you who have participated and address your questions or follow with interest this chat. Thank you very much. Thank you.