 The global economy is a wash and abundant, inexpensive labor, and the solution for that labor to get higher wages is for the whole global economy to take advantage of that labor and to have more global labor demand for the world surplus of unskilled labor that we have now. The way out is not worrying about robots. The key is allowing more globalization, allowing more trade, allowing more migration. My name is Bill Easterly. I'm a professor of economics at New York University, and my interest is development economics. I think we can think of two dimensions, which is outside versus inside and big versus small. A big episode of my development was the realization that outside advice and aid was really not working very well. We had great ambitions for achieving development with the help of a big push of lots of money spent on foreign aid, a lot of advice by foreign experts, usually European and American experts. And that was sort of the mentality in the 70s and 80s when I sort of was starting to study economics and got my first job at the World Bank in 1985. That was the mentality. You know, we had this great optimism that we were kind of the saviors of the developing world that we as experts were armed with all our funds and all our knowledge were going to be able to go in and kind of bring rapid prosperity, especially in the regions that are most dependent on foreign aid, like Latin America and Africa and South Asia. And things did not work out. You know, the economic growth in Africa and Latin America and South Asia in that era of the 70s and 80s was very disappointing. And the initial growth after there was some attempted economic reforms in the 1990s, very disappointing. And then there was the whole episode of attempting to advise the former Soviet economies how to make the transition from communism to capitalism. We thought that also could be achieved very rapidly with our aid and our advice. And that also did not work out. There was kind of one of the greatest depressions in economic history happened in the former Soviet countries after the end of communism. And so, you know, that was the point at which I and I think many others felt a lot of disillusionment about what we were doing in development economics. It just seemed like we really did not know anything about how to achieve economic growth and development. We had really failed. And, you know, that was the point at which I started writing sort of critical books about the aid business and about the advice business and was almost ready to give up. And I think since then there have actually been some more hopeful trends in development economics over the past 30, 40 years or so, which is that, first, I think we really realize that most development successes are homegrown, like China was. So I think the pessimism about the value of outside expertise has basically turned out to be correct, that most success stories are really homegrown. China, South Korea, Taiwan, Singapore, more recent successes in Africa like Ghana. Those are really homegrown success stories and not parachuting in a foreign expert saying, here are all the answers, just follow our advice and take our money. And that was not the formula in China. That was not the formula in most of these homegrown success stories. So what was the formula in China? I think, you know, ironically, the homegrown China success story was actually adopting for themselves the advice that many Western economists would have given them, which is not Soviet central planning. That doesn't work. I think China is itself one of the greatest examples of just how big a failure the sort of Stalinist Soviet central economic planning was. And then China showed us the flip side of that. When you move away from central planning to a market economy, then suddenly you have a great formula for success. When you have a lot of hardworking, unskilled workers that are now available, that you can now use to export labor-intensive goods into the whole world economy, the simplest formula that sort of explains China's success and a lot of other successes around the world is just get away from extreme state control to using markets as your main guideline for how to develop and then take advantage of the globalized world economy. Because, you know, poor countries are poor because they have too much unskilled labor that is too cheap. That's one of the big reasons why they're poor. So you take all that unskilled labor and if it's confined to only the domestic market, the demand for it is going to be fairly low and wages are going to stay very low. If suddenly you can sort of dump the whole supply of your unskilled labor onto the world market, suddenly you've found a huge demand for your unskilled labor that drives the wages up of your unskilled labor. This is sort of like trade theory 101. If you export labor-intensive goods, that will increase the demand for your labor force, capital income will go up and you will have economic growth and development. And that's sort of the simplest story for how China succeeded. They moved away from closed to open. They moved from centrally planned to market. There are lots of more subtleties that we could talk about, but that is the big formula that China demonstrated. The happy news is that developing countries have done a great job figuring out their own challenges and solving them. I think one of the biggest ones, especially in Africa and Latin America, was finding a way out of this sort of extreme authoritarian, sort of extreme state interventionist control of the economy that was really destroying the economy. You take Ghana as an example. So Ghana, after independence in 1957, actually carried over some of the colonial controls over the export economy. They had a marketing board that bought up all of the cocoa at punitive rates that did not reward cocoa growers for growing cocoa at a time when Ghana had been the largest supplier of cocoa on the world market. And that was a formula that basically killed off the whole cocoa industry in Ghana over the 60s and 70s and early 80s. By 1983, the Ghanaian official policy which forced cocoa growers to sell their cocoa to the state marketing board at their controlled price was so punitive the cocoa growers were getting only 6% of the world price. Of course, nobody wanted to grow cocoa at that price. So Ghana had become a disaster. The economy had declined a lot since independence with that kind of formula. But the great news at that point was there are sort of homegrown reformers in Ghana, including some of them, like Yao and Yarko, whom I know is a colleague of mine at NYU. We're sort of transmitting the economics knowledge that this is a disaster for economic development and liberalizing giving incentives that would reward exporters for exporting would be a lot better formula for development. So Ghana decontrolled the cocoa export market and a lot of other markets in Ghana. And there was a revival of growth in Ghana that became sort of one of Africa's biggest homegrown success stories. And Ghana eventually transitioned also into political freedom and to becoming a democracy. So over the course of the last three decades, Ghana has moved from extreme economic and political oppression to economic and political freedom to recognizing economic rights like property rights, the right to sell your cocoa at a fair price and political rights like the ability to protest when your government is destroying your ability to make a living for yourself. And all of that together has been the package that has been a great success story in Ghana and other similarly reforming economies throughout Africa and Latin America especially. Now there's sort of a new round of challenges that you're hinting at the formula for all of these success stories. They do rely heavily on taking advantage of the global marketplace. Ghana's ability to export cocoa, China's ability to export textiles and other labor intensive goods. Those are really the key for development success. If there is now this sort of huge backlash against globalization in the rich economies, the rich economies has sort of forgotten that trade is a win-win game in which both sides can gain from trade and have turned against trade and we have a new wave of protectionism. That is really bad news for developing economies. I think this worry about robots replacing unskilled workers in the world economy is a really foolish fear. I think they're much better things to worry about than that one. I mean, nobody is forcing anybody to invest in robots. Robots are just another form of capital. You invest in capital when capital has a high return and labor is expensive. When labor is cheap, you invest in a labor intensive technology. Capital intensive technology is when capital is cheap and labor is expensive. A labor intensive economy is when capital is expensive and labor is cheap. When you have so much unskilled labor in the world, labor is very cheap on a global scale and the rational thing for investors around the world to do is mostly to invest in labor intensive technologies. I think where there is investment in capital intensive technology like robots in rich economies, it's because there is not enough globalization. There's not enough access to importing labor intensive goods from labor abundant economies like China and Ghana around the world. And there's also too much limitation on immigration. That's another way in which rich economies can benefit from the huge surplus of unskilled labor that there is in the world. I think we should be humble and know that usually when there's a big unexpected shock like COVID, we're not gonna know how it plays out until quite a bit later, maybe many years later. So the most obvious thing to say about COVID right now is just do the things that alleviate COVID. I think in the development business, the most obvious thing that we could be doing is just making foreign aid dollars available to fund vaccines for poor countries. Because there obviously is a big problem of unequal access to vaccines that the rich countries are getting a lot more access to vaccines. And we need to sort of have a big purchasing program for vaccines funded by foreign aid to make vaccines available to Africans and Latin Americans and South Asians around the world. I think there's way too much development effort going now on very tiny questions, especially emphasizing randomized control trials. Randomized control trials are great. They really resolve problems of causality and rigorous evidence, but they really limit you to very tiny questions that you can ask. What is the effect of flip charts on test scores? What is the effect of view warming drugs on class attendance? And those are not the big questions in development. The big questions are, how do you achieve rapid economic growth? How do you achieve some success like China? How do you achieve more modest success like Ghana's? Those are the big questions. So we need more intelligent research that's asking what national policies are conducive to rapid economic growth. That's a question that's been relatively neglected in recent years because it's less susceptible to the more rigorous evidence techniques that are in fashion right now. But it's such an important question. We're not gonna stop discussing it just because we don't have rigorous enough evidence. We just do the best we can with the facts that we see before us. And so most of those facts seem to indicate that national policies are very important. Venezuela is a disaster because of national policies. Singapore is a success because of national policies. Understanding those better and getting more subtle about what specific national policies really destroy or make possible economic success, those are the big things that I wish development students from the next generation would be answering.