Radical Uncertainty, Rapid Learning and the Success Equation for Catching Up

Danny Crichton:                                        

Paul, thank you so much for joining us on Risk Gaming Today. You just published a new book in the UK, and then the US recently, called Left Behind: A New Economics for Neglected Places. I figured we'd just started at the top here. Here at Lux Capital, we're in New York and Silicon Valley, these glittering metropolises of rich and wealth and prosperity, but obviously, that's not true for many locales, not just in the United States, but in Britain, in Europe, and across the emerging markets in Asia and Africa. So talk to me a little bit about what the book was about, what you're seeing in your research, and why you sort of wrote the piece.

Paul Collier:                                          

Yeah, so it is partly about places like America and Britain, partly about much poorer places. I originally got well-known for a book called The Bottom Billion, about the poorest places on Earth, and those poor places are mostly still very poor places. Mostly, they've fallen further and further behind. So it's both about places that have fallen behind within America, the Rust Belt within Britain, my home county of South Yorkshire, now the poorest place in England. So it's partly there's a bit of passion there. Didn't used to be poor when I was a kid, but it sure is now. Trying to understand what happened to places like South Yorkshire, my home city of Sheffield. Why did it get poorer? There's a sort of quite exciting intellectual leap.
                                                     

For the first time we've got, I think, a working explanation of what goes wrong. Why market forces, which Milton Friedman thought were magical, why they're actually very far from magical, and they amplify an adverse shock. So that's where we start in trying to understand the downward spiral, and that's really the first third of the book, is understanding that downward spiral. What goes wrong? What went wrong in Detroit? What went wrong in Sheffield? But then there's a much more hopeful last two-thirds of the book, which is how you can spiral back up again and how lots of places have, so that's kind of the agenda and surprisingly much the same analysis works for places like Detroit in America, and Sheffield in England, and for some of the poorest countries on earth. It's not identical, but there's a surprising degree of overlap in the processes of work, so that's the agenda. Should we get started?

Danny Crichton:                                        

Let's get started. So let's talk about the first third of the book. So you're covering sort of the spiral down, and this is the negative. You always have to start with the negative and sort of prompt the problem, right? So we're going from problem to solution. It is a negative history, right? So we're looking at some of these amazing places. So Sheffield, as you said, in South Yorkshire, once one of the richest places, and this is true for a lot of Britain. Some of the greatest wealth was people moving out of London to these places that were industrial hubs in the 1800s and the early 1900s. Detroit, once one of America's top cities, a hub for the automotive industry, and then things changed. So what happened there, particularly in those two countries, which are a huge part of [inaudible 00:03:09] third?

Paul Collier:                                          

So they're hit by an adverse shock. Some industry closes. There are always adverse shocks that affect places. We can't fully protect against adverse shocks. What we can do is look at the consequences of adverse shocks and try and understand them. Milton Friedman thought the consequence of adverse shocks would heal themselves pretty fast. He had a little image, which was an image of a harp with very taut strings and you pluck the string, and it wobbles around for a bit, but it quite rapidly goes back to where it was. That was the image he used to explain why market forces would automatically remedy places.
                                                     

So Sheffield hit by a shock, Detroit hit by a shock, property prices would fall, wages would fall a bit, and that would create opportunity, and so the market would move money in, except it doesn't. What's going on? So I've got a counter simple image, which is a two sailing dinghies in a gusty wind. One is hit by a gust of wind, and the other isn't, and it topples over. It capsizes, and now one dinghy stays the right way up. We know why it; wasn't hit by a gust of wind. The other dinghy is now upside down. That's using fancy language, hey? These are locally stable equilibria, right? I don't know if you've ever sailed a dinghy, but most of the time you spend learning how to sail a dinghy.

Danny Crichton:                                        

Yes.

Paul Collier:                                          

What happens when a dinghy capsizes? Because it's very locally stable when it's upside down. So this crew haven't been trained in how to flip it back up again. So there's one dinghy that's upside down in the water drifting backwards with the current, and the other dinghy is just sailing merrily along. Now, you are going to play the role of market forces. You are now, and it won't be hard for you to imagine. There you are in New York. You are a fund manager in New York, and you've got to decide where to put your pensioners money. You can put it in the upside down dinghy that Milton Freeman [inaudible 00:05:31].

Danny Crichton:                                        

Right.

Paul Collier:                                          

... Back up again, or you can put it in the right way up dinghy. What are you going to do?

Danny Crichton:                                        

And it is interesting when you place in this example, right? Because theoretically, I mean, this is the harp, right? Which is the upside down dinghy. It, theoretically, gives you the best return. I should be able to buy low. I should be able to sell high, but I think, particularly from the venture capital industry vesting and technology, there's all these additional risks that come with investing in geographies that are not dense with talent from engineering universities, or do not have the institutions or the policy infrastructure to make these companies successful.
                                                     

And so, you're actually taking on so much more risk. On top of that, we know less about these markets, so I've been to Detroit once this year for, the first time in a couple of years. It's not a market I know well. I don't know the people. I don't know the environment, and so all these additional risks accumulate. And so, yes, we tend to look for places in our backyard in New York and Silicon Valley and Los Angeles and the Space Coast. We're unlikely or less likely to invest in places that have sort of walloped by this de-industrialization over the last couple of years.

Paul Collier:                                          

Yeah. So the investment money goes into the dinghy that stayed upright. The market forces really amplify divergence, not reduce it.

Danny Crichton:                                        

I want to interject here, because one of the themes, I think, and we do this a lot more in our mini-series called the Orthogonal Bet with our scientist and resident, Sam Warsman. So he's a complex decision theorist, and very obsessed with sort of, as I am, with multidisciplinary social science. And so, I think this is a good example just to bring up where you've combined in this book, social psychology, evolutionary biology, evolutionary psychology, economics, all throw sociology. I don't think you literally mentioned that, but sociology, demography and a bunch of other social sciences together.
                                                     

But I think this is where Milton Friedman and sort of the free market theory is very economics focused. It's very tight in the discipline. In fact, economics conformed to that theory for a long period of time. But we're now learning that psychology and the way that investors operate is not just everyone makes their own bed, everyone is independent of each other, they're free agents, they're looking at each other. They're saying, "Well, if they're all investing in artificial intelligence in New York City, I better get into that market as well." They're not even looking at the dinghy, because no one else is.

Paul Collier:                                          

Absolutely, and left behind is endorsed by some of the fanciest economists on earth, so economics has moved on.

Danny Crichton:                                        

Exactly.

Paul Collier:                                          

I mean, this is new, but it's not eccentric. I've got two Nobel Prize winners. My favorite is Raghu Rajan who's the top economist at Chicago at the Booth school in Chicago, where Milton Friedman came up with his plucked heart. Well, no, thank you. Chicago has moved on, but you raised the point of moving beyond economics to the social psychology as the next one in line, and let's have a look a little bit at the what's the social psychology? Now, we know why one dinghy toppled over and the other didn't. We know, but they don't. So let's go to that crew of the upside down dinghy for a moment, and what did they see? They see that the other dinghy is still sailing merrily on. It didn't topple over, didn't capsize. Theirs did. They're going to ask themselves, "Why? Why did our crew topple over and not theirs? Was there any members of our crew who were perhaps the weak links?" And you can see what's going to happen. The majority is going to start picking on whichever minority they can find.
                                                     

Does that help? What this crew's got to do is come together and figure out how to flip the dinghy back upright, which is hard if you don't know how to do it. You've got to experiment. There's got a whole process of rapid learning by trying things, but instead, they're going to start blaming each other. They're looking for scapegoats. And this is, unfortunately, what happens again and again in places that start to fall behind. Business in the locality blames the workforce. The workforce blames a business as greedy. The local government blames both of them. They're all ganging up on local governments, so they're all looking for scapegoats. That's the social psychology. Now, as you say, we don't finish with social psychology. That's the first step beyond straight economics, but we can look at demography, we can look at a whole load of other things that produce this combination of risks and uncertainties. That's the peculiarity of life, that it's not all reducible to quantifiable risks. Some of it is. Some of is absolutely, intrinsically unknowable.

Danny Crichton:                                        

Well, and I think you're getting at one of the things we try to do with risk gaming, so the risk gaming itself are these scenarios we build, sort of like war gaming, but we use the term risk instead of war, because we cover a lot of different situations. The goal there is to really explore collective behavior with individual decisions, so it is very similar to experimental game theory, a little bit more of storyline and narrative to keep people attached to a specific scenario. But the idea here is to sort of build empathy across professional boundaries, across different types of actors to understand, "Well, why did the union strike? Why is the business leader unhappy with the performance?" They face constraints around profit that people don't understand. They have a tax implication because of a decision, so now the government's to blame, and the idea here is just sort of cross boundaries and have people understand whether that's building shipyards in Virginia, and we've covered the future of artificial intelligence at the Pentagon.
                                                     

But one of the things that I think is interesting with a lot of the work you're talking about is, when I think of American economics, I think of neuro-economics. We bring in sort of the neurology of an individual into economics to sort of fix all these cognitive biases that we have identified. A year or two ago we had Danny Kahneman on the show, and that was a huge part, obviously, of his work and his Nobel Prize back in, I think, '02. What I thought was interesting is you went a community direction, and you're part of this movement, I think, in economics, away from individual psychology and fixing all these cognitive biases. And you sort of described in the first third of the book, of we need to move more towards a community, solidarity, and looking at how the interrelations and ties between people influence how they see the mentality, how they see the narrative of their lives, and sort of this common purpose that is missing oftentimes in these left behind communities.

Paul Collier:                                          

It's not romantic, because we are a very unusual mammal. We are by far the most pro-social mammal, and there's very good evolutionary reason for that. When we came down from the trees, we were very, very unsuited to what we found. First of all, we had to stand up straight, and we weren't very good at it. We weren't designed to stand on two feet, but even when we did stand on two feet, we didn't have claws, we didn't have scales, we didn't have thick fur. We weren't even fast. Running on two feet, we were really bad at. So we were very, very vulnerable, and most human communities, early human communities, died out.
                                                     

The only ones that survived were the ones that learned how to cooperate, and they cooperated by supporting each other and by learning rapidly from each other if they came up with something that seemed to work. We know, from experiments, that young humans are very much better than young chimpanzees at learning from each other. We're no smarter. A three-year-old chimp and a three-year-old kid is about equal in terms of solving, individually, a puzzle, but once one kid has got it, they all learn. We're an unusually pro-social mammal, by far the most pro-social, and so our instincts are indeed to cooperate, not all of us. It turned out to be a threshold if more than 3% of us in a group behaved selfishly and just sort of free road on others. Then, the group collapsed. Group good behavior collapsed, because too many people were free riding.
                                                     

Then, the people who weren't free riding said, "I'm a sucker. I'm not going to behave like that." About 3% of us stay, what you might call, sociopathic, and unfortunately, in recent business schools there was a tendency to celebrate that sort of behavior, the greedy, selfish, genius boss, and that turns out to be pretty catastrophic. So my friend Rebecca Henderson, who's the top professor at Harvard Business School, who's a big fan of the book, says that it was really disastrous that, for a long time, business schools taught that what you really need is these very highly incentivized, very greedy leaders that came in about the 1970s. By the 1990s, these guys had risen the top, and so they started to become the chief executives. Then, we started to see this short-termist, greedy behavior, as chief executives ran companies just to make the quick gain, get out, get the bonus.
                                                     

That's produced a lot of devastation and a lot of failing companies. It's not a good way of running or sustaining a company. I mean, Rebecca Henderson's point, really, is that if you look at the successful companies, the successful companies are mostly, not invariably, but mostly they're not run by crazed overconfident people. They're run by rather modest people who are able to bring people together. In the book, I do a narrative of Toyota versus General Motors. That was a fair fight Toyota of at the time when this starts in the 1960s, it's a battle for the US market. Toyota has no advantages, other than it's a very communitarian company in which the chief doesn't pay himself a huge bonus, dresses the same as the workers, trusts the workers, builds common purpose, and says, "We've only got one hope of breaking into the American market, and that is if we spot faults absolutely at source."
                                                     

For that, we have to trust all our workers. So they hang cords down along the production line, and you pull that cord, and the whole production line stops. That costs $10,000 a minute. You only need one disgruntled worker who says, "I hate the company," and the line stops, but Toyota trusted workers, so they gave workers, all along the line, you could pull a cord and do this, and we spot a fault at source. There's a new robot here. It's not been properly programmed. It's scratching the cars, versus General Motors who really ran the company. The chief executive of General Motors would fly in the company jet, he'd have his own personal chef fly in with him. He was on a big bonus, and whenever there was a downturn in business conditions, they would screw the workforce, basically pay them badly.

Danny Crichton:                                        

I want to highlight a couple of things here. So obviously, we're in the start-up industry. A lot of companies start with just one or two founders, and a huge part of what they do is build culture. One of the interesting things, going from the beginning of your answer to the end, you can talk about evolutionary psychology. What we have found is obviously you can be very competitive, you can have a zero-sum mentality to building new companies, but it's very lonely. It's very hard to build something from scratch. It's very hard to be an entrepreneur. And so, oftentimes it's actually the founders building these companies, who become the most pro-social. The people who help each other, the people who give advice freely without any sort of transaction. The early accelerators, that are sort of just trying to help as many people as possible succeed, end up creating an enormous amount of value, because they're self learning. You're sharing contacts, networks, ideas, thoughts, and the world's a big place.
                                                     

And so, even if you have 400 or 500 companies, all sort of interconnected, it's amazing how few of them actually overlap or are directly competitive with each other. That learning is super helpful. What's interesting is how few people from MBA programs, from large schools like Harvard Business School, start companies, that how many of them do not go through that system, that sort of individualistic, selfish, greedy model? Because in order to build a company, you're talking 10, 15, 20 years to go into the marketplace to build up a company or IPO or to X in some other ways. And so, you sort of have to retain that kind of pro-social approach to life, because if you ever sort of go the other direction, technical talent will leave. You change your culture. People are like, "This is not a place I want to really work at anymore. I'll go somewhere else." Particularly, in Silicon Valley and California, where there's no non-competes, you can switch employers the same day. You can leave one in the morning, start a new one in the evening, and there's nothing that sort of holds you back from that.
                                                     

And so, that creates, in my view, a sort of positive loop. The other piece here I want to highlight, which you're sort of emphasizing is this sort of notion of that 3%. So you talk about, if sort of 3% shirk their responsibilities, basically you sort of have a collapse of trust in a society and a company, whatever the case may be. And this pivots to the second two thirds of your book, so you have a chapter called leadership. One of the things you highlight, both in, I think it was Tanzania, as well as in Singapore, was this notion of it was really important that the most elite actors in society show their self-sacrifice first. And if they did that in the very early signs and people saw it within the community, that really changed to a more pro-social orientation. So I'm just curious in terms of sequencing, so what sort of comes first in terms of wanting to take a left-behind region or a left-behind company and turning it around? What are sort of those lessons you would take first?

Paul Collier:                                          

Agency has to lie with the place. It would be nice, if it were true, that a rich country could drive development in a poor country, or a rich place like New York could drive development in a place like Detroit. The answer is it can't. Agency has to lie with the place that needs to recover. Good leadership is one way of doing that. Getting a good leadership in a place that says, "Here is a new common purpose." You find some common purpose that heals these divisions, and then people start to come together around that purpose. There are lots of examples of that, and I think there's two remarkably station ones. One is Lee Kuan Yew in Singapore, who inherits, in the beginning of the 60s, a place that's bitterly divided, very poor, very corrupt. We forget that, because we can't imagine that Singapore was ever not modern Singapore.

Danny Crichton:                                        

Right.

Paul Collier:                                          

It was very high crime. It was a very dangerous place.

Danny Crichton:                                        

Yeah. It had just been kicked out of the [inaudible 00:21:15] and Federation. Yes.

Paul Collier:                                          

[inaudible 00:21:16], ideologically, the whole works. It was very corrupt. It was a nightmare place, and Lee Kuan Yew manages to find common purposes that bring people together, and that's a huge story. The other I really celebrate is Deng Xiaoping, who's an unlikely thing for a guy who believes in democracy and markets to support, but Deng Xiaoping was actually a provincial guy who was quite modest. He kept his provincial accent, even when he became the key leader in China. I used to have a provincial accent.

Danny Crichton:                                        

Some of us would still say you have a provincial accent, at least from the American perspective.

Paul Collier:                                          

Yeah, yeah. That's nice, but I moved to Oxford. I've been in Oxford a long time, and so gradually, I learned how to speak in a way that didn't upset the Oxford population. Deng Xiaoping, actually, kept his provincial accent, and he also really believed in going and looking to see what was happening elsewhere in the world outside China. The first place he visited was Singapore in 1980. Even in 1980, Singapore was pretty remarkable. Now, the myth that had been perpetrated by Mao in China was that Singapore was a nightmare place, in which the rich were grinding the faces of the majority into the dirt. As soon as Deng Xiaoping visited Singapore, he saw, "My God, these are not poor people being ground into the dirt. These are very prosperous people."
                                                     

And so, he thought, "I wonder if I can do in China a version of Singapore," and that became Shanghai. That was an experiment, so he learned partly from looking elsewhere and experimenting, but what he really learned from was China's made up of 40 different provinces, and he ran a competition to get into the civil service. There'd always been a competition in China to get in the civil service, but it was supposed to be, you had to know the niceties of social etiquette, Confucius and such like that. So he just repurposed that competitive examination. He said, "Anybody who's a member of the Communist party, aged 25 to 35, is eligible." That produced about 20 million people taking an exam, and he took the top 40 out of 20 million, and that was pretty selective.

Danny Crichton:                                        

Exactly.

Paul Collier:                                          

Then, he brings them together and says, "Congratulations. You have a top 40 in the country. We've got 40 provinces, for the next five years, you'll reach the governor of a province. Imagine that's you. You're feeling pretty good about yourself," and he says, "Well done. There's two things we want you to do over the next five years, and they're always an economic one and a social one, and they're always demanding economic one. You've got to double the GDP of your region in the next five years." Easy-peasy, gulp. You've never been to this region before. "And then the other thing you've got to do is half infant mortality in the next five years."
                                                     

Still feel full of yourself, proud of yourself? Help. And he says, "We'll be watching you," and it gets worse. He says, "If you've not tried anything in the first six months, you are permanently thrown out of the top 40. You'll never get back, and finally, we in the Politburo have no idea how to achieve these goals, so you figure it out, but if you haven't tried an initiative in that first six months, you're out." Now, that's a brilliant combination of things. It is the modesty to say, "We don't know how to do it." It diagnosis the main risk, which is that a bureaucrat will just freeze up and do nothing. If you do nothing, are you safe? No, you're thrown out, but you are new in a region. What on earth are you going to do? If you've any sense at all, you're going to start asking people. You're going to start listening.
                                                     

If you want to halve infant mortality, maybe you're going to go to a hospital. If you want to double GDP, maybe you're going to go to some businesses and say, "What's holding you back?" And so, all around China, you've got these 40 experiments running in parallel, and Deng Xiaoping's watching. Then, he's noticing, "Oh. This one's working. This one isn't." Then, he's very clever. He says, "Hey, over there. You've not managed to halve infant mortality, but that guy over there has," and he doesn't say, "You've got to do what he does." No, no. He says, "You go and look, because where you are might be very different from where he is. Just go and have a look," and that's such a brilliant set of ideas. You learn gradually what sort of things work.

Danny Crichton:                                        

Well, I think one of the things that I think that worked really well here is you have this focus on radical uncertainty, so you look at these left behind communities. In many cases, they were hit. I'm going to use Detroit, because it's a more local example. You have the auto industry. Now, the auto industry faces a lot of competition from Japan, Korea, now China, as well as German automobiles, et cetera, and so you need a strategy, but no one knows the right answer, so we face this radical uncertainty, and you use this term called well-calibrated medic ignition, which I believe you're pulling in from psychology, but essentially, the way I took that to mean is you're taking in an immense amount of information, and you're putting together a strategy, even though you don't know what the right answer is, you don't know the path forward.
                                                     

You're sort of in the middle of the woods with a machete, and you have to pick which direction to go to find north, but there's sort of this class of leaders that you've identified, both in Britain, in the US, and around the world through different case studies, who have this sort of well-calibrated medic ignition, and have the ability to kind of take in that radical uncertainty and do something with it. I'm going to keep analogizing the startup community. That is sort of the definition of an amazing founder who builds the next generation of companies, is precisely that DNA, which is they don't know the answer, and every day they're learning and they're creating their own feedback loops. If something doesn't work, they give up and they go to a different direction and, to me, that was a huge difference between the most successful companies, which sort of go quickly, versus those who say, "No. I'll try another year. I'll do two more years of this. At some point, this we'll work in some way," and they go down that wrong path, just farther and farther down.

Paul Collier:                                          

The first person who taught me all that was George Soros. George became a friend of mine, because I'd done a line of work, and he read way outside his usual field. I was doing some work on violent conflict, and he was reading that and he phoned me up. I was at the World Bank, and I was directing the research department at the time. He said, "I've been reading your stuff, and I think it's a fertile fallacy." I heard the word "fallacy," and I thought that sounds, basically, an insult. What I should have heard was the word fertile. I gradually learned from George that he sees the world through this lens of radical uncertainty, asking, "Suppose the world's changed this morning, how would I know and what would I do?" and he says, "Let's look around to see if there are any ideas which survive the first hour of thinking about them."
                                                     

And he says "Very, very few. There are always new ideas out there, thousands of them. Mostly they're just obviously worse than what we've got already, and occasionally, rarely, we get something that's good enough to be a working hypothesis for now. Will it survive forever in a day? No. In 50 years, in 20 years, in 10 years, its weaknesses will have emerged, but for the moment it's a good working hypothesis," and that's what he meant by a fertile fallacy. In the end, it wouldn't be good enough, because we're so suffused with complexity and uncertainty. The chances of hitting on a permanent truth are very low indeed, but the chances of something that, when we occasionally get something that's good enough, that's what we follow until it burns up. So that was how I learned about radical uncertainty, and then I learned by writing a book with John K, who's the co-author of this book called Radical Uncertainty.
                                                     

So I became suffused with the importance of radical uncertainty and what to do about it. It's not a howl of woe. It's saying, "Well, if you really don't know, you better learn rapidly, and in the meantime, you better build robustness and you better build resilience." You want to try and run things in a way that even if you're hit by something you didn't expect, it doesn't capsize your boat, so you might want to have robustness by having duplicating things so that there's no one critical point which, if it's hit, collapses, and highly centralized systems with one super clever man are very, very vulnerable. You need key man insurance, but also the key man can get very overconfident and take one risk through many; this sort of devolved leadership that inspires, but at the same time has enough modesty so that he doesn't overreach.

Danny Crichton:                                        

I think when you talk about this devolved leaderships, and this is getting into the solutions part, there's this very tricky bouts. So you're emphasizing Deng Xiaoping, Lee Kuan Yew, who are widely known as authoritarians, but they're not authoritarians like Vladimir Putin, who is directing everything from a Kremlin office, directing every governor, and you have a case study of this in the negative third of the book, but they sort of empower, but they're sort of keeping a high standard. What I thought was interesting about this, is obviously there's a very large debate in the tech community in the United States, and I imagine the UK as well, around meritocracy.
                                                     

I saw a lot of overlaps, and I believe it's cited in the book, around Michael Sandel's recent work, where he sort of critiques meritocracy, this idea that the elite should make all the decisions with a concept kind of known as contributive justice. I was wondering, because when I think of devolved leadership, contributive justice, there's sort of this yin yang or this sort of balance of saying, "Look. Yes, there are better educated people, there are more elite people, there are more entrepreneurial, higher energy. That doesn't mean they can make every decision correctly." In fact, what you're sort of emphasizing in your solutions was to say, "Take things out of these central bureaucracies, out of the treasury in the UK, out of the federal government in the US, and devolve and empower from the ground up to these left behind places."
                                                     

To me, if you ask people in the tech community, and they say, "No, you can't do that. They don't know what they're doing. I do. I need to tell them what to do," and to use your dinghy example would be, don't have the five people on the dinghy try to flip it over. Come with a big, US Naval sailboat. They'll do it for you, and now you're behind, but you have a dinghy that is right side up. I've fixed the problem for you, and now you're left to your own devices, and you're sort of saying that you can't learn how to succeed in that sort of context. I was wondering if you could kind of bring that all together on this [inaudible 00:32:52]-

Paul Collier:                                          

Yeah. I'm very proud that Michael Sandel is a big enthusiast [inaudible 00:32:56] left behind, and we work together on stuff, but indeed, the principle there, is where does agency have to lie? And the big difference between the pre-Sandel ideas of contributive justice, what you had before was distributive justice. This was John Rawls, almost beneath contempt in my view, the sort of utilitarian, just add up the pluses and minuses, and we can add up everything. Of course, we can't add up everything because of uncertainty, but Sandel's point is that you get this top-down attempt to give people income. This is the distributive justice, but it's fundamentally a disdainful relationship, a relationship of charity. It doesn't come with agency. It comes with a power imbalance. The person who gives is in a condescending relationship with the person who receives. And so it's not consistent with maintaining dignity, and dignity is enormously important to people, as is agency.
                                                     

Indeed, one of the things we know is that, if people are denied agency, their own agency, then from psychology, we know the concept of reactants. Then, people push back to try and reestablish their own agency, so often aid with strings attached is counterproductive. People fight it, try and reestablish their agency, and the only way they can do it is by actually pushing exactly the opposite direction to what the aid is trying to get them to do, and the same is true in a company of a top-down leader. So I'm very excited by Sandel's concept. And his book, The Tyranny of Merit, is exactly this powerful critique of celebrating meritocracy. I've been with him when he's very funny at teasing an audience, at luring it, luring it step by step into behaving like a bunch of shit. Then, as he turns the tables on them, and points out how selfish and arrogant they are, they crumble. It's a very effective technique. It is very funny.

Danny Crichton:                                        

I mean, so this is a good example, right? Teaching and learning is sort of the yin yang here, right? So you're talking about Michael Sandel and a public lecture, and he has massive, I used to live in Boston. I mean, they're sellout crowds at one of the largest stadiums, probably one of the only philosophers who sell out a major concert venue that otherwise Taylor Swift would rent for the evening.

Paul Collier:                                          

That's right.

Danny Crichton:                                        

But yeah, I think you also get this notion of centralized bureaucracies versus decentralizing into these left behind communities, which is it comes with strings attached, not just at the national level, but at the international level. You have a critiques of the World Bank and other sort of developmental institutions where, "Look, you can get this aid. We'll give you a couple billion. COVID just hit," but it comes with all these structural adjustment aspects to it, that you must do these things to the economy.
                                                     

I think it's both reactive, and I think this is a key theme that's throughout your book, it's not place dependent or place specific. There's these rules that sort of apply to every country around the world, or in Britain, or in the US, to every city in the polity, and what you're really emphasizing is, "Look, different things work in different places," and so when you have a rule that sort of applies to everyone, it doesn't work. And to go back to your earlier example around China, you have 40 different provinces, 40 different governors. Learn from each other, but if it doesn't work where you are locally, it doesn't work, and you should throw away that playbook and find something else.

Paul Collier:                                          

Context is enormously important. Context is king, and the people who know the local context best are, of course, local people. I mean, in Britain, we've got a crazy world in which London Whitehall is running the bus system in places like Manchester, which are a couple hundred miles away. I mean, this is completely mad, the idea that a guy sitting in London in Whitehall can design a bus system for Manchester-

Danny Crichton:                                        

Right.

Paul Collier:                                        

... For the people in Manchester, is kind of comic, except that that's what they try and do. So devolving to local context, and indeed, the sheer arrogance of imagining that you can run a system like that from London, is preposterous. So these highly centralized systems, a, they're very vulnerable. You only have to knock out one point and they collapse, so they're not robust, they have no robustness in them. B, you get this wild overconfidence that people in the Centre imagine that they are, they can tell themselves one of two narratives, either, "My God, I shouldn't be doing this," or "My God, I'm doing this because I'm super clever," and guess which one they're going to tell themselves? So they're way overconfident, so overconfident, ignorant of local context, and so that sort of system is really very, very vulnerable. It's the opposite of rapid learning. It's super vulnerable.

Danny Crichton:                                        

And you call that sort of systems of fragility, which you're borrowing from the literature. It's sort of creating, there's no resiliency or what Taleb would call kind of the anti-fragile. You're not building resilience into the system, but rather exacerbating it. I want to ask one other set of questions. So obviously, in development economics over the last 20, 30, 40 years, there's always a huge debate between kind of the East Asian miracle, these kinds of authoritarian, centralized regimes, whether it's in Singapore or Korea, Taiwan, China, to a larger degree, versus sort of a play space, bottoms up, sort of be flexible, adaptive, etc, it seems to me like you have a little bit of a synthesis between these two and maybe biasing towards, obviously, the place-based model.
                                                     

But I'm curious, and I don't know if you know this literature, so I'm just sort of throwing it out there, but Dani Rodrik, in particular, and a couple of folks around him have really highlighted that that's sort of industrialized path that existed within the 50s to the 80s has sort of closed, that the scale returns to industrialization, to building new factories, are increasingly attaching to Korea to China, that they can build iPhones cheaper than even the cheapest workforce in India, and it's very hard to move from one to the next. And so, I'm just curious that in 2024, we're sort of in this place, the year of democracy, more than half of humanity will have voted on something this year, including in the UK, US, Indonesia, etc. What are the approaches you see going forward here, the reforms, the playbooks, the tactics? How do you create that rapid learning, that kind of decentralization that you've noticed in your book across the world?

Paul Collier:                                          

Sure. I'm a friend of Dani's. This is some very good work. I think, partly, we shouldn't fixate upon manufacturing. By far, most jobs are in the service sector, so in a way, the future lies much more in innovations in the service economy than in the manufacturing economy. I wouldn't dismiss the shift of light manufacturing to remain in low-income countries in Africa. I think the big advantage of a continent like Africa is not just cheap labor, but young labor. It takes us back to demography, which we touched on very briefly, but by the mid-21st century, about a quarter of all young workers will be African. What are young workers really good at? And what are they really bad at? They're really bad at things that require a lot of deep experience, because young people don't have deep experience. So for example, if Africa stays with small farming, small farming needs deep experience to understand risk, all the rest of it, its soil quality, and [inaudible 00:41:12].
                                                     

So Africa has really got to transform its economies away from traditional peasant agriculture. What are young people really good at adopting and adapting? New technologies, new ideas. And we see that again and again in Africa. Google goes Kenya, not to teach the Kenyans what to do, but to learn from Kenya. Africa will be the continent of the young, which is a great place for new activities, whether in manufacturing or services. I think that we shouldn't make too profound the distinction there. As China's wage levels go way, way up, it's turned out to be very profitable, like manufacturing, from China to Ethiopia. So Ethiopia very rapidly, this has only started in 2011, it's only been going since 2011, but very rapidly, they built a cluster around the airport, and that cluster, clusters and value chains are the name of the game now, and that's what Ethiopia has very rapidly built, and it's proving very successful.
                                                     

Now, it was against the advice of the IMF and the World Bank. They've been really slow. They've stuck to a stupid model. They should learn from successes, like Ethiopia, like Rwanda, and is it all autocracy? No. I mean, there's some very exciting developments in democratic Africa. Botswana is, after all, the richest country in Black Africa, and that's a democracy. Zambia, where I'm now working at the moment, Zambia has got a very good, very smart leader, whose basic principle on coming to power, democratically elected with a tidal wave of youth vote, and what was his message? "I'm going to devolve power from Lusaka," the capitol. Zambia is about as highly centralized as Britain with very similar consequences. It's far too centralized, and so the thing that President Hichilema committed to was devolve, devolve, devolve. I wish he was leader in Britain, but that's the same sort of thing, because that's the right message. The distinction, whether it's a democracy or not, is sort of not the key distinction.
                                                     

It is really whether there's a psychology of modesty and learning, willingness to learn, willingness to transform, and a recognition that any process of transformation is highly uncertain, and so it will be a bumpy ride. He can't expect things to get better every year for 25 years. There'll be ups and downs, but the basic arrow needs to be upwards and transformational, and a good leader sells a narrative to a population which gets them onside and sustains the experiment, even when there are rough times as well as good ones. In Zambia, it decided not to rain, and so a lot of the country was hit by drought. That was a terrible blow, but it's not going to stay dry in Zambia forever. And so, these are bits of ill luck. What should be happening is the IMF and World Bank moving in straight away and saying, "Of course, if there's a year of drought, we'll lend you the money that you through that." Did they do that? No. They're slow learners.

Danny Crichton:                                        

So we have slow loners, but I do want to end us on a pause note, which is you have this century of youth coming out in Africa. There is learning in a lot of different polities. My favorite example of this was in Rwanda, the IMF or World Bank, one of these institutions sort of came, and you had this issue around land use rights and who owned the land. And normally, you have to have courts and adjudicators and judges and surveyors and all this infrastructure that a country, like Rwanda post-genocide, just didn't have the money to afford, and so, rather than doing that, they use mobile phones and basically kind of a call market. So anyone in the local area could sort of show up, from the poorest to the richest, and sort of say that, "I have a claim to this or don't have a claim to this."
                                                     

And I think you quote, and I'm doing this from memory, so I apologize if I'm wrong, but it was a couple of bucks a plot. It was a price that, and I always joke about this with some parts of startups and innovation or American governance, where we can't build anything, where we can't even envision the idea that you could plot a piece of land for three bucks. In the United States it'd be tens of thousands of dollars to do a title search, title insurance, and this whole infrastructure that exists. And so, it's just fascinating to me in Africa and a lot of these emerging markets, where there are those stressors and you need a path forward, that there's opportunities for innovation fast learning, and that's why two-thirds of your book is optimistic, and is really positive for left behind places, but with that, Paul left behind a new economics for neglected places. Thank you so much for joining us.

Paul Collier:                                          

Thank you for inviting me. I really enjoyed it.

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