253. The Problem with Economic Orthodoxy feat. Ha Joon Chang

foreign brought to you by alumni FM connecting people through stories welcome to unsilo this is Greg LeBlanc and I'm here with hajun Chang who is at psoas University of London uh I guess you are officially an economist but you're also an historian right you've got a lot of different hats and we'll have to dive into those different events but you're also the author of a number of books the most recent book which um I think at some point in the book you say that it is a very strange book it is a strange book and that one is called um edible economics a hungry Economist explains the world but of course we've got a whole bunch of other ones this one uh you know this is a real gem I'm gonna have to figure out a way to assign this it's called economics the user's guide um and then 23 things they don't tell you about capitalism I think this came out right after the financial crisis that's right then you got an older one called bad Samaritans which I think this was kind of your first book that was targeting a broader audience exactly yeah and then this one I think is your first book it's called Kicking away the last matter development strategy and historical perspective which takes you to your roots as sort of a a development uh Economist I guess that's that's sort of your your core so welcome hajun well thank you for having me so in a number of your books um you make some interesting points one of the points is that you don't need a professional to understand economics you know you can you can kind of figure it out yourself and and it's kind of like the book on cooking because you know everyone can be a cook you don't have to be not to go to Cordon Bleu to become a cook and I guess you don't have to go to university of London and get a PhD to become an economist um and I was I was in the Uber yesterday and this guy asked me he's picking me up from work and he's like what what are you doing I said I was an economist and he said well you know what is that and and like what do you guys studying and I said well we study everything about human behavior and then in your book you say no no no no no no right economics is about the economy it's not about everything so so how do you reconcile those two things because I think when I was when I was when I was reading the the edible economics book you took a little bit more of an expansive view yeah economics can inform everything even instead of just you know when you when you buy your food yeah yeah yeah that uh thank you note that there are quite a few threats that uh in what you have just said which is wonderful uh yeah first of all I think that you know I keep saying that you don't have to be a professional economies in order to understand the economy that this is not to devalue professional trading you know I mean the point is that we can have understanding of things at different levels you know so that there are things that only trained professionals can understand but that doesn't mean that other people cannot understand the main points of economic arguments or the words that they shouldn't try to because I I have been you know kind of a personal Crusade which may be kind of but described as a mass economic literacy campaign because over time realize that in our capitalist Society honest everyone understands some economics democracy is meaningless you know because so many of things are bound up in economic decisions whether it's about teaching of the ancient languages in universities or preservation of cultural heritage you know I've even met some British people who try to defend the monarchy by arguing that it brings in tourist revenues yeah I'm not a monarchist but what a demeaning what a demeaning way about that depending on the institution that that is supposed to be at the foundation of your Society it's come to that so you know unless you understand economics you don't actually understand how the world works now and that because people don't do that in elections that you are you know back in 2000 a lot of people in America voted for George W bush are saying that he's looks like a kind of guy that you could appear with yeah on that qualification I could have become the president of the US you know I can appear with anyone Yeah so basically that unless we want to reduce the the Democratic politics to basically that talent show you know that that everyone needs to understand some economics so that I've been uh trying to write all this stuff about the how we can understand the economy and how it is not the the only the professions that that can understand it now having said that yes I meant that economics that is uh you know impinging on everything so that means that uh when you talk about the economics you actually get to talk about other things too you know so I I thought try to define economics as the study of the economy not the application of economic logic to everything there's a slight distinction between these two which may be may sound like a very uh small but it isn't because that one view says that more widespread view uh says that the economics about the way of thinking I mean the rational choice you know how that the people that that make a choice that on the constraints and so on the the other view that I'm advocating is that it's a study of the economy whether that is about the rational choice so the the I don't know the economics of irrational Wars or that about the other aspects of the the our material provision yeah so that there's a slight distinction here but which actually is that in Indian very important but you know what uh I I would like to say in this regard is that you know the it's a one thing to say that uh economy has uh implications for other things it's another to say that economics is basically everything yeah so the letter of UI that I think that is problematic because that when this top view becomes dominant as it is in many societies these days I mean that you basically that naturally get to subject all the other areas to economic logic which I think is that are not a healthy thing you know that these different spheres of life that have to have a different uh kind of domains and different Logics and different priorities but that tapa is saying that economics is the Supreme logic we are actually forcing all these other things at the second to be secondary to the calculations about that the profit and the prices and so on and I I don't think it's that that is actually a healthy thing well I think I think you might be selling yourself short because I think you also in the book are making the point so it's not just that in order to be an informed voter and a good participant in society you need to understand economics but I think what you're arguing is that it can unlock a sense of wonder uh about the ordinary in life right so I mean the book the book edible economics you know you have a chapter each chapter is on on a different food and you know you start by talking about the food and then before you know it you know what you're talking about development international trade and stuff and and I think it gives me a little it gives a little window into your brain right because you know you open a refrigerator you see some garlic and then your mind just take takes off right and uh and and so so this this analogy you make a couple interesting analogies between cooking and economics which I love because I love both both Fields as well and and you know one of them is that you know you can be an amateur cook but you know the other is that um you know economics needs to be more about uh sourcing from different places right and you described when you came when you came to England from Korea you described well there's two things first of all you had very very limited palette which was very Korean and the English had had extremely limited palette you called it kind of um but now you know in in England um you can get Indian you can get Korean you get Chinese you get world-class anything and so while the world has become so much more curious about things like food you argue that in the domain of Economics we've kind of you know become less curious or more mono cropping you call it yeah that's right no yeah I mean that that has been uh experience I mean you know when I first came to written in 1986 a British food culture is so conservative I mean anything that remotely sounds foreign uh for me at least the epitome of that conservatism was this pizza chain called Pizza lion which gave customers an option to have their pizzas at top but with the potatoes baked potatoes yeah yeah I have nothing against it but yeah you know the thinking behind it was basically well if you cannot deal with this strange foreign food called Pizza we are giving you a security blanket or cold drink your potatoes yeah and that everything will be fine yeah but um my theory is that sometime in the late 1990s that the pre cious people had or collected Epiphany they realized that their food really sucks yeah and once they did that actually they became completely open-minded you know once you abandoned your own food you know why should you prefer Mexican or Korean or the prefer Turkish over India you know anything tasty fine so that as a result now Britain has become one of the most exciting places to eat in I mean that yeah you can as you said get anything or but uh world class that the standard and yeah British food itself has been upgraded because I had that has absorbed all these different influences that have been the fusions uh you know I I someone told me that that in the the the British city of Birmingham there's a restaurant which sells a fusion Korean Peruvian food you know oh my God you know the perial food itself is a fusion but you know Spanish food and Inca food and Chinese food and Japanese food because they had a lot of endangered laborers that are from Japan and China in the late since early 20th century and mixed at the Korean food into that you know the the Mind boogers you know unfortunately during this period the reverse has been happening to my other world that is the world of Economics you know until the 70s you had you know nine ten major schools of Economics you know it could have been that 20 if you included some of these smaller schools uh split some of the big schools to sub schools and all these different schools were kind of proud of by their own Traditions but I had to confront that each other you know the compete you know sometimes at the the kind of in a death match yeah like a debate between the the austrians and the marxists in the 1920s and 30s you know sometimes uh you know the the reasonable conversation from but that which the the old learn new things you know people uh try the fusion theories you know some some people that try to mix at the case's theory and Marxist theory you know in the 1970s you know and it was such a really exciting like the British scene of the food scene of today unfortunately since the 80s one school has become dominant the school called neoclassical economics and you know I'm not saying that that school is uh particularly bad you know the the like all other schools it has some tremendous strength and some very important insights but in it that also has a shortcomings I mean all theories are like that because they were all developed in a particular context in order to study particular aspects of the economy yeah so the neoclassical economics is a theory of market exchange yeah essentially you know where is that the classical schools uh the Marxist schools they are more interested in say production yeah I mean they've all had different theories of how the economy uh develops how it seeks is a balanced yeah and they all have a different political and ethical assumptions so each theory is a very good at explaining some things and uh not very good at explaining the uh the others you know so that this means that dominance by one school means that our intellectual diet that has become poorer because that we Now operate with one Theory which is uh good at doing some things we're not good at doing other things yeah well now this is a very provocative thought right because this is kind of saying that you know we should view something like economics more like you know art than than science in a way right absolutely because you know in the world of science I don't think anybody would be comfortable with this idea that well you know there's there's there's you know there's the Newtonian View and then there's the Einstein View and and they're they're both equally good or you know there's Lamark and there's Darwin and well you know they're just different ways of looking at the world no like we want to figure out how to blend and merge into a single view of things right and then you know if if electromagnetism and gravity don't seem consistent that's a problem we want to solve but I think you're kind of saying that economics is different you know you you want to keep these these separate schools now would that is that is another way of saying that the different schools or approaches might be like you know different keys for different locks that you know they they solve different problems or is it that you know none of them can on their own individually uh solve any specific problem and that ultimately you need to approach them from different perspectives yeah no no that's a very the the the elegant way of putting it you know well basically my view is that that uh the world is uh too complex too uncertain and human beings are so unpredictable that we cannot have but the economics that that is a scientific industry made that uh physics or chemistry that is you know just think about it you know that that subatomic particles do not say that well according to the theory I'm supposed to behave in this way but I'm not going to do that because it's unethical yeah you know chemical molecules do not say well we always have always been moving in this way but wouldn't the world be a better place if we went the other way you know that's what humans do so that you know that embedded in human society are different visions of what is a good Society a different ethical standards you know the different political positions so this makes it impossible to to turn the economics into science in the way the physics and chemistry are and actually if you look at that real world the older successful countries have been basically pragmatic countries that didn't stick to the particular ideology and did that whatever was necessary given their view of what is a good Society so that the ultimate example of this uh is Singapore you know when you read about Singapore in the standard economics books and the financial press you will only hear about this free trade policy and it's a welcoming attitude towards that foreign investors which it has but you will never be told that 90 of land in Singapore is owned by the government you will never be told that 85 percent of housing is supplied by the government-owned housing Corporation and a staggering 22 percent of GDP is produced by state-owned Enterprises or what they call in that country government link corporations glc's yeah so I often challenge my graduate student look give me one economic theory it doesn't matter what it is that the neoclassical keynesia and schumpeteria and Austrian give me one economic theory that can explain Singapore single-handedly I bet that this is that impossible you that there's no such Theory because Singapore is a product of a very concrete pragmatic human decisions trying to survive in a very particular conditions you know I mean it's a cities stay with very limited land so they realize that however much that they might believe in that free trade I mean you cannot have a free trade in mind because that that will lead to that concentration of ownership and they'll be political instability which will basically that destroy the economy so they had to do that yeah I mean if they were ideological like the Soviet Union was you know I mean they would have said no we are free market economy we are not going to yeah you know land is also that are mostly owned by the government in Hong Kong you know that even during the the British colonial rule it was because in this city states I mean unless you uh stabilize the land situation that you don't have but that any chance of the survival so you know in this sense I'm a great believer or but uh uh What uh the former Chinese leader Mr Deng Xiaoping said he famously said that I don't care whether the cat is black or white as far as it catches mice yeah so that uh our the mice catching should be the building a good Society of course that it has to be debated exactly what you mean by that and so yeah building a good Society with everyone is taken care of everyone has a opportunity to develop themselves yeah and that we are collectively prosper and to achieve that you might need that different policies different uh theoretical tools and different schools of Economics because that they all have their strengths and weaknesses and they they have blind spots and uh you know shortcomings at uh so yeah I mean even if you in the end that prefer one approach I mean knowing other approaches that would be great you know you know I mean that if you only knew I don't know that uh Mexican food or Thai food I mean you don't believe that that they could be nice food without chili you know well how do these schools differ from Models right so you know it's it's within the neoclassical school right you know you you learn about say a prisoner's dilemma and then you learn about a lemon's problem and then you know you learn about this all these different models and you know there's no Economist within the neoclassical school who would say the whole world is a prisoner's dilemma you know they're going to say well you know that helps you to describe certain scenarios and and then what your job as Economist is to kind of figure out which model does the best job of explaining right yeah phenomenon you're studying but it seems like at the level of a school right um economists don't think that way they don't say well you know this situation is best explained by the neoclassical you know school and this this one is better explained by the Kate like that's not usually how it works one group of things uh called schools and the other groups that that called the models yeah you know I mean the other schools use models too you know the marxists have their own models Canyons have to they are their old models you know even that the Austrian School which usually is that verbally presented without the mathematical equations has that implicit model yeah so we are talking about that differences in model but the the differences between schools comes from more fundamental things like uh say ethical assumptions yeah so that for example if you belong to the say Marxist school that you that say that that the interest of the entire working class is the supreme goal and individuals that can be that sacrifice you know the classical economies would accept that so they would argue that you know the the you can call or social change and Improvement only if it hurts no one while making some people better off yeah but then you could criticize that as well because that uh when you accept that philosophical position you basically have to accept whatever the the inequality and on Injustice that exists in society because uh if at uh you know the the with which the elite that refuse to keep away even a small fraction of their income to say but uh stabbing children you have to accept it because that you cannot take things away from but some people without their concern so that these are the kind of very the fundamental the ethical differences also they have a different models about the the sorry theories about how the economy behaves you know so for example in the new classical Theory the competition may happen through our prices yeah so you'd increase your efficiency you'd offer the cheaper things you win the market share you know Joseph schumpeter the founder of the schumpeterian school argued that that kind of competition of course that is important but there is that like say some someone forcing a door that you know say Urban of warfare yeah and my theory of innovation my theory that the competition mainly happens that through Innovation is uh like a aerial bombardment yeah I mean this is a price competition is that that I mean that's so insignificant compared to what I'm talking about this is not the uh how the economy works yeah so you know these are some very fundamental differences in the Outlook you know also neoclassical that school assumes that human beings are fundamentally rational yeah and usually selfish I mean the behavioral is that the institutionalists that they would argue that no human beings are far more complex you know there are multiple motives you know some economists that have debated this issue of multiple cells you know so that within our own brain that they're like three yeah different guys living I mean yeah that that many Disney animations about the Angels standing on one that uh shoulder yeah they will standing on another yeah complex yeah and that they would argue that there's no such thing as that uh human nature as it is because we are all products of History particular cultures and so on so that I said that impossible to say that that this or that is a human nature so once again I mean the these are debatable things you know I'm not saying that one is necessarily correct and the others are necessarily that that uh incorrect but you know these are big the differences indeed the the fundamental Outlook which are not about you know exactly how you model things yeah well how do you how do you explain this I mean you know we understand how the you know the Cavendish banana you know took over and like every banana is is the same and there's like you know 800 types of bananas but but you know how did this process occur I mean why did how did these schools get squeezed out I mean I teach when I teach um Innovation I realize that I'm actually channeling you know schumpeter and when I teach behavioral Finance I realize I'm channeling you know the behavioralist when I teach uh you know microeconomics I'm doing neoclassical stuff and and so you know and maybe Business Schools are a little bit more pluralistic but but um yeah yeah but but how did how did this happen I mean how I mean and is it is it just the nature of the way in which academics are rewarded is it is it the nature or is there or is it more to do with it is there a bigger picture here and I think you know you argue that there's this and there's this tie between normativity and positivity so this is that your by economists are are you know they're not engaging in pure intellectual exercises trying to explain the world but that there are these policy implications and maybe that's right you know you start with the policy and then work backwards um I mean is it is it that is it like the the normativity of the Washington consensus that kind of you know created a demand for this type of of thinking or is it more you know just the logic of academic specialization yeah yeah yeah no I think uh there are many different uh things uh working here the but uh you know the told me that the reason why the the United States has that uh freedom of speech are embedded in his uh uh Constitution is because without people actually willing to express different opinions democracy the withers you know because that you know we all have a hard Instinct you know if someone gets powerful we that that just tend to accept but whatever that person is saying so you deliberately need to create that uh disputes and debate in order to have a healthy democracy and I think it's a very important uh Point yeah so in the Academia that the unless you make a delivery attempts to have a diversity of opinion it the the will become homogenized you know because that is that I mean that you have at different groups with fundamentally different Outlook and if you let that one group decide who's a good one the dominant group in the former Soviet countries it was the Marxist yeah so that there are people my study neoclassical economics Keynesian economics but uh only to criticize them because that you have to be Marxist in the capitalist countries that for various reasons are that I cannot that fully go into I'll mention one or two reasons neoclassical school has that became dominant and then once it became dominant it started pushing out all the scores because the the from their point of view these other schools are you know not even economics yeah or some very sloppy way of thinking yeah because that that you think that that is that there's one particular right way of uh doing research on the economy and uh if you don't follow that you're not that qualified so unfortunately there's that this the homogenizing tendency in the uh the Academia but also that the reason why the Leo classical school has become uh quite dominant is uh because it that is that kinder to uh the existing social order then the other schools you know for example you know that going back of it in the U.S until the 1930s and 40s actually the dominant School of Economics was not geoclassical school it was the institutionalist school you know you know people that are wrongly say that oh the duty was a Keynesian policy no you didn't was not Keynesian it was that that basically inspired by the the American institution in the school followers of the Norwegian American Economist force in Devlin yeah John Cummins I think yeah and Commons and Wesley Mitchell and these people and if you look at that actually that the New Deal the policies okay there's a bit of deficit spending but it wasn't about macroeconomics it was about institutional reform yeah so there's the Social Security Act there's the Wagner which gave power to the trade unions you know that you had the glass figure which are separated at the investment banks are from commercial Banks you know and and you set up the security uh the Securities that commission yeah so it turns out that the institutional reform and you know the the classical economics is that not that Keen on institutional reform not to speak of you know marxists that the class that war and revolution because as I said earlier I mean they are philosophy which is known as this uh the Pareto the optimality and priority Improvement is based on this notion that you cannot call the social change that hurts anyone on Improvement yeah now this is a very important principle that to defend the individual rights against the tyranny of the majority because if you're not careful if you begin to say well we are doing this a photo create a good yeah so why can't we sacrifice one person yeah for the the the benefit of 8 billion people yeah a lot of people will say yes we should do that yeah but what if that one person becomes uh 10 000 and 1 million and 10 million yeah so I mean this uh that the idea is that the very important the defense against that Tyrion majority but as I said earlier I mean that is a fundamentally very conservative but the view of the world you know because you basically accept the existing distribution of income wealth and power and then you try to see whether you can improve things within that framework yeah without hurting anyone yeah so this is a quite a comforting approach to the world the the to the elite who benefit from this status call and I think at that uh that that was another reason why instead in addition to the logical but academic ideological homogenization that that was another reason why this school got so much support uh once that in the 80s the so-called Dio liberal the revolution happen and you know that the ruling Elite that which had been kind of but uh more careful that in what they do that because of the confrontation with the Soviet Union the rise of the Trade union movement when they got the upper hand they basically didn't want to that here are too many things that were criticizing this status quo so that this is another important reason why leuclid school became so dominant well I mean there's a bit of a cynical view in your work where you know Kane said that we're all kind of slaves to some prior generation of economists but I think you're implying that you know economists may be slave to you know political economy right in the sense that you know there's a there's a there's a demand for certain ways of thinking and I think you know your book that you wrote right after the financial crisis you know I think implied that and I certainly remember right before the financial crisis I mean anybody who was in the world of Finance you know we all had you know justifications and explanations for why you know unfettered you know deregulated financial markets uh were were such a great thing yeah now you know presumably they're they're now it's not to say that economists are in the pay of you know big Banks or anything like that and it's not to say that you know if you're a tenured professor writing articles for the AER you're you're in the pay of you know the the the the people who benefit from globalization but but I think but I think you know there's there's something to that right I mean when we look at and let's turn maybe to your discussion of development economics um you know you wrote this book called uh kicking kicking away the ladder right which which is sort of you know once a country becomes developed you're arguing that they they kind of try to prevent the other countries uh that haven't yet developed from becoming developed and and denying them the themselves yeah when you talk about the Washington consensus now what what how would I so so this would imply that the the developed World benefits in some way from you know preventing the developed World from joining them in in the ranks I was wondering if you could dig into this a little bit and how does a historical view help you to better understand you talk about development economics and economic history and how they're kind of two-sided the same coin I've always thought that I I was motivated to study um history by an interest in development economics right great yeah not that uh the the puts uh our current development uh discussion into historical perspective you know so uh at least in the last 40 years the pre-building view has been that you know the pre-trade deregulated markets uh you know the uh prevalence of but the private ownership you know these are things uh that are good for economic development uh but when you look at the history of today's rich countries you find that they use almost exact opposite what of what they're recommending you know the in the 18th century when Britain was still a second rate economy relying on the uh export of raw materials that namely the world to the dent the manufacturing high-tech manufacturing Central Europe the Low Country what the the Belgium and the Netherlands today which is uh the the the center of the Woodland manufacturing I mean that basically Britain had to introduce a lot of protectionism to protect the weaker domestic producers that are from Superior foreign producers gave a lot of subsidies to these guys yeah and then that went that that they became about the world's top industrialization is to other countries so these are the passage the kicking the ladder comes from the 19th century German economies that the Friedrich list who said look at the British tell us Germans and the Americans the the two countries that are very much identified with each other at the time to practice free trade but when you look at the British history when did they start practicing free trade only after the country became the dominant industrial power so this is like a sermon that using a letter to climb to the top and kicking that ladder away that so the other people cannot reach the top you know and uh very interestingly that it wasn't the list who invented uh this Theory known as uh theory of infant industry protection namely the argument that the governments of economically backward Nations need to protect and nurture their new Industries in the same way that we protect and nurture our children until they grow up and can competing the other labor market the guy who invented that theory was known other than the very first finance minister or what you guys called the treasury secretary of the United States of America Alexander Hamilton yeah the Hamilton that actually that wrote this uh the famous report called the report on the subject of manufactured by the treasury secretary the 97 to the U.S Congress and you know I that say that that was the very first systematic development planning document in human history no the guy was amazing I mean yeah I mean he was the the experience that we can tell from you know the the musical that he was at that uh kind of Arrogant Bastard that that you know in terms of his economics he was brilliant because that he was not to start talking about protecting what he called the industries in their infancy uh against uh British and other European competition he was talking about the development of Government Bond Market you know he was at uh talking about that establishing some kind of Central Bank I mean he was talking about the patent system the investment in infrastructure you know so that came up with this vision of the economic development which said that was that actually repeatedly used by other countries you know the late 19th century Germany Sweden you know uh later in the 20th century that France you know Japan Korea Taiwan yeah which are basically called for the use of active government intervention you know that trade protection you know regulation against the foreign investment you know the investment in data excuse me that infrastructure you got the violation about that intellectual property rights because that is a Nation trying to catch up you need to basically steal technologies that from others you know and uh yeah I mean that the the historical record is actually the amazing I mean the almost every country at least for substantial period but the only development use that such policies but now the so-called Washington consensus that that says that you shouldn't use those policies you know that uh Charles kinderville the economic historians who uh wrote the endorsement for my book by kicking the letter that a few years before he passed away that uh that this book is uh pointing out the hypocrisy of the rich countries which are saying do as I say not as I did you know there we go well you know so you reference a lot the Asian tigers in particular you reference uh Korea right which of course you have first-hand experience of of the Korean story and I think a lot of people um don't realize how poor Korea actually was right and even compared to countries like the Philippines absolutely I mean Korea was was really dirt poor and the the policies that that they use to um you know escape from that poverty were certainly not ones that would be endorsed today by you know the the the IMF for the world bank right yeah yeah I know that uh in 1961 the Korea's uh Paul cap tank was uh 90 yeah in the same year the Philippines at 200 it was actually the second richest nation in Asia in the same era the the Ghana had 190 dollars per capita income Senegal had that 350 or was it 320 yeah thereabouts yeah so it was actually one of the poorest countries in the world I mean that I was born in 1963 in that year at the Korea's life expectancy was uh 53 years old uh sorry 53 years you know you know according to that you've already beat it yeah basically I beat it about seven years yeah I'm going to turn the the the 60 this year so you know it was one of the poorest countries and yeah there was no way that they could uh directly compete with the foreign companies that given the the low level but uh it's a technology and the skills so yes I mean that started with uh the lowest of the lowest yeah I mean that we are making wicks for American ladies you know I mean apparently at the time technology was such that you had to when you are wearing a wig and it could be done only in the cheapest labor country which the Korea was the one or yeah and we were the making stuffed toys for American department stores we were making cut uh uh trainers you know at one point in the yeah this was actually in the 80s at much later than that when the Korea started this development trajectory in the early 60s uh in the 80s at one point Nike was manufacturing 90 percent of his shoes in Korea so it was well I remember I remember buying Korean sneakers when I was a kid exactly yeah Osaka I think Osaka was the name of this so that you know it started like that but it had a big ambition slowly moved into higher productivity higher technology industry is and in order to make them work it provided that that very strong trade protection you know subsidized uh bank loans are from uh well I mean at the time but uh basically all the banks were that are owned by the government and that a lot of other support in terms of research and development you know export marketing worker training now quite that uh prevalent that even in the U.S I mean now it's the third largest auto manufacturer in the world you know went by Hyundai that started is that uh well production of its own model because uh before that it was importing this uh Ford Model then yeah that are putting together these uh knocked down kids yeah but that when it started is the the production with the first own model in 1976 It produced at 10 000 cars in the same year Ford produced 1.9 million cars General Motors are produced 4.8 million so that that it was producing 0.5 percent of four zero point two percent of uh General Motors yeah so just imagine if I took a time machine went back to 1976 and told people look at this this two-bit car company which that produces at 0.5 percent of food 0.2 percent of uh that General Motors in this low middle-income country called Korea but give it just over the three years that it will be bigger than fourth in less than 40 years it will be bigger than General Motors mental institution but there's no way this could have happened that if you looked at it from the vantage point of view of 1976 you know but that this happened I mean of course partly because the company invested so heavily in developing Technologies and training workers but that uh also that it happened only because the government completely banned the importation of any foreign cars until 1988. and then the importation of Japanese cars that which are particularly kind of uh overlapping with the Korean cars at the time until 1998 yeah and that that gave a huge amount of subsidies especially for export to the car company and other companies and yeah I mean that that this is uh in a way that or more refined than aggressive version of Hamilton's Theory the experience of Korea really that uh proves uh that you need a combination of private sector entrepreneurship and uh government industrial policy to have uh on uh the successful economy and that that my kicking the leather shoes that that is actually the trajectory that almost all the countries travel you know in order to get where they are almost all the rich countries of today sorry the troubled you know look at uh where they are today well now Korea is not uh run like that anymore North Korea more closely resembles uh like a European or American country in terms of its balance of you know what you might think of as Central planning and the market um and so if if if there's a different kind of medicine for the adult and and the child right you know why do we do we why then do we continue why then do we want to administer adult medicine to children I mean if we look at a country like Argentina for instance you know they've they've tried import substitution they've tried a lot of this stuff yeah and I think that you know if you're um part of the Washington consensus you would point to Argentina rather than pointing to Korea and say look this is why you don't want to do this stuff right how would they explain the the differences and and how would they explain the Korean story yeah yeah yeah as for the kind of uh Universal the prescription of the same drug to everyone I think that's uh that uh actually it's not an accident that comes from this uh the view that economics is an exact science so that you know free trade is good yeah well free trade is good actually the in the short run for everyone trouble is that that if you keep doing free trade I mean that that economically backward countries will be basically stalker where they are yeah just imagine I mean but the Korean government liberalizes that Auto in the market in 1977 yeah I mean Hyundai would have been wiped out overnight yeah so you know you you need that different medicine for different people but since most economists are these days believe that there's only one correct policy for everyone they keep giving the wrong medicine you know in the in the 1960s and 70s poor Captain coming the Latin America grew at 3.1 percent per year in the next 40 years he grew at 0.8 percent despite all these good policies of trade liberalization you know the privatization of state-owned Enterprises and so on you know that in the 60s and 70s poor capital income in Africa grew at the rate of 1.6 percent okay I mean quite low compared to Latin America not to speak of East Asia which during that period great six percent per year Well 1.6 percent is another joke you know that's that actually slightly higher than the rate at which uh Britain grew during the so-called Industrial Revolution yeah in the next 40 years uh poor Captain Congress in Africa collapsed to 0.8 uh three percent per year which means that that at the end of that fourth year period for Captain America in Africa was only six percent higher than what it was in 1980 you know China used to grow it that that much in half a year you know is that that total data failure but unfortunately the the so-called the Washington institutions that have failed to see this I mean now I think that there's a recognition that it at least that hasn't worked as well as that they thought that it would and yeah especially the International Management fund I see has become rather more critical of what it used to do that so it's a positive development but uh you know that this is coming from this idea that there's only one correct policy because the economics is science you know that you cannot have a different kind of Economics for different countries right which is that deeply the troubling now like everything you know the foreign model has failed that in many countries but uh that's uh in the nature of things no I mean that we tell people yeah you should study hard go to university and then that you will have a better life you know well lots of people that that go to university and don't have a better life but that doesn't prove that people still that shouldn't go to universities because that you know that these guys must have done something wrong yeah so if you look at countries like Argentina their biggest mistake was that to believe that they would just that uh live off that uh it's basically secondary technology by protecting the industries yeah you cannot do that I mean you have to to keep the the up with the intentional Technologies so in Korea even though there was a lot of protection the protection was the in order that you raise your companies to keep up with the global standard yeah which is actually the idea about infant industry protection yeah it's uh not the infant interesting protectionists are not saying that you should protect forever the ties with the rest of the world yeah then you become North Korean infant industry protection is that saying that you should do this exactly in order that your producers can become world-class yeah I mean that Argentina and many other developing countries that failed to have that goal and also when they were implementing these policies they didn't discipline the recipients about that protection and subsidies as much as at Korea or Japan did yeah because you had to deliver in terms of the export performance productivity grows you know uh investment in that research and development in countries like Korea Taiwan and Japan yeah in many con other developing countries that these uh the protection subsidies became uh free became freebies basically you get all this uh support and then the the you don't perform and then the you keep asking for for the subsidies yeah so that that they look similar but there were some very big important differences so you know that do it right you know that's the answer yeah rather than saying you know since that some people actually probably even majority of people who you know went to University didn't make it to the top that everyone should stop going to University well I think even within the neoclassical Paradigm people have begun to appreciate certainly in the world of development the importance of Institutions right so whether it's courts and property rights and uh you know intellectual property and rule of law and and so forth um and you know without those then a lot of the policies fail but but I think your point is that um to think that those are preconditions and you have to have them kind of well established before growth can happen I think your your point is that in in some sense those are more a consequence of growth than a cause that's right yeah no no yeah this is a very uh kind of uh complicated and uh delicate matter but you know it uh of course yeah you need some basic institutions yeah of property and governance and so on the whole uh the economy to function at all so if you have uh I don't know the country ruled by wall laws or the you know the country where the government doesn't even control the the the half of his territory then yeah you cannot have development but you know that unfortunately the people have uh pushed this at uh too far and that started saying that you need to first uh reform the institutions then you will grow yeah but I mean this is that uh you know once again the the the you you have to read the people like uh you know weblin and comments and I mean even marks and uh Hayek to understand that the institutions do not change uh like that yeah I mean it takes that that resource it takes a time it takes that that changes into people's behavior for these institutions that work so I mean the you cannot say that well we'll wait until the institutions develop yeah because yeah it's something like I don't know that you are in a long distance car race yeah your car is a second hand outdated yeah so are you going to attend the park the car in one place and the the basically live there for the next 30 years until you collect enough money to buy a new car no I mean that way that you will never that succeed in the race yeah I mean you have to drive this car but the summer or find a way to you know to improvise you know that improve bits and pieces with a little bit of money that you might have made that while uh everyone else was sleeping you know maybe yeah you can't that you know stop for a few days to do some seasonal labor to collect a bit of money to buy a new uh I don't know the brake pad yeah so that you have to that uh take it in more pragmatic way I mean I thought that I'm often described as an institutionalist economist and I I believe that the institutions are that are extremely important but you know dispute that somehow you have to have a Cadillac before you can even start a race I think is that that putting the the card before the horse so to speak partly because as you that implied that that there's a two-way causality I mean the institutions of course are helping connect development but with economic development you can afford to have better institutions you know because these institutions are costly to run you know I mean if you want to protect a property rights you need a proper court system yeah you need uh all that that kind of Records Office yeah you need that that the police you know that you need a lot of resources that to run these things up properly so that you know the economic development actually helps you have better better institutions yeah as well as you know that they're being got no you know time to sit in one place for 30 years and that that uh try to earn money to buy or Cadillac yeah you have to somehow you know drive your the second rate Tin Can car while keeping improving the car during the race I think it takes us back to the notion of linkages right so you know when we think of linkages and development economics we're usually thinking about you know linkages between Industries but but there's linkage between the private sector and the public sector right and the institutions and the in the industry yeah um well I want to end with this discussion of edible economics because you said in the book that um you know when you were a kid your mom wouldn't even let you in the kitchen yeah when my mom did but uh most Korean moms yeah so so how did you start how did you start cooking how did that uh I mean you know when you were in England you realized that if you're gonna if you're gonna have anything tasty you had to do it yourself that's right yeah yeah no I hate that you know my mom was not uh not super conservative so I could do some very basic things like you know making sandwiches uh fried rice yeah but yeah of course I meant the the most uh My Generation I mean they never cooked the the I mean they said that the food in the kitchen the the the uh in their life the so yeah when I moved to the Britain uh yeah I I mean the food was so horrible I mean I had to do something because that yeah I mean that you know when you're in your 20s you know you can deal with a lot of bad food you know that because you are hungry and all the time and but uh yeah there's a limit that uh to what I could take so yeah I thought I started recreating some of the dishes uh that my mom used to cook and so I slowly develop my cooking skill but the the real change came when I got married at seven years after I'd moved to Britain my wife arrived to join me in the Cambridge where I was teaching then and she couldn't believe that I had a dozen cookbooks that from which I never cooked because I loved reading cookbooks yeah so she said well if you're not going to cook from this I'm going to throw them away so that I sprang into action and I started using this cookbooks and yeah I realized that I really love cooking I mean I find it very therapeutic you know yeah so I I that started that kind of experience experimenting with various food and then I also given the nature of my work I thought I started traveling a lot to foreign countries you know especially you know the Mexico Brazil I mean I I encountered so many different foods there and yeah I mean that I I thought that became even more interested in the cooking and the the eating and the food in general and that yeah I mean that 30 years later we have this book yeah well what's interesting about cooking from my perspective is that um you know each Cuisine has sort of its own logic right so you know sometimes you know people ask me what what I like to cook and I love Italian I love French I like Turkish I like Persian whatever so they each have their own coherent logic but if you know if you're not a purist about it then you can you can kind of you know Arbitrage ideas across these these different uh schools and it made me think about how you think about economics and the different schools of Economics now if if you took all of those schools and you just blended it together then you just have like a but on the other hand you know if you're a purist and I know like you know in places like Italy yeah they're very purists you can't you can't put onions in an amateur Channel you know you can't put cheese on fish and they're very very dogmatic but when you come to America or in the UK as you mentioned it's like well you know let's let's do the Korean Mexican or something yeah yeah there's this very interesting uh uh restaurant called Korean dinner party which uh in London which which is uh one by Two Chefs uh and from their name I can see the ones at Latino uh Latina and uh the others are Chinese and they do basically Fusion of uh Korean and Mexican food you know it's great yeah yeah but that uh you know that you're right I mean if you are not if you don't fully understand the idioms of each cuisine I mean you attempt to create Fusion will end up as uh talks breakfast yeah I mean it's not actually very easy to create a fusion food because you really need to understand these different schools of cooking well before you can actually say yeah actually we can lift this spot and transport it to another Cuisine and then make it work yeah so that's uh sometimes it's a brilliant sometimes it's uh not so good you know so do you think we can change the way um economics is is taught I mean you know I can imagine a PhD program where in your first year instead of just jumping right into you know uh you know micro and Game Theory and so forth you know in the kind of metrics you know we could have something like uh maybe a survey course where you you get exposed to these different different schools that's right or you know do you think that would be be helpful in exceeding you know new new approaches and and uh and more yeah actually this is how it used to be taught yeah you know indeed mid 1980s when I was at uh trying to choose uh my graduate the course you know older well not maybe not literally all but almost all the American economics Department in their PHD program had at least one of the history of economic thoughts and economic history as a compulsory paper yeah I mean some universities demanded both yeah yeah so that that this kind of but that that knowledge about the history of the subject the major debates uh you know main differences are between the different schools it used to be a requirement yeah you couldn't staff them nowadays because exactly you need to staff it with a specialist and those Specialists they have specializations have have kind of disappeared but if you made if you made somebody who is a specialist and say um you know applied micro you know rotate through that course it could it could potentially help them to generate new new ideas for for their work yeah I thought you could also the quotation you know I mean maybe that you recruit the uh say the macroeconomies and microeconomies and develop an economies and uh try to kind of ask them to teach certain schools that they have better knowledge of uh maybe not that they subscribe to the schools but at least that they'll be able to yeah so I think that you know that when uh I mean I in the last uh 10 years at least I've been campaigning with the University students in Britain in the U.S in Brazil and that a few other countries to promote what we call the pluralism in economics you know so we are asking universities to teach this other stuff yeah okay I mean that that there can be one dominant school but at least tell people that there are these other ways of thinking about it you know at least hire some faculty who do things differently okay we have made the little the inroad but you know that we keep banging at the door and yeah when you do that actually the you will create the more kind of a diverse that uh way of understanding the world and I think it will make the subject better rather than worse unfortunately when we asked for the the typical responses well we haven't got time yeah that means that we have a limited space in the timetable uh the curriculum and we can teach you all this other stuff but uh you know I think uh that's uh that rather the the people excuse because that you know eight uh you can make room yeah I mean that that the economics that students are spending so much time doing math you know I mean now especially with the development of artificial intelligence that uh probably that modeling isn't going to be a very useful skill that uh there's a chat GPT right right uh yeah that you you'd cut down on some of the other things that are in my view overdone and also that we are not saying that you know the old schools have to have equal you know the the time you know I mean yeah at least the history will be connected to the you know one or two the courses that cover institution is the economics so the the Keynesian economics that rather than the standard micro macro the econometrics uh kind of setup but uh you know that basically these are excuses because that these people don't want to do that you know so let's hope that that more economists see sensing the these uh the demands and make economics uh a bit that are more diverse a bit richer in understanding well hajun thanks so much for joining me this new book called edible economics you know if if there were still physical bookstores I'm not really sure which which shelf they would put this on the economics or or food and now I got to figure out what shelf I'm gonna put it on uh but also this one economics users guide this is actually is a really fun book and and uh and and I hope more and more people will will go and and check it out and of course all the older books um so appreciate joining me hopefully I'll see you again sometime soon yeah thank you Greg oh this is on Silo brought to you by alumni FM connecting people through stories foreign

Channel: unSILOed Podcast with Greg LaBlanc

Views: 2,787

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Id: jXp9GgzUObI

Length: 70min 44sec (4244 seconds)

Published: Fri Mar 03 2023